Tax2 Reyes

PM REYES BAR REVIEWER ON TAXATION II
(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the
Latest Supreme Court and CTA Jurisprudence as of January 31, 2013)
This is the second installment of my two-part reviewer Note: Before we discuss Estate Tax, let us discuss the
on taxation. It covers 8 topics, namely: (1) Estate Tax concept of Transfer Taxes.
(2) Donors Tax (3) Tax Remedies (4) Organization and
Functions of the BIR (5) Local Government Taxation Q: What are transfer taxes?
(6) Real Property Taxation (7) Tariff and Customs
Code; (8) Judicial Remedies (CTA). It is a consolidated
and updated version of my reviewers in Tax 2 and
Transfer taxes are those taxes imposed upon the
Taxation Law Review. This reviewer is based on notes privilege granted by the state to the taxpayer so that
from Atty. Montero and Assoc. Dean Gruba and the he may transfer properties, real or personal, without
books and reviewers of Atty. Mamalateo and Atty. consideration.
Domondon. I also added some stuff from Atty. Mickey
Ingles reviewer and Justice Dimaampao. For the Q: What is the nature of transfer taxes?
transfer taxes, I added stuff from Starr Weigands
notes. References have also been made to the 2013
Transfer taxes are excise or privilege taxes that are
Bedan Red Book and the 2012 UP Tax Reviewer.
imposed on the act of passing ownership of property
Further, I added the recent and relevant revenue and not taxes on the property transferred.
regulations and other BIR issuances (especially those
issued in 2012) and the latest SC and CTA Q: What are the kinds of transfer taxes and
jurisprudence (as of January 31, 2013). Most of the define each?
digests were sourced from Du Baladad and
Associates (BDB Law) and from Baniqued & At present, the kinds of transfer taxes are:
Baniqued. The reviewer will make reference to codal
provisions. Thus, I recommend that you read this with
a copy of the NIRC and other Laws Codal (2012
1. Estate tax a tax that is levied, assessed,
edition) by Atty. Sacadalan-Casasola collected and paid upon the transfer of the net
estate of a decedent to his or her heirs.
Possessors may reproduce and distribute my 2. Donors tax - is an excise tax levied, collected,
reviewer provided my name remains clearly and paid upon the privilege of transferring
associated with my work and no alterations in the property gratuitously by way of gift inter vivos by
form and content of my reviewer are made. No any person, resident or non-resident
stamping please.
Note: In 1973, aside from estate and donors tax,
May this reviewer prove useful to you. If it does, inheritance and donees tax were imposed. Inheritance
please share it to others. Happy studying! taxes are imposed on the right of the heirs to receive
property upon death of the decedent. Donees taxes are
--------------------------------------------------------------------------- imposed on the right given to the done to receive property
TABLE OF CONTENTS from a donor during his lifetime. PD No. 69 abolished
--------------------------------------------------------------------------- these two transfer taxes. Today, the recipient of property
by inheritance or donation is no longer liable for transfer
II. NIRC taxes.
B. Estate Tax ................................................. 2
C. Donors Tax ............................................. 18 Q: Differentiate estate tax from donors tax.
D. Value-Added Tax .................................... 25
E. Tax Remedies ......................................... 59 Estate Tax Donors Tax
F. Organization and Function of the Bureau
of Internal Revenue................................... 100 Tax on the privilege to Tax on the privilege to
III. Local Government Code transfer property upon transfer property during
A. Local Government Taxation ................ 104 ones death (mortis ones life time (inter
B. Real Property Taxation ........................ 120 causa) vivos)
IV. Tariff and Customs Code ......................... 137
V. Judicial Remedies (CTA) ......................... 152
Maximum tax rate of Maximum tax rate is
--------------------------------------------------------------------------- estate tax is 20% on net 15% on the net gifts
estates exceeding Php exceeding Php 10 million
10 million and the first and the first Php
Php 200,000 is exempt 100,000 is tax exempt
PIERRE MARTIN DE LEON REYES Page 1 of 164

Ateneo Law Batch 2013 Last Updated: 30 July 2013 (v3)
Estate tax is computed Donors tax is computed Q: What is the basis of the imposition of
on the basis of the net on the basis of net gifts estate tax?
estate transferred at the given during a calendar
time of the death of the year Estate tax is imposed upon the basis of the net
decedent estate of the decedent, considered as a unit,
regardless of the number of shares into which it may
Q: Compare and contrast donation mortis be divided or the relationship of the beneficiaries.
causa and donation inter vivos.
Q: What law shall govern the imposition of
Mortis Causa Inter Vivos estate tax?
Both are transfers without onerous consideration RR 02-2003 [December 16, 2002] reiterates the
well-settled rule that estate taxation is governed by
takes effect upon the takes effect during the the statute in force at the time of the death of the
death of the transferor lifetime of the transferor decedent.
Ownership will pass only Ownership will pass Q: When does the estate tax accrue?
upon death during the donors life
time It accrues upon the death of the decedent. (Section
3, RR 22003 [December 16, 2002]
subject to estate tax subject to donors tax
Q: Is the accrual of the estate tax distinct
Q: What is the law that governs the from the obligation to pay the same?
imposition of transfer taxes?
Yes. The accrual of the tax is distinct from the
obligation to pay the same. Upon the death of the
Transfer taxes are governed by the laws existing at
decedent, succession takes place and the right of
the time the transfer takes place. In particular
the State to tax the privilege to transmit the estate
vests instantly upon death (see RR 02-2003
a. Donations inter vivos are governed by the
[December 16, 2002].
law existing at the time of the effectivity of
the donation since the transfer takes place
Generally, the estate tax is paid at the time the
at that time
estate tax return is filed by the executor,
b. Donations mortis causa are governed by the
administrator or the heirs. The period to file an
law at the time of death because it is at that
estate tax return within six months from the death of
time that the property is transferred.
the decedent except in meritorious cases where an
extension not exceeding 30 days is granted. (see
---------------------------------------------------------- Section 90, Tax Code)
B. ESTATE TAX
---------------------------------------------------------- Q: A died. He left a will which provided that
all real estate shall not be sold or disposed
--------------------------------------------------------------- of 10 years after his death and when such
1. Basic Principles period lapses, the property shall be given to
--------------------------------------------------------------- B. (1) When does the estate tax accrue?
Q: What transfer is subject to estate tax? The estate tax accrues as of the death of the
decedent.
The transfer of the net estate of every decedent,
whether resident or non-resident is subject to estate Q: Based on the same facts as stated above,
tax. B contended that the inheritance tax should
be based on the value of the estate at the
lapse of the 10-year period. Is Bs
contention correct?

3. Provide for an equal distribution of wealth

No, the tax accrues at the time of death 4. It is the most appropriate and effective
notwithstanding the condition. Since death is the method for taxing the privilege which the
generating source from which the power of the State decedent enjoys of controlling the
to impose estate taxes takes its being and if upon dispositions
the death of the decedent, succession takes place 5. It is the only method of collecting the share
and the right of the state to tax vests instantly, the which is properly due to the State as a
tax is to be measured by the value of the estate as it partner in the accumulation of property
stood at the time of the decedents death, regardless which was made possible on account of the
of any postponement of actual possession or any protection given by the State
subsequent increase or decrease in value.
(LORENZO V. POSADAS [JUNE 18, 1937]) Q: Discuss the different theories regarding
the purposes of estate tax.
---------------------------------------------------------------
2. Definition Benefit-received The tax is in return for the
--------------------------------------------------------------- theory services rendered by the state
in the distribution of the estate
Q: Define estate tax? of the decedent and for the
benefits that accrue to the
An estate tax is a graduated tax imposed on the estate and the heirs
privilege of the decedent to transmit property at
death and is based on the entire net estate, State- The tax is in the share of the
regardless of the number of heirs and relations to partnership state as a passive and silent
the decedent. theory partner in the accumulation of
property
It is a tax levied, assessed, collected and paid upon
the privilege of gratuitously transferring the net Ability to Pay The tax is based on the act that
estate of a decedent to his heirs. Theory the receipt of inheritance
creates the ability to pay and
--------------------------------------------------------------- thus contribute to governmental
3. Nature income
---------------------------------------------------------------
Redistribution The tax is imposed to help
of wealth theory reduce undue concentration of
Q: What is the nature of the estate tax? wealth in society to which the
receipt of inheritance is a
The Estate Tax is
contributing factor
a. It is not a tax on property
b. It is a tax imposed on the privilege to
---------------------------------------------------------------
transmit property a death and is measured
by the value of the property. 5. Time and transfer of properties
---------------------------------------------------------------
---------------------------------------------------------------
4. Purpose or object Q: When are properties and rights
--------------------------------------------------------------- transferred to successors?
The properties and rights are transferred to the

Q: What are the purposes for imposing the
successors at the time of death of the decedent (Art.
estate tax? 777, NCC).
The generally accepted purposes for imposing the However, despite the transfer of properties and
estate tax are as follows: rights at the time of death, the executor or
administrator shall not deliver a distributive share to
1. To generate additional revenue for the any party interested in the estate unless there is a
government
2. To reduce the concentration of wealth

certification from the CIR that estate tax has been 8. Determination of gross estate and net
paid. (see Section 94, Tax Code) estate
---------------------------------------------------------------
Note: In the determination of the estate tax, you should
note 4 things: (1) The classification of the decedent based
on nationality and/or domicile (2) The nature and the Read Section 85, 1
location of the assets (3) The computation and valuation of
the assets (which includes deductions) and (4) Rates. Q: How is gross estate determined?
--------------------------------------------------------------- Decedent Determination of gross
6. Classification of decedent estate
---------------------------------------------------------------
Resident Citizen, All properties, real or
Q: Who are the taxpayers liable to pay Non-resident personal, tangible or
estate tax? Citizen, Resident intangible, wherever
Alien situated, plus items
1. Resident citizens includible in gross estate
2. Non-resident citizens
3. Resident alien Non-Resident Alien Only those properties
4. Non-resident alien situated in the Philippines
provided that with respect to
Note: Only natural persons can be held liable for estate intangible personal property,
tax. A corporation cannot be liable for the obvious reason its inclusion in the gross
that they cannot die (naturally speaking). estate is subject to the rule
of reciprocity under Section
--------------------------------------------------------------- 104 of the Tax Code
7. Gross estate vis--vis net estate
--------------------------------------------------------------- (See Section 4, RR No. 2-2003 [December 16,
2002])
Q: Distinguish Gross Estate from Net Estate
Read Section 104, Tax Code
Gross Estate Net Estate
The value of all the The value of the gross Q: What is the rule in determining the situs
property, real or estate less the ordinary of intangible personal property for estate tax
personal, tangible or and special deductions purposes?
intangible, of the (see Section 86, Tax
decedent wherever Code) As a general rule, we apply the principle of res
situated to the extent of mobilia sequuntur personam (chattels follow the
his interest at the time of person). In other words, the intangible property is
his death as well as taxed based on the domicile of the owner.
other items includible in
the gross estate (See However, SECTION 104 provides that certain
Section 85, Tax Code) intangibles be deemed located in the Philippines,
namely:
Note: In the case of a non-
resident alien decedent, 1. Franchises being exercised in the
only that part of the entire Philippines
gross estate which is
2. Shares, obligations, or bonds issued by
situated in the Philippines
shall form part of his gross domestic corporations, or partnerships,
estate. business or industry located in the
Philippines
--------------------------------------------------------------- 3. Shares, obligations or bonds issued by
foreign corporations

a. at least 85% of the business of Non-Resident Alien Net estate is equal to gross
which is located in the Philippines; estate less ordinary
or deductions and exclusions
b. which have acquired situs in the allowed by law
Philippines
4. All intangibles owned by residents Note: Non-resident alien
decedent cannot avail of
Q: What is meant by reciprocity as applied special deductions.
to intangibles of a non-resident alien for
estate tax purposes? ---------------------------------------------------------------
9. Composition of gross estate
As provided in Section 104, there is reciprocity if the ---------------------------------------------------------------
foreign country of which the decedent was a citizen
or resident at the time of his death: Read Section 85, 1 and Section 104, Tax
Code
1. Did not impose an estate tax; or
2. Allowed a similar exemption from estate tax Q: What does the gross estate of a decedent
with respect to intangible personal property consist of?
owned by Filipino citizens not residing in that
foreign country. Decedent Composition of gross
estate
Q: Must there be total reciprocity?
Resident Citizen, 1. Real property within and
Yes. In COLLECTOR OF INTERNAL REVENUE V. FISHER Non-resident without the Philippines
[JANUARY 28, 1961], at issue is whether the shares Citizen, Resident 2. Tangible personal
of stock of a nonresident alien in a domestic mining Alien property within and
company can be exempted from estate tax pursuant without the Philippines
to the reciprocity proviso in the Philippine Tax Code. 3. Intangible personal
The Supreme Court held in the negative. Reciprocity property within and
must be total. If any of the two states collects or without the Philippines
imposes or does not exempt any transfer, death,
legacy, or succession tax of any character, the Non-Resident Alien 1. Real property within the
reciprocity does not work. In this case, the Philippines
Philippines imposed an estate and an inheritance 2. Tangible personal
tax at the time while California imposed only property within the
inheritance tax. Philippines
3. Intangible personal
Q: How is net estate determined? property within the
Philippines unless there
Decedent Determination of net estate is reciprocity in which
case it is not taxable
Resident Citizen, Net estate is equal to gross
Non-resident estate less ordinary and
Citizen, Resident special deductions and Note: In sum, all assets, real or personal, tangible or
Alien exclusions allowed by law intangible wherever located of a citizen and resident
alien is subject to estate tax while for nonresident aliens,
Note: The special estate tax is imposed only on properties within the
deductions (FSMA) are: (1) Philippines provided in the case of intangible personal
Family Home; (2) Standard property, it is subject to the rule of reciprocity under
Section 104 of the Tax Code.
deduction (3) Medical
expenses and (4) Amount
received by heir under RA
4917.

Q: How do you value the estate for estate b. Transfers in contemplation of death
tax purposes? c. Revocable transfers
d. Property under general power of
The properties comprising the gross estate shall be appointment
valued based on their fair market value as of the e. Proceeds of a life insurance taken out by the
time of death. decedent upon his own life where the
beneficiary is the estate, his executor or
Q: For purposes of estate taxation, how is administrator irrespective of whether or not
insured retained power of revocation or any
the fair market value of the following
beneficiary designated as recovable
properties determined? f. Transfers for insufficient consideration
Real Property Fair market value determined by: Note: These are considered substitutes for testamentary
dispositions. Although inter vivos in form, they are mortis
1. the CIR (zonal value) or causa in substance. Note that in all these transfers, if they
2. that shown in the schedule of were made for a bona fide consideration, they shall not
values fixed by Provincial and form part of the gross estate.
City Assessors, whichever is
higher Decedents Interest
Shares of If unlisted:
Stock Read Section 85(A)
1. Unlisted common shares are
valued based on their book Q: What does the decedents interest
value include?
2. Unlisted preferred shares are
valued at par value. It includes any interest having value or capable of
being valued, transferred by the decedent at his
If listed: death
The fair market value shall be the Transfer in contemplation of death

arithmetic mean between the
highest and lowest quotation at a Read Section 85(B)
date nearest the date of death, if
none is available on the date of Q: When is a transfer considered one made
death itself. in contemplation of death?
Usufructuary, The probable life of the
use or beneficiary in accordance with the A transfer is considered made in contemplation of
habitation, latest basic standard mortality death when the impelling motive or reason for the
annuity table shall be taken into account transfer is the thought of death, regardless of
whether the transferor is near the possibility of death
Improvement 1. The construction cost per or not.
building permit or
2. FMV per latest tax declaration Note: The presumption that transfers made within three
years before death are made in contemplation of death as
(See SECTION 88, TAX CODE AND SECTION 5, RR 02- provided under PD 1705 is no longer applicable.
2003]
Q: What factors should be considered in
--------------------------------------------------------------- determining whether a transfer was made in
10. Items to be included in gross estate contemplation of death?
---------------------------------------------------------------
One should consider the following:
Q: What items/transfers should be included 1. The type of heir (whether compulsory or
in the gross estate? voluntary)
2. The timing of the transfer
a. Decedents interest at the time of death 3. Other special factors

and Z. The CIR contends that such transfers

Q: What is the relevance of the type of heir should form part of the gross estate for
in determining if the transfer was made in purposes of estate taxation. Is the CIR
contemplation of death? correct?
When there is a donation inter vivos is made to a No. The donation inter vivos was made to a legatee
person who is not a forced heir, the presumption is who is not a forced heir. Thus, absent any evidence
that such transfer is a donation inter vivos. to the contrary, the presumption holds that such
transfer is a donation inter vivos. Such being the
However, if the recipient of the property is a forced case, the transfer shall not form part of the gross
heir, the presumption is that such transfer was made estate (see TUASON V. POSADAS [JANUARY 23,
to accelerate inheritance and hence, such transfer is 1930]).
mortis causa. This presumption may be rebutted by
evidence to the contrary. (see VIDAL DE ROCES V. Q: Using the same facts above, it was
POSADAS [M ARCH 13, 1933]) determined that the transfer was made three
months before his death. Will the transfer
Q: Name some instances/factors which form part of the gross estate?
would disprove the claim that the transfer
was made in contemplation of death. Yes. In VIDAL DE ROCES V. POSADAS [M ARCH 13,
1933], the decedent died without forced heirs but
When the reason for the transfer was the desire of instituted a certain person as a legatee in his will.
the decedent to: The presumption that such transfer was a donation
inter vivos did not hold because of the timing of the
1. see his children enjoy the property while the transfer, which was a short period before death.
donor is still alive
2. save income of property taxes Q: Prior to his death, A gave his son B a
3. settle family disputes parcel of land through a deed of donation.
4. relieve donor from administrative burden
Upon As death, the CIR contends that the
5. to reward services rendered
6. to provide independent income for transfer should form part of the gross estate
dependents for purposes of estate taxation. Is the CIR
correct?
In GESTOPA V. CA [OCTOBER 5, 2000], the Supreme
Court enumerated some indications that the transfer Yes. Since the recipient of the property, the son, is a
was a donation inter vivos, to wit: forced heir, the presumption is that such transfer
was made in contemplation of death. Thus, the
1. Property was donated out of love and transfer should form part of the gross estate. (see
affection DIZON V POSADAS [NOVEMBER 4, 1933])
2. When a reservation on the donation is made
only with respect to the right of usufruct Q: During his lifetime, Father Z donated
which denotes naked ownership was some of his property to A, B, C on the
already transferred condition that they provide him rice and
3. When the transferors retained sufficient money every year. Father Z died. The CIR
property only for the purpose of maintaining contends that the transfers should form part
their status in life, thereby implying that it of the gross estate of Father Z. Is the CIR
was alright to part with the property even
correct?
during the transferors lifetime
4. Donee accepted the donation since in a
No. In donations inter vivos, as in the present case,
donation mortis causa acceptance is not
the donees acquired the right to the property while
required.
the donor was still alive, subject only to their
acceptance and the condition that they pay the
Q: A donated parcels of land to X, Y, and Z. donor rice and/or money. (see ZAPANTA V. POSADAS
A died without any forced heir. In her well, [DECEMBER 29, 1928])
she bequeathed personal property to X, Y,

Recovable Transfers Proceeds of Life Insurance

Read Section 85(C) Read Section 85(E)
Q: What is a revocable transfer? Q: When shall proceeds of the life insurance

of the decedent form part of his gross
A revocable transfer is a transfer where the estate?
transferor has reserved his right to alter, amend or
revoke such transfer, regardless of whether the They shall form part of the gross estate if the
power is actually exercised or not during his lifetime beneficiary is:
and whether the power should be exercised by him
alone or in conjunction with someone else. To the 1. The estate of the deceased, his executor or
extent of any interest therein, it forms part of the administrator, irrespective of whether the
gross estate of the decedent. insured retained the power of revocation
2. Any beneficiary (third person) designated in
Property under General Power of the policy as revocable
Appointment
Note: (1) If the policy expressly stipulates that the
Read Section 85(D) designation of the beneficiary is irrevocable, then the
amount of the proceeds shall not be included in the gross
estate.
Q: Differentiate the estate tax treatment of
property passing under a general power of (2) It is revocable when the beneficiary may still be
appointment and one under a special power changed and the decedent has still retained interest in the
of appointment. policy. It is irrevocable when the beneficiary may no longer
be changed as they have acquired a vested interest. For
third persons whose designations are irrevocable, the
Kind of Nature Tax Treatment
proceeds of life insurance shall not form part of the gross
appointment estate. If it is revocable, it shall form part of the gross
estate.
General Donor gives the Shall form part
donee the power of the gross Transfers for Insufficient Consideration
to appoint any estate
person as Read Section 85(G)
successor to
enjoy the
Q: What are transfers for insufficient
property.
consideration?
Special Donor gives the Shall not form
Transfers for insufficient consideration are those
donee the power part of the
transfers that are not bona fide sales of property for
to appoint a gross estate
an adequate and full consideration in money or
person within a
moneys worth.
limited group to
succeed in the
The excess of the fair market value at the time of the
enjoyment of the
death over the value of the consideration received
property
by the decedent shall form part of his gross estate.
Note: (1) The rule on transfer for insufficient

consideration applies to (a) Transfers in contemplation of
death (b) Revocable transfers and (c) Transfers under
general power of appointment.
(2) As a numerical example

Note: Nonresident aliens cannot avail of the special

Example 1 Example 2 deductions.
FMV at time of transfer 100 100
FMV at time of death 200 200 Expenses, losses, indebtedness, taxes, etc
Consideration received 70 100 (ELIT)
at time of transfer
Amount included in 30 0 Read Section 86(A)(1)
estate
In determining whether there was sufficient consideration,

Funeral expenses
compare the FMV of the property at the time of the
transfer with the amount of consideration received at the Q: What the conditions for the deductibility
time of the transfer. However, the amount to be included in of funeral expenses?
the estate is computed by taking the difference between
the FMV of the property at the time of death and the
1. Whether paid or unpaid
amount of consideration received at the time of transfer.
2. Up to the time of interment
Example 1: Since the property was sold for 30 less than its 3. The actual amount or in an amount equal to
FMV at the time of the transfer, there is insufficient 5% of the gross estate, whichever is lower,
consideration. Hence, the difference between the but in no case to exceed P200,000
consideration received and the FMV at time of death shall
form part of the gross estate. Note: (1) Actual funeral expenses shall mean those which
are actually incurred in connection with the interment or
Example 2: This is not a transfer for insufficient burial of the deceased. The expenses must be duly
consideration, hence, it shall not form part of the gross supported by receipts or invoices or other evidence to
estate. This is a bona fide sale for an adequate and full show that they were actually incurred.
consideration in moneys worth.
(2) The amount in excess of the P200,000 threshold shall
--------------------------------------------------------------- not be allowed as a deduction nor will it be allowed to be
11. Deductions from estate claimed as a deduction under claims against the estate.
---------------------------------------------------------------
Q: A died leaving an estate valued at
Q: Enumerate the deductions from the gross P20,000,000. His heirs spent P500,000 for all
estate. the funeral services. How much should be
allowed as a deduction?
The deductions from the gross estate are:
The amount deductible is only P200,000. To
1. Ordinary deductions determine amount deductible, compare P500,000
a. Expenses, losses, indebtedness, taxes, and P1,000,000 (5% of P20 million). The lower
etc (ELIT) amount is P500,000. However, it is beyond the
i. Funeral expenses P200,000 threshold. Thus, only P200,000 will be
ii. Judicial expenses allowed as a deduction.
iii. Claims against the estate
iv. Claims against insolvent persons
v. Unpaid mortgage or indebtedness Q: Give some examples of funeral expenses
on property that are deductible
vi. Taxes
vii. Losses 1. The mourning apparel of the surviving
b. Vanishing Deduction spouse and unmarried minor children of the
c. Transfer for public use deceased, bought and used on the occasion
2. Special deductions (FSMA) of the burial
a. Family home 2. Expenses for the deceaseds wake,
b. Standard deduction including food and drinks
c. Medical expenses 3. Publication charges for death notices;
d. Amount received by heir under RA 4917 4. Telecommunication expenses incurred in
informing relatives of the deceased;

5. Cost of burial plot, tombstones, monument Q: Give some examples of judicial expenses
or mausoleum but not their upkeep. In case
the deceased owns a family estate or Judicial expenses may include:
several burial lots, only the value
corresponding to the plot where he is buried 1. Fees of executor or administrator;
is deductible; 2. Attorneys fees;
6. interment and/or cremation fees and 3. Court fees;
charges; and 4. Accountants fees;
7. All other expenses incurred for the 5. Appraisers fees;
performance of the rites and ceremonies 6. Clerk hire;
incident to interment. (See RR 2-2003 7. Costs of preserving and distributing the
[December 16, 2002]) estate;
8. Costs of storing or maintaining property of
Q: Give some examples of funeral expenses the estate; and
that are not deductible 9. Brokerage fees for selling property of the
estate. (RR 2-2003)
1. Expenses incurred after the interment, such
as for prayers, masses, entertainment, or In CIR V. CA AND PAJONAR [M ARCH 22, 2000], the
the like. Supreme Court held that expenses incurred in the
2. Any portion of the funeral and burial extrajudicial settlement of the estate should be
expenses borne or defrayed by relatives and allowed as a deduction from the gross estate. It is
friends of the deceased. sufficient that the expense be a necessary
3. Medical expenses as of the last illness (See contribution toward the settlement of the estate. The
RR 2-2003 [December 16, 2002]) notarial fee paid for the extrajudicial settlement is
deductible since such settlement effected a
Note: As to (3) This should instead be claimed as part of distribution of the decedents estate to his lawful
the deduction for medical expenses. heirs. The attorneys fees in the guardianship
proceedings of the insane deceased is also
Judicial expenses deductible as it essential to the proper settlement of
the estate, to preserve the properties of the
Q: What are the requisites for the deceased.
deductibility of judicial expenses?
In Lorenzo v. Posadas [June 18, 1937], the
Judicial expenses to be deductible Supreme Court held that compensation of the
trustee earned, not in the administration of the
1. Must be incurred during the settlement of estate, but in the management thereof for the benefit
the estate but not beyond the last day of the legatees or devisees, does not come within
prescribed by law (within 6 months from the the class or reason for exempting administration
date of death of the decedent) or the expenses. Service rendered in behalf that behalf has
extension thereof (in meritorious cases, the no reference to closing the estate for the purpose of
CIR may grant reasonable extension not a distribution thereof to those entitled to it, and is not
exceeding 30 days) for the filing of the required or essential to the perfection of the rights of
estate tax return. the heirs or legatees.
In De Guzman v. De Guzman-Carillo [May 18,

2. The judicial expenses are incurred in: 1978], the Court allowed the following expenses as
proper expenses for administration of the estate of
a. Inventory-taking of assets comprising the deceased: expenses for the renovation and
the gross estate improvement of the family home, expenses for the
b. Administration lawyers subsistence and physician of the deceased
c. Payment of debts of the estate during his last illness, and irrigation fees. However,
d. The distribution of the estate among the expenses which inured to the benefit of only one heir
heirs (RR 2-2003) were not allowed. Further, the expenses for
stenographic notes, and celebration of the one year

death anniversary were not allowed as they had any legislative intent in our tax laws, which
nothing to do with the administration of the estate. disregards the date-of-death valuation principle
which is the US rule on deductions. The amount
Claims against the estate deductible is the debt which could have been
enforced against the deceased in his lifetime,
Q: What are claims against the estate? nothing more and nothing less (DIZON V. CIR [APRIL
30, 2008])
These are debts or demands of pecuniary nature
Note: In sum, post-death developments should not be
which could have been enforced against the considered in determining the net value of the estate
deceased in his lifetime and could have been
reduced to simple money judgments. It may arise
Q: What are the requirements to substantial
out of:
the claims?
1. Contract
2. Tort In case of a. Instrument must be duly
3. Operation of law simple loan notarized
b. Duly notarized Certification
from the creditor
Q: What are the requisites for deductibility
c. Proof of financial capacity of the
of claims against the estate? creditor to lend;
d. Statement under oath executed
1. Must be a personal obligation of the by the executor/administrator of
deceased existing at the time of his death the estate reflecting the
except those incurred incident to his death disposition of the proceeds of
or those medical expenses the loan (if the loan was
2. Liability must have been contracted in good contracted within 3 years prior
faith to the death of the decedent)
3. The claim must be a debt or claim which is
valid in law and enforceable in court
In unpaid a. Pertinent documents
4. Indebtedness not condoned by the creditor
obligation evidencing the purchase of
or the action to collect from the decedent
arose from goods or service
must not have prescribed purchase of b. Duly notarized Certification
goods or from the creditor as to the
Q: There were claims against the estate of services unpaid balance of the debt,
the deceased which allegedly exceed the including interest as of the time
gross estate which resulted in the of death;
administrator reporting no estate tax c. Certified true copy of the latest
liability. The BIR contested the amounts of audited balance sheet of the
the claims against the estate deductions creditor
stating that lower amounts were paid as
compromise payments during the
settlement of the estate and these amounts
should be what will be considered in Claims against insolvent persons
arriving at the net estate. Will the
compromise amounts be the amounts Q: What are the requisites for claims against
considered as deductions to the gross insolvent persons to be deductible?
estate?
1. The amount has been initially included as
part of the gross estate; and
No, the deduction allowable is that amount
2. The incapacity of the debtors to pay their
determined at the time of death. Post-death
obligations is proven, not merely alleged.
developments are not material in determining the
amount of deduction, especially for the claims
against the estate deduction. There is no law, nor

Unpaid mortgage or indebtedness on Losses

property
Q: What are the requisites for losses to be
Q: What are the requisites for unpaid deductible from the gross estate?
mortgages to be allowed as a deduction?
Losses are deductible:
1. The FMV of the property mortgaged without 1. were incurred during the settlement of the estate
deducting the indebtedness has been 2. arose from fires, storms, shipwreck or other
initially included as part of the gross estate; casualties or from robbery, theft or
and embezzlement
2. The mortgage indebtedness was contracted 3. are not compensable
in good faith and for an adequate and full 4. are not claimed as deduction for income tax
consideration in money/moneys worth. purposes
5. were incurred not later than the last day for
payment of the estate tax
Taxes
Vanishing Deduction
Q: What are the requisites for unpaid taxes
to be deductible? Read Section 86(A)(2), Tax Code
1. Taxes which have accrued as of or before Q: What is a vanishing deduction?

the death of the decedent; and
2. Unpaid as of the time of his death, A vanishing deduction is a deduction allowed on the
regardless of whether or not it was incurred property left behind by the decedent which he had
in connection with trade or business acquired previously by inheritance or donation
Note: This deduction will not include: (1) income tax upon Note: The rationale is to minimize the effects of double
income received after death, or (2) property taxes not taxation on the same property within a short period of
accrued before his death, or (3) the estate tax due from time; the law allows a deduction to be claimed on the said
the transmission of his/her estate. These shall be property.
chargeable against the income of the estate because it
accrued after the death of the decedent. Q: What are the conditions for the
deductibility of property previously taxed or
Q: Are claims for taxes against the estate vanishing deduction?
not filed in time barred forever?
1. Death
No. As a general rule, all claims for money against 2. Identity of property (the property with
the decedent, arising from contracts, express or respect to which deduction is sought can be
implied, whether the same be due, not due, or identified as the one received from the prior
contingent, all claims for funeral expenses and decedent)
expenses for the last sickness of the decedent, and 3. Inclusion of the property (the property must
judgment for money against the decedent, must be form part of the gross estate situated in the
filed within the time limited in they notice; otherwise Philippines of the prior decedent or was a
they are barred forever. taxable gift of the donor)
4. Previous taxation of property (Estate tax or
However, as an exception, taxes assessed against donors tax due thereon must have been
the estate of a deceased person need not be paid)
submitted to the committee on claims in the ordinary 5. No vanishing deduction on the property was
course of administration. They may be collected allowed to the estate of the prior decedent
even after the distribution of the decedents estate
among his heirs who shall be liable therefore in
proportion of their share in the inheritance. (Vera v.
Fernandez [March 30, 1979])

Q: What are the conditions for the 2. The total value of the family home must be
deductibility of property previously taxed or included as part of the gross estate
3. Allowable deduction must be in an amount
vanishing deduction? equivalent to:
a. the current FMV of the family home as
1. Determine the FMV of the PPT at the time of declared or included in the gross estate or
the prior decedents death and the FMV at b. the extent of the decedents interest
the time of the present decedents death (whether conjugal/community or exclusive
then get the lower of these two amounts property), whichever is lower
2. Prorate: 4. The deduction not exceed Php 1,000,000.
Standard deduction
Read Section 86(A)(5)

Note: Total deductions do not include the special
deductions (FSMA)
3. Subtract 2 from 1 Q: What is the standard deduction?

4. Apply the rate of vanishing deduction to 3
above. The standard deduction shall be Php 1,000,000
without need of substantiation.
Note: Let us have a numerical example. In 2000, A
inherits a land valued at P500,000. In 2003, A died with
the said land having a value of P600,000. His gross estate Medical expenses
amounted to P2 million. His allowable deductions
amounted to P400,000 Read Section 86(A)(6)
500,000 ( Q: What are the requisites for deductibility
of medical expenses?
= 400,000 1. The expenses were incurred by the decedent
= 400,000 x 60% = P240,000 within 1 year prior to his death
2. The expenses are duly substantiated with
Transfer for public use receipts
3. The deductible expense shall not exceed Php
500,000
Read Section 86(A)(3), Tax Code
Note: The amounts of medical expenses incurred in
Q: What are allowed deductions as excess of P500,000 shall no longer be allowed as a
Transfers for Public Use? deduction for medical expenses. Neither can any unpaid
amount thereof in excess of the P500,000 threshold nor
The deduction on transfers for public purpose refers any unpaid amount for medical expenses incurred prior to
the one-year period from date of death be allowed to be
to the amount of all bequests, legacies, devises, or
deducted from the gross estate as claim against the estate
transfers to or for the use of the Government or any (see Section 6, RR 2-2003)
political subdivision thereof, for exclusively public
purposes,
Amount received by heir under RA 4917
Family home Read Section 86(A)(7), Tax Code
Read Section 86(A)(4), Tax Code Q: Discuss the deductibility of amounts
received by heirs under RA 4917.
Q: What are the requisites for deductibility
of a family home? Amounts received from the decedents employer as
a consequence of the death of the decedent-
1. The family home must be the actual residential employee as retirements benefits under RA 4917
home of the decedent and his family at the time (An Act Providing that Retirement Benefits of
of his death as certified by the barangay captain
Employees of Private Firms shall not be subject to

any Tax whatsoever) is allowed as a deduction 2. Special deductions

provided that the amount of benefit is included in the (FSMA)
gross estate. a. Family home
b. Standard
Net share of the Surviving Spouse deduction
c. Medical
Read Section 86(C), Tax Code expenses
d. Amount
received by heir
Deductions allowed to Non-Resident Estate under RA 4917
3. Share in conjugal
Read Section 86(B) to (D), Tax Code property
---------------------------------------------------------------
Q: What may be deducted from the gross 12. Exclusions from estate
estate of non-resident aliens? ---------------------------------------------------------------
Citizen or Resident Non-resident alien Q: What are the exclusion from the gross
Alien Decedents decedents estate?
Gross Estate - all Gross Estate includes 1. The capital (exclusive property) of he
property at the time of only that part of the gross surviving spouse is considered as an
death, wherever estate located in the exclusion in the gross estate under Section
situated. Philippines 85(H) of the Tax Code
Note: Under Section 86(C), the share of the

Deductions: Deductions: surviving spouse n the absolute
1. Ordinary deductions 1. Ordinary deductions community/conjugal partnership is considered as
a. Expenses, 2. Share in conjugal a deduction
losses, property
indebtedness, 2. Other items which are excluded:
taxes, etc Note: (1) Non-resident alien a. GSIS proceeds/benefits
(ELIT) decedent cannot avail of b. Accruals from SSS
i. Funeral special deductions. c. Proceeds of life insurance where the
expenses (2) No deduction shall be beneficiary is irrevocably appointed
allowed unless the executor, d. Proceeds of life insurance under a
ii. Judicial administrator, or anyone of
expenses group insurance taken by employer (not
the heirs as the case may be
iii. Claims includes in the estate tax taken out upon his life)
against the return of the decedent, the e. War damage payments
estate value at the time of his death f. Transfer by way of bona fide sales
iv. Claims that part of the gross estate g. Transfer of property to the government
against of the non-resident not or to any of its political subdivisions
insolvent situated in the Philippines h. Merger or usufruct in the owner of the
persons (Section 86(D), Tax Code) naked title
v. Unpaid i. Properties held in trust by the decedent
mortgage or j. Acquisition and/or transfer expressly
indebtedness declared as not taxable
on property
vi. Taxes ---------------------------------------------------------------
vii. Losses 13. Tax credit for estate taxes paid in a
b. Vanishing foreign country
Deduction ---------------------------------------------------------------
c. Transfer for
public use

Read Section 86(E), Tax Code Q: What are the acquisitions and transfers
expressly declared as exempt?
Note: It is a remedy against international double taxation.
to minimize the onerous effect of taxing the same property 1. Merger of the usufruct in the owner of the
twice, tax credit against Philippine estate tax is allowed for naked property
estate taxes paid to foreign countries. 2. Transmission or delivery of the inheritance
or legacy by the fiduciary heirs or legatee to
Q: Who may avail of tax credit? the fideicomissary
3. Transmission from the first heirs, legatees or
1. Citizen donees in favor of another beneficiary in
2. Resident alien accordance with the desire of the testator
4. All bequests, devises, legacies or transfers
to social welfare, cultural and charitable
Q: What is the amount allowable as a Tax institutions, no part of the income of which
Credit? inures to the benefit of any individual,
provided that not more than 30% of the said
The estate tax imposed by the Philippines shall be bequests, devises, legacies or transfers
credited with the amounts of an estate tax imposed shall be used for administrative purposes
by the authority of a foreign country.
Note: The bequest, devises, legacies, or transfers does
However, the amount of tax credit is subject to the not include those made to educational institutions.
following limitations:
Now, I want to show how we compute estate tax due and
1. Per country basis: The amount of the credit payable.
in respect to the tax paid to any country shall
not exceed the same proportion of the tax Q: How is estate tax computed?
against which such credit is taken which the
decedents net estate situated within such 1. List down all the common (conjugal or
country taxable under the NIRC bears to his community) property
entire net estate. 2. List down all the separate or exclusive
property of the decedent (exclude the
Note: To best illustrate: separate or exclusive property of the
surviving spouse)
3. Include the family home either in (a) or (b),
depending on the status of the house and lot
4. The resulting total is the gross estate
2. Overall basis: The total amount of the credit 5. Deduct the appropriate deductions
shall not exceed the same proportion of the 6. The resulting balance is the net estate
tax against which such credit is taken, which 7. Deduct the special deductions: (1) share of
the decedents net estate situated outside the surviving spouse (1/2) of the net
the Philippines taxable under the NIRC common properties and (2) family home
bears to his entire net estate. 8. The resulting balance is the taxable net
estate
Note: To best illustrate: 9. Compute the estate tax using the graduated
estate tax rates
10. Deduct any tax credits
11. The resulting balance is the estate tax due
and payable
---------------------------------------------------------------
14. Exemption of certain acquisitions and
transmissions
---------------------------------------------------------------

Note: To best illustrate or registerable property such as real

property, motor vehicle, shares of stock or
Conjugal community property other similar property for which a clearance
+ Separate property of decedent from the BIR is required as a condition
= Gross Estate
precedent for the transfer of ownership
thereof in the name of the transferee.
Less: Allowable deductions, conjugal/community
deductions, separate/exclusive deductions Q: When should the estate tax return be
filed?
= Net Estate
General Rule: Within 6 months from the death of
Less: Special deductions
decedent
= Taxable Net Estate
Multiplied by estate tax (per graduated rates) Exceptions: The CIR, in meritorious cases, grant an
extension not exceeding 30 days for filing the return.
Less: Tax Credits
Other Administrative Requirements
= Estate Tax due and payable
--------------------------------------------------------------- Read Section 91-97, Tax Code

15. Filing of notice of death
--------------------------------------------------------------- Q: When should the estate tax be paid?
Read Section 89, Tax Code General Rule: At the time the return is filed by the
executor, administrator or the heirs
Q: When is notice of death required to be Exception: The CIR, if he finds that the payment on
given to the BIR? the due date would impose undue hardship, may
grant an extension of:
1. In all cases of transfers subject to tax; or 1. Not to exceed 5 years in case the estate is
2. Where, though exempt from tax, the gross settled judicially
value of the estate exceeds P20,000 2. Not to exceed 2 years in case the estate is
settled extrajudicially
Q: If required, when shall the notice of death
be given? Q: Who is liable for the payment of the
estate tax?
1. Within 2 months after the death of the
decedent; or The estate tax imposed under the Tax Code shall be
2. Within a like period after the executor or
paid by the executor or administrator before the
administrator or executor qualifies as such. delivery of the distributive share in the inheritance to
any heir or beneficiary.
---------------------------------------------------------------
In CIR V. GONZALES [NOVEMBER 24, 1966], the
16. Estate Tax Return
Supreme Court held that estate taxes are satisfied
-------------------------------------------------------------- from the estate and are to be paid by the executor or
administrator. Where there are 2 or more executors,
Read Section 90, Tax Code all of them are severally liable for the payment of the
estate tax. Failure to pay the estate taxes before
Q: When is an estate tax return required? distribution of the estate would subject the executor
or administrator to criminal liability. It is immaterial
1. When the estate is subject to estate tax that an heir administers only 1/3 of the estate and
2. When, though exempt from tax, the gross will receive as her share only said portion, for her
value of the estate exceeds Php 200,000 right to the estate comes after taxes. As an
3. Regardless of the gross value of the estate administratrix, she is liable for the entire estate tax.
when the said estate consists of registered As an heir, she is liable for the entire inheritance tax

although her liability would not exceed the amount of the pertinent remedial laws that implies the
her share in the estate. necessity of the probate or estate settlement court's
approval of the state's claim for estate taxes, before
Q: May estate tax be collected even after the the same can be enforced and collected.
distribution to the heirs?
Q: What is the duty of a bank in case of the
Yes. As held in GOVERNMENT V. PAMINTUAN death of a decedent-depositor?
[OCTOBER 11, 1930], a claim for taxes and
assessments whether assessed before or after the General Rule: If a bank has knowledge of the death of a
death of the decedent, is not required to be person, who maintained a bank deposit account alone, or
jointly with another, it shall not allow any withdrawal from
presented to the committee on claims and the said deposit account, unless the Commissioner has
appraisals. The Heirs are liable for the deficiency certified that the estate taxes imposed thereon have been
income taxes, in proportion to their share in the paid.
inheritance.
Exception: The administrator of the estate or any one (1)
As held in CIR V. PINEDA [SEPTEMBER 15, 1967], an of the heirs of the decedent may, upon authorization by
heir is individually answerable for the part of the tax the Commissioner, withdraw an amount not exceeding
proportionate to the share he received from the Twenty thousand pesos (P20,000) without the said
inheritance. His liability, however, cannot exceed the certification.
amount of his share. On the other hand, a holder of
property belonging to the estate is liable for the tax Q: A died and B (wife) tried to withdraw the
up to the amount of the property in his possession. joint savings deposit they maintained at the
PNB Tarlac but failed because C, who
Q: How can the BIR recover such unpaid tax claimed to be the couples adopted child,
liabilities? objected thereto. C claims that B cannot
withdraw any amount from the bank account
The BIR can recover in 2 ways: because she should follow legal procedures
1. It may recover said liability from all the heirs governing settlement of the estate of a
who shall share proportionately; or deceased, unless a competent court issues
2. It may go against the property held by an an order allowing her to withdraw invoking
heir if the same is sufficient to cover the Section 97 of the Tax Code. Can the money
whole tax liability (in which case, the heir be released to B?
who paid can seek reimbursement from
his/her co-heirs) CIR V. PINEDA [SEPTEMBER No. Section 97 of the National Internal Revenue
15, 1967] Code states: If a bank has knowledge of the
death of a person, who maintained a bank deposit
Note: In both instances, the respective heirs may not be account alone, or jointly with another, it shall not
held accountable for more than the share he/she inherited. allow any withdrawal from the said deposit account
unless the Commissioner had certified that the taxes
Q: Is the approval of the probate court or the imposed thereon by this Title have been
court settling the estate of the decedent a paid; Provided, however, That the administrator of
mandatory requirement in the collection of the estate or any one (1) of the heirs of the decedent
the estate tax? may, upon authorization by the Commissioner,
withdraw an amount not exceeding Twenty thousand
No. As held in M ARCOS II V. CA [JUNE 5, 1997], it is pesos (P20,000) without the said certification. For
discernible that the approval of the court, sitting in this purpose, all withdrawal slips shall contain a
probate, or as a settlement tribunal over the statement to the effect that all of the joint depositors
deceased is not a mandatory requirement in the are still living at the time of withdrawal by any one of
collection of estate taxes. It cannot therefore be the joint depositors and such statement shall be
argued that the Tax Bureau erred in proceeding with under oath by the said depositors. (POLIDO V. CA
the levying and sale of the properties allegedly [JULY 10, 2007])
owned by the late President, on the ground that it
was required to seek first the probate court's
sanction. There is nothing in the Tax Code, and in

---------------------------------------------------------- Note: Its purpose is to complement estate taxation by

preventing tax-free depletion of the transferors estate
C. DONORS TAX during his lifetime.
----------------------------------------------------------
---------------------------------------------------------------
--------------------------------------------------------------- 3. Nature
1. Basic Principles ---------------------------------------------------------------
---------------------------------------------------------------
Q: What is the nature of a donors tax?
Read Section 98
It is an excise tax on the privilege of the donor to
Q: What donations are covered by the give or on the transfer of property by way of gift inter
donors tax? vivos. It is not a property tax (Lladoc v. CIR [14
SCRA 292])
The donors tax is imposed only on donaitons inter
vivos. Donations mortis causa partake of the nature ---------------------------------------------------------------
of testamentary dispositions are subject to estate tax 4. Purpose or object
---------------------------------------------------------------
In the case of Gestopa v CA [October 5, 2000], the
Supreme Court held that the donation of the Q: What are the purposes for the imposition
deceased spouses to their illegitimate daughter was of donors tax?
a donation inter vivos. The spouses executed the
deed out of love and affection for the donee, which 1. To raise revenues
is a mark of a donation inter vivos. The donor 2. To tax the wealthy and reduce certain other
reserved sufficient properties for their maintenance excise taxes
in accord with their standing in society, indicating the 3. To discourage inter vivos transfers of
donor intended to part with the property donated. property which could reduce the mortis
And, the donee accepted the donation, which is only causa transfers on which a higher tax, the
required in donations inter vivos. estate tax would be collected
4. It will tend to reduce the incentive to make
Q: When is donors tax imposed? gifts in order that distribution of future
income from the donated property may be to
Donors tax is imposed upon the transfer by any a number of persons with the result that the
person, resident or non-resident, of any property by taxes imposed by the higher brackets of the
gift. income tax are avoided.
Q: What law governs the imposition of ---------------------------------------------------------------

donors tax? 5. Requisites of valid donation
---------------------------------------------------------------
The donors tax is governed by the statute in force at
the time of the transfer. Q: What are the requisites of a valid
--------------------------------------------------------------- donation?
2. Definition 1. Capacity of donor
--------------------------------------------------------------- 2. Donative intent (intention to donate)
3. Delivery, whether actual or constructive, of
Q: What is a donors tax? the subject gift
4. Acceptance by the done
A donors tax is an excise tax imposed on the 5. Form prescribed by law
privilege to transfer property by way of gift inter vivos
based on pure act of liberality without any or less Note: (1) As to (1) All persons who may contract or
than adequate consideration and without any legal dispose of their property may make a donation (Art. 735,
compulsion to give. NCC). The donors capacity shall be determined as of the
time of the making of the donation (Art. 737, NCC).

1. It must be in public document

(2) As to (2) Donative intent is necessary only in case of 2. The property donated and the value of the
a direct gift. If the gift is indirectly taking place by way of charges which the done must satisfy must
sale, exchange or other transfer of property as be specified
contemplated in cases of transfers for less than adequate
and full consideration (see Section 100, Tax Code),
3. The donee must accept through a deed or
donative intent is not always essential to constitute a gift. similar instrument. (Art. 749, NCC)
(3) As to (3) There is delivery if the subject matter is Q: What are the requirements for a donation
within the dominion and control of the done to be subject to donors tax?
(4) As to (4) Acceptance is necessary because nobody 1. Property donated is not real property that is
is obliged to receive a gift against his will (OSORIO V.
OSORIO [41 PHIL. 531])
a capital asset
2. The transfer is for less than adequate
Q: ABC Steamship insured the life of A who consideration
3. The transfer is inter vivos
was then its President and General
Manager. He was responsible for the
---------------------------------------------------------------
success of the company for which he was
6. Transfers which may be constituted as
compensated for. The company initially
donation
designated itself as the beneficiary of the
a) Sale/exchange/transfer of property for
policies but, after As death, it renounced all
insufficient consideration
its rights, title and interest therein in favor of
b) Condonation/remission of debt
As heirs. The CIR subjected the donation to ---------------------------------------------------------------
donors tax. The heirs contend that it was a
remuneratory donation on full and adequate
Q: What are considered donations for tax
compensation for the valuable services of A
purposes?
and as such is not subject to donors tax. Is
the contention of the heirs correct? 1. Sales, exchanges and other transfers of
property for less than an adequate and full
No. The donation is not remuneratory as A has been consideration in money or moneys worth
fully compensated for his services. A donation made
by the corporation to the heirs of a deceased officer Except: Transfers of real property
out of gratitude for the officer's past services is considered as capital assets which is
considered a donation and is subject to donee's gift subject to CGT.
tax. The fact that his services contributed in a large
measure to the success of the company did not give 2. Condonation or remission of debt where
rise to a recoverable debt, and the conveyances the debtor did not render service in favor of
made by the company to his heirs remain a gift or the creditor
donation. (Pirovano v. CIR [July 31, 1965])
Note: Condonation or remission of a debt would
Q: What are the requisites for a donation of constitute a donation to the extent of the fair
value of the debt condoned or remitted.
a movable to be valid? Therefore, the creditor would be considered a
donor for donors tax purposes and would be
1. Donation may be oral or in writing liable for the tax thereon.
2. If oral, the donation must be accompanied
with delivery Q: A sold his lot not used for business tto
3. If value is more than Php 5,000, the his brother B for P500,000 when at that time
donation must be in writing and accepted in
the lot was valued in the market at P1
writing. (Art. 748, NCC)
million. A bought it for P100,000. In addition,
Q: What are the requisites for a donation of A sold some of the shares of his company
an immovable to be valid? ABC Corp to his senior executives. He sold
the ABC Corp shares for P300,000 when the

market value was at P500,000. His original Q: Supposing that instead of a general
cost in the shares is P100,000. Are the sales renunciation, B renounced her hereditary
subject to donors tax? share in As estate to X who is a special
child, would the renunciation be subject to
The sale of the lot is not subject to donors tax as it donors tax?
is a real property classified as a capital asset and
such is subject to the 6% CGT. The sale of the Yes, the renunciation in favor of X would be subject
shares, however, are subject to the donors tax of to donors tax. This is so because the renunciation
30% based on the difference between the selling was specifically and categorically done in favor of X
price and the market value. and identified heir to the exclusion or disadvantage
of Y and Z, the other co-heirs in the hereditary
Q: Creditors A, B and C condoned the debt estate. (Section 11, RR No. 2-2003)
of XYZ Corp pursuant to a court approved
restructuring. Are the creditors liable for Note: Without a source of income or acceptable form of
donors tax? acquisition of substantial amount to purchase properties,
the inclusion of the names of minor children in the
certificates of title of properties shall be deemed an
No. The transaction is not subject to donors tax implied donation, which is subject to donors tax. SPS.
since the condonation was not implemented with a HORDON H. EVONO AND MARIBEL C. EVONO VS. CIR, ET. AL.,
donative intent but only for business consideration. CTA EB NO. 705 (CTA CASE NO. 7573), JUNE 4, 2012
The restructuring was not a result of the mutual
agreement of the debtors and creditors. It was ---------------------------------------------------------------
through court action that the debt rehabilitation plan
7. Transfer for less than adequate and full
was approved and implemented. [BIR Ruling DA
028-2005 [January 24, 2005]) consideration
---------------------------------------------------------------
Q: Whether the transfer of property from the
distressed Asset Asia Pacific, Inc. pursuant Read Section 100
to the Special Purpose Vehicle (SPV) Act of
2002 subject to donors tax? Q: When is there a transfer for less than an
adequate and full consideration in money or
No. The transaction above is not a donation. Hence, moneys worth?
it is not subject to donors tax. [BIR Ruling No. 109-
2011] Where property, other than real property classified
as capital asset subject to final capital gains tax, is
Note: Thus, if the transfer was made pursuant to law, it is transferred for less than an adequate and full
not subject to donors tax. consideration in money or moneys worth, the
amount by which the fair market value of the
Q: A died leaving as his only heirs, his property exceeded the value of the consideration
surviving spouse B, and three minor shall, for purposes of donors tax, be deemed a gift.
children, X, Y and Z. Since B does not want Note: (1) The element of donative intent is conclusively
to participate in the distribution of the presumed in transfers of property for less than an
estate, she renounced her hereditary share adequate or full consideration in money or moneys worth.
in the estate. Is the renunciation subject to
donors tax? (2) Why is real property, classified as capital asset, that is
transferred for less than an adequate and full
consideration in money or moneys worth not deemed a
No. The general renunciation by an heir, including gift subject to donors tax? Well, it is already subject to
the surviving spouse, as in the case of B, of her final capital gains tax, which is 6% of the gross selling
share in the hereditary estate left by the decedent is price of fair market value of the property, whichever is
not subject to donors tax. This is so because the higher. So what the seller avoids in the payment of the
general renunciation by B was not specifically and donors tax, it pays for in CGT.
categorically done in favor of identified heir/s to the
exclusion or disadvantage of the other co-heirs in Q: As a condition for approving the
the hereditary estate (Section 11, RR No. 2-2003). manufacture by BF Goodrich of tires and

rubber products, the Central Bank required ---------------------------------------------------------------

it to develop a rubber plantation. BF 8. Classification of donor
Goodrich purchased land under the Parity ---------------------------------------------------------------
Amendment. Thereafter, the DOJ rendered
an opinion stating that upon expiration of Q: Who are liable to pay donors tax?
the Parity Amendment, ownership rights
over such lands, including right to dispose 1. Resident citizen
or sell them, would be lost. Hence, BF 2. Non-Resident Citizen
3. Resident Alien
Goodrich sold the rubber plantation to
4. Non-Resident Alien
Siltown Realty for a price less than its 5. Domestic Corporation
declared fair market value. The BIR 6. Foreign Corporation
assessed BF Goodrich for deficiency
donors tax representing the difference Note: In contrast to estate taxes, a corporation can be
between the fair market value and the actual subject to donors tax because it is capable of entering into
purchase price of the property. BIR a contract of donation through the appropriate Board
Resolution.
contended that BF Goodrich filed a false
income return. Did BF Goodrich commit ---------------------------------------------------------------
falsity in its income return? 9. Determination of gross gift
---------------------------------------------------------------
No. It is possible that real property may be sold for
less than adequate consideration for a bona Q: Distinguish Gross Gift from Net Gift
fide business purpose; in such event, the sale
remains an "arm's length" transaction. In this case, Gross Estate Net Estate
Goodrich was compelled to sell the property even at
a price less than its market value, because it would Refers to all property, Means the net economic
have lost all ownership rights over it upon the real or personal, tangible benefit from the transfer
expiration of the parity amendment. In other words, it or intangible, that is that accrues to the done.
was attempting to minimize its losses. At the same given by the donor to the
time, it was able to lease the property for 25 years, done by way of gift,
renewable for another 25. This can be regarded as without the benefit of any
another consideration on the price. deduction.
The fact that Goodrich sold its real property for a
Q: How is gross estate determined?
price less than its declared fair market value did not
by itself justify a finding of false return. Even though
Donor Determination of gross gift
a donor's tax, which is defined as "a tax on the
privilege of transmitting one's property or property
Citizens and Gross gift includes all real
rights to another or others without adequate and full
Resident Aliens properties, tangible and
valuable consideration," is different from capital
intangible personal
gains tax, a tax on the gain from the sale of the
properties wherever located
taxpayer's property forming part of capital
assets, the tax return filed by Goodrich to report its
Non-Resident Gross gift includes all real
income was sufficient compliance with the legal
Aliens properties, tangible, and
requirement to file a return. In other words, the fact
intangible properties located
that the sale transaction may have partly resulted in
in the Philippines unless the
a donation does not change the fact that Goodrich
reciprocity rule applies.
already reported its income by filing an income tax
return. [CIR v. B.F. Goodrich Phils [February 24, Note: In sum, all assets, real or personal, tangible or
1999] intangible given by way of gift wherever located of a
citizen and resident alien is subject to donors tax while
for nonresident aliens, donors tax is imposed only on
properties located in the Philippines provided in the case

of intangible personal property, it is subject to the rule of schedule of values fixed by the
reciprocity under Section 104 of the Tax Code. provincial and city assessors
(zonal value), whichever is higher.
Same rules as in Estate Taxation. See previous If there is no zonal value, taxable
discussion on intangible properties considered situated in
the Philippines and rule on reciprocity.
base is FMV that appears in the
latest tax declaration.
Q: ABC a multinational corporation doing
For The value of the improvement is
business in the Philippines donated 100
improvements the construction cost per building
shares of stock of said corporation to Mr. Z, permit and/or occupancy permit
its resident manager in the Philippines. plus 10% per year after year of
What is the tax liability, if any, of ABC construction or the FMV per latest
corporation? tax declaration
Foreign corporations effecting a donation are subject to For all other The fair market value at that time
donors tax only if the property donated is located in the
properties will be considered the amount of
Philippines. Accordingly, donation of a foreign corporation
of its own shares of stock in favor of resident employees gift
is not subject to donors tax.
In GIBBS V. CIR [APRIL 28, 1962], the parents made it
However, if 85% of the business of the foreign corporation appear that they transferred shares of stock in favor
is located in the Philippines or the shares donated have of their children for consideration, but it was found
acquired business situs in the Philippines, the donation out that such was insufficient, and such agreements
may be taxed in the Philippines subject to the rule of were made to evade taxes. The Supreme Court
reciprocity. allowed the CIR to impose taxes for the full value of
the shares of stock, not just the excess of the FMV
--------------------------------------------------------------- over the consideration/price.
10. Composition of gross gift
--------------------------------------------------------------- ---------------------------------------------------------------
12. Tax Credit for donors taxes paid in a
Read Section 104, Tax Code foreign country
---------------------------------------------------------------
Q: What is included as part of gross gift?
Read Section 101(C), Tax Code
As a general rule, gross gifts include real and personal
property, whether tangible or intangible or mixed,
Note: See discussion of tax credit under Estate Tax.
wherever situated
Computation of the donors tax credit is the same as the
computation for estate tax credit. Just change net estate to
Note: If the donor was a non-resident alien at the time of
net gifts.
the donation, his real and personal property so transferred
but which are situated outside the Philippines shall not be
included as part of gross gift. ---------------------------------------------------------------
13. Exemptions of gifts from donors tax
--------------------------------------------------------------- ---------------------------------------------------------------
11. Valuation of gifts made in property
--------------------------------------------------------------- Read Section 101(A) to (B), Tax Code
Note: There are really no deductions from gross gift.
Read Section 102, Tax Code There are only exemptions.
Q: How do we value the gifts subject to Q: Enumerate the exemptions from gross
donors tax? gifts (exempt from donors tax)
For Real The value shall be based on either 1. Dowries or donations made:
Property (1) the fair market value as a. on account of marriage
determined by the CIR or (2) the b. before its celebration or within one year
fair market value as shown in the thereafter

c. by parents to each of their legitimate, institution, accredited NGO, trust or

recognized natural or adopted children philanthropic organization or research
d. to the extent of the first php10,000 institution or organization to be exempted?
2. Gifts made to or for the use of the national 1. Not more than 30% of the said gift should be
government or any entity created by any of used for administrative purposes
its agencies which is not conducted for 2. The donee must be a non-stock, non-profit
profit, or to any political subdivision of the organization or institution
said government 3. The donee organization or institution should
be governed by trustees who do not receive
3. Gifts in favor of an education and/or any compensation
charitable, religious, cultural or social 4. Said donee devotes all of its income to the
welfare corporation, institution, accredited accomplishment and promotion of its
NGO, trust or philanthropic organization or purposes
research institution or organization provided 5. The NGO must be accredited by the
not more than 30% of said gifts will be used Philippine Council for NGO Certification
by such done for administrative purposes. 6. The donor engaged in business shall give
notice of donation on every donation worth
Q: What exemptions are allowed to non- at least P500,000 to the RDO which has
resident aliens? jurisdiction over his place of business within
30 days after receipt of the qualified donees
Non-resident aliens are exempt from donors tax with institutions duly issued Certificate of
respect to (2) and (3) as enumerated above. Donation (RR 2-2003)
Q: In addition to exemptions provided under Q: What are the requisites for a donation
Section 101 of the Tax Code, are there any given to athletes as prize or award to be
other exemptions allowed on gross gift? exempted?
1. Encumbrances on the property donated if The donation must be prize or award given to
assumed by the donee athletes:
2. Donations made to entities exempted under 1. In local and international sports tournaments
special laws (e.g. IBP, IRRI, National and competitions
Museum, National Library) 2. Held in the Philippines or abroad;
3. Amount specifically provided by the donor 3. Sanctioned by their respective national
as a diminution of the property donated. sports associations (RA 7549)
4. Athletes Prizes and Awards (see RA 7549)
Note: Remember Section 32(B)(7)(d), Tax Code which
Q: What are the requisites for dowries or provides that all prizes and awards granted to athletes in
gifts made on account of marriage to be local and international competitions and tournaments,
exempted? whether held in the Philippines or abroad, and sanctioned
by their national sports associations are excluded from
1. The gift was made on account of marriage gross income.
2. It was made before or within one year after
the celebration of marriage Read Section 99(C), Tax Code
3. Donor is a parent
4. Donee is a legitimate, recognized natural or Q: Are political contributions considered
adopted child of the donor gifts and therefore liable for donors tax?
5. The amount of the gift exempted is only to
the extent of the first P10,000 (per parent, if Under Section 13 of RA 7166, such contributions,
made out of conjugal or community funds) be duly reported to the COMELEC, shall no be
subject to the payment of any gift tax.
Q: What are the requisites for gifts in favor
Note: In Abello v. CIR [February 23, 2005], the Supreme
of an education and/or charitable, religious, Court ruled that the contributions made by certain partners
cultural or social welfare corporation, of the ACCRA law firm to the campaign of Senator

Edgardo Angara constitute as a donation subject to Note: Lets now discuss how to compute donors tax due
donors tax. However, this was decided before RA 7166. and payable.
The Court noted that subsequent to the donations involved
in the case, Congress approved RA 7166 on November Read Section 99(A) to (B), Tax Code
25, 1991, providing in Section 13 thereof that
political/electoral contributions, duly reported to the
Commission on Elections, are not subject to the payment Q: What is the basis in computing donors
of donors tax. RA 7166 provides no retroactive effect. tax?
--------------------------------------------------------------- The tax shall be computed on the basis of the total

14. Person liable net gifts made during the calendar year in
--------------------------------------------------------------- accordance with the graduated donors tax rates.
Note: To best illustrate

In general --
Q: Who are liable for donors tax? Gross gifts made

Less: Deductions from the gross gifts
Every person, whether natural or juridical, resident or non- = Net gifts made
resident, who transfers or causes to transfer property by Multiplied by applicable rate
gift, whether in trust or otherwise, whether the gift is direct = Donors tax on the net gifts
or indirect and whether the property is real or personal,
tangible or intangible. In other words, the donor is always
liable to pay the donors tax. If several gifts were made during the year --
Q: What is the rule for donations made by Gross gifts made

husband and wife? Less: Deductions from the gross gifts
= Net gifts made on this date
Add: all prior net gifts during the year
Husband and wife are considered as separate and = Aggregate net gifts
distinct taxpayer's for purposes of the donor's tax. Multiplied by applicable rate
However, if what was donated is a conjugal or = Donors tax on aggregate net gifts
community property and only the husband signed Less: donors tax paid on prior net gifts
the deed of donation, there is only one donor for = Donors tax payable on the net gifts to date
donor's tax purposes, without prejudice to the right
of the wife to question the validity of the donation In other words, if the donor makes several gifts during the
without her consent pursuant to the pertinent same calendar year, the gifts shall be added on a
provisions of the Civil Code of the Philippines and cumulative basis.
the Family Code of the Philippines. (see RR 2-2003)
Q: What are the rates of tax payable by
In Tang Ho v. Board of Tax Appeals [November donors?
19, 1955], the Supreme Court held that a donation
of property belonging to the conjugal partnership, The applicable donors tax rate shall depend upon
made during its existence, by the husband alone in the relationship between the donor and the donee.
favor of the common children, is taxable to him
exclusively as sole donor. To be a donation by both If the donee is a The tax rate is 30% of the
spouses, taxable to both, the wife must expressly stranger to the net gifts.
join the husband in making the gift. Her participation donor
cannot be implied. In case a donation was made by
the parents in favor of their children, consisting of If the donee is not The tax for each calendar
cash form the CPG, then only one parent may claim a stranger to the year shall be computed on
the exemption granted by the law. donor the basis of the total net gifts
made during the calendar
--------------------------------------------------------------- year in accordance with the
schedule provided in Section
15. Tax Basis
99(A).
---------------------------------------------------------------

----------------------------------------------------------
Note: This early on I want to make the distinction between
D. VALUE-ADDED TAX an exempt entity (a taxpayer exempt from VAT) and an
---------------------------------------------------------- exempt transaction (a transaction exempt from VAT). The
distinction proceeds from the nature of VAT as an indirect
--------------------------------------------------------------- tax. If the law exempts the statutory taxpayer (aka the
1. Concept seller), this does not mean that the buyer is also exempt.
The VAT can be shifted to the buyer. Also, if the law
--------------------------------------------------------------- exempts the buyer from VAT meaning the seller cannot
pass/shift the VAT to the buyer, this does not mean the
Q: Define Value-Added Tax (VAT). seller is exempt. He must pay the tax. In both cases, the
transaction is not exempt from VAT because someone will
pay. But if the law says the transaction is exempt from
A Value-Added Tax is a tax assessed, levied, and VAT then neither the buyer nor the seller will have to pay
collected on every importation of goods, whether or VAT. That is the distinction. Remember that especially
when we discussed zero-rated, effectively zero-rated and
not in the course of trade or business, or imposed on exempt transactions.
each sale, barter, exchange or lease of goods or
properties or on each rendition of services in the Q: What are VAT-taxable transactions?
course of trade or business as they pass along the
production and distribution chain, the tax being
VAT-taxable transactions are those transactions
limited only to the value added to such goods,
which are subject to VAT either at the rate of 12% or
properties or services by the seller, transferor or
0% and the seller shall be entitled to tax credit for
lessor.
the VAT paid on purchases and leases of goods,
properties, and services. (CIR V. CEBU TOYO
Q: What is the current VAT rate? [FEBRUARY 16, 2005])
The current VAT rate is 12%.
Q: What are the elements of a VAT-taxable
transaction?
---------------------------------------------------------------
2. Characteristics/Elements of a VAT- 1. There must be a sale, barter, exchange or
Taxable Transaction lease in the Philippines
--------------------------------------------------------------- 2. The sale, barter, exchange or lease must be
of taxable goods, properties or services
Q: What are the characteristics of the VAT? 3. The sale must be made by a taxable person
in the course of trade or furtherance of
1. It is a percentage tax imposed at every stage of his/its profession
the distribution process on the sale, barter, or
exchange or lease of goods or properties and on Note: (1) An importation is VAT-taxable whether made in
the performance of service in the course of trade the course of trade or business or not.
or business or on the importation of goods,
whether for business or non-business. Q: What is meant by in the course of trade
2. It is a business tax levied on certain transactions or business
involving a wide range of goods, properties and
services, such tax being payable by the seller, In the course of trade or business means the
lessor or transferor. regular conduct or pursuit of a commercial or an
3. It is an excise tax or a tax on the privilege of economic activity including transactions incidental
engaging in the business of selling goods or thereto, by any person regardless of whether or not
services or in the importation of goods the person engaged therein is a non-stock, non-
4. It is an indirect tax, the amount of which may be profit private organization or a government entity.
shifted to or passed on the buyer, transferee or
lessee of the goods, properties or services. Note: Services rendered by non-resident foreign persons
5. It is an ad valorem tax as its amount or rate is shall be considered as being rendered in the course of
based on gross selling price or gross value in trade or business, even if the performance of services is
not regular (Section 4.105-3, RR No. 16-2005)
money or gross receipts derived from the
transaction

(2) Any business where the gross sales or receipts do not reimbursement-of-cost-only basis and, as
exceed P100,000 during any 12-month period shall be such, the services are not VAT-taxable. Is
considered principally for subsistence or livelihood and not
in the course of trade or business. COMASERCO correct?
(3) Again, an importation is VAT-taxable regardless of No. In CIR V. CA AND COMASERCO [M ARCH 30,
whether made in the course of trade or business or not. 2000] , the Supreme Court opined that VAT is a tax
on transactions imposed at every stage of the
Q: Pursuant to the governments distribution process on the sale, barter, exchange of
privatization program, NDC decided its goods or property, and on the performance of
shares in the National Marine Corp. and 5 services, even in the absence of profit attributable
vessels. Magsaysay Lines bought the thereto. The definition of the term in the course of
trade or business applies to all transactions. Even a
shares and vessels. The CIR contends that
non-stock, non-profit corporation or government
the sale of the 5 vessels is incidental to its entity is liable to pay VAT for the sale of goods and
NDCs VAT registered activity of leasing out services. In this case, even if the services rendered
personal property and thus VAT-taxable. Is for a fee were on a reimbursement-on-cost
the CIR correct? arrangement and without realizing profit, the
payments are still subject to VAT.
No. In CIR V. M AGSAYSAY LINES [JULY 28, 2006], the
Supreme Court found that any sale, barter or Q: Sony Philippines engaged the services of
exchange of goods or services not in the course of several advertising companies. Due to dire
trade or business is not subject to VAT. In this case, economic conditions, Sony International
the sale of the vessels was an isolated transaction,
Singapore (SIS) gave Sony Philippines a
not done in the ordinary course of NDCs business
and is thus not subject to VAT. dole-out to pay for said advertising
expenses. Sony Philippines claimed as
Note: In THOMAS C. ONGTENCO VS. CIR, CTA CASE NO. input VAT credits that VAT paid for the
8190, DECEMBER 12, 2012, the CTA held that the advertising expenses. The CIR disallowed
taxpayers act of lending money to a corporation, where he this and assessed Sony Philippines
is a director and stockholder cannot be considered as an
act of lending in the course of his trade or business. His
deficiency VAT on the reimbursable
act of lending was not done in the ordinary course of his received by it from SIS. The CIR contends
business or trade but merely an isolated transaction in that the reimbursable was a fee for a VAT-
order to help the company in its provincial expansion taxable activity. Is the CIR correct?
considering that, at that time, it was just starting and was
having difficulties in getting and applying for loans from No. The Supreme Court held in CIR v. SONY
banks. The act of lending was a one-time assistance in his
capacity as stockholder..
PHILIPPINES [NOVEMBER 17, 2010] that Sony
Philippines cannot be deemed to have received the
reimbursable as a fee for a VAT-taxable activity. The
Q: Is the profit element required for VAT to
absence of a sale, barter or exchange of goods or
be imposed? properties supports the non-VAT nature of the
reimbursable. The Supreme Court distinguished this
No. The term in the course of trade or business case from CIR V. CA AND COMASERCO [M ARCH 30,
requires the regular conduct or pursuit of a 2000] where even if there was similarly a
commercial or an economic activity, regardless of reimbursement on cost arrangement between
whether or not the entity is profit-oriented. (see CIR affiliates, there was in fact an underlying service.
V. CA AND COMASERCO [M ARCH 30, 2000])
Here, the advertising services were rendered in
favor of Sony Philippines, not SIS.
Q: COMASERCO is a non-stock, non-profit
organization, affiliated with Philamlife and ---------------------------------------------------------------
organized to perform collection, 3. Impact of Tax
consultative or technical services. The BIR 4. Incidence of Tax
assessed COMASERCO for deficiency VAT. ---------------------------------------------------------------
COMASERCO argues that the services
rendered to Philamlife were on a no-profit,

Note: We discussed this already in General Principles but sales or outputs the VAT paid on its purchases,
let us review. The impact of taxation is the point on which inputs and imports.
a tax is originally imposed. The impact of taxation is on
the seller. The incidence of tax is that point on which the The legal basis can be found in Section 110(A) of
tax burden finally rests or settles down and in most cases,
the incidence is on the final consumer. Because VAT is an
the Tax Code which provides that any input tax
indirect tax, the impact or the tax liability for the payment evidenced by a VAT invoice or official receipt on
of the tax falls on one person but the incidence or burden purchase or importation of goods or for purchase of
thereof can be shifted or passed to another. services shall be creditable against output tax.
--------------------------------------------------------------- Under the VAT method of taxation, which is invoice-

5. Tax Credit Method based, an entity can subtract from the VAT charged
--------------------------------------------------------------- on its sales or outputs the VAT it paid on its
purchases, inputs and imports. (CIR V. SEAGATE
Note: We wont understand Tax Credit Method if we do TECHNOLOGY [FEBRUARY 11, 2005]).
not define output tax and input tax.
Note: (1) The Tax Credit method is the method used para
malaman mo how much ang babayaran mo na VAT. We
Q: Differentiate output tax from input will talk about this in greater detail sa Determination of
tax output/input vat. For now, Ill give you the basics which will
suffice for understanding the succeeding topics.
As differentiated by the Supreme Court in CIR V.
BENGUET CORPORATION [JULY 14, 2006]: As discussed above, the taxpayer determines his tax
liability by computing the tax on the gross selling price or
gross receipt (output tax) and subtracting or crediting the
Input VAT or input tax represents the actual earlier VAT on the purchase or importation of goods or on
payments, costs and expenses incurred by a VAT- the purchase of service (input tax) against the tax due on
registered taxpayer in connection with his purchase his own sale. Gawin nating formula:
of goods and services. Thus, "input tax" means the
value-added tax paid by a VAT-registered
person/entity in the course of his/its trade or
business on the importation of goods or local Okay example. Lets say seller ka ng wooden furniture.
purchases of goods or services from a VAT- Anong kailangan mo para makagawa ka ng produkto mo?
registered person. Eh di kahoy. Wooden furniture nga diba. So bumili ka ng
kahoy. Yung nagbenta sa iyo binigyan ka ng invoice.
On the other hand, when that person or entity sells Pagtingin mo sa invoice mo naka-indicate yung 12% VAT
his/its products or services, the VAT-registered na binayaran mo sa pagbili mo ng kahoy. Yan ang input
tax mo! So using the kahoy, you made lets say tables and
taxpayer generally becomes liable for 10% (now
chairs. Eh since ibebenta mo ito, subject ka sa VAT.
12%) of the selling price as output VAT or output Tawag mo dyan output tax. Under the Tax Credit Method,
tax. Hence, "output tax" is the value-added tax on puwede mo ibawas ang 12% na binayaran mo sa pagbili
the sale of taxable goods or services by any person ng kahoy doon sa babayaran mo na 12%VAT sa pagbenta
registered or required to register under the Tax mo ng final product mo, yung tables and chairs. Because
Code. of that nabawasan mo ang VAT liability mo.
Otherwise stated, output tax is the VAT due on the (2) As explained in ABAKADA GURO PARTY LIST V. ERMITA
sale or lease or taxable goods, properties or [SEPTEMBER 1, 2005], the VAT system was previously a
services by an VAT-registered person. On the other single stage system under a cost deduction method and
was payable only by the original sellers. Now, the VAT
hand, input tax is the VAT due on or paid by a VAT-
system is a multi-stage system a mixture of the cost
registered person on importation of good or local deduction method and the tax credit method.
purchases of goods or services, including lease or
use of properties, in the course of his trade or
business.
Q: What is the tax credit method?
Under the tax credit method, an entity can credit

against or subtract from the VAT charged on its

--------------------------------------------------------------- Note: RR 16-2011 [October 27, 2011] increased the

6. Destination Principle threshold amounts for sale of residential lot, sale of house
and lot, lease of residential unit and sale or lease of goods
--------------------------------------------------------------- or properties or performance of services covered by
Section 109(P), (Q) and (V) of the Tax Code. These are
Q: What is the destination principle (cross- the changes:
border doctrine)?
Section Amount in Adjusted
As a general rule, the value-added tax (VAT) system Pesos (2005) amounts
uses the destination principle. It means that the Section 109(P) 1,500,000 1,919,500
destination of the goods determines the taxation or Section 109(P) 2,500,000 3,199,200
exemption from VAT. Goods and services are taxed Section 109(Q) 10,000 12,800
only in the country where they are consumed. Section 109(V) 1,500,000 1,919,500
Note: (1) This is the reason why export sales of goods are I suggest you update your codal with these adjusted
subject 0% while importations of goods are subject to amounts. Importante yan lalo na when we talk about
12%. Exported goods will be consumed in wherever exempt transactions.
country it is exported so it is zero-rated. On the other ---------------------------------------------------------------
hand, we consume imported goods here in the Philippines
that is why it is subject to 12% VAT.
8. VAT on sale of goods or properties
a) Requisites of taxability of sale of goods
(2) In the case of services, consumption takes place or properties
where the service is performed. Note, however, na may ---------------------------------------------------------------
exception to the destination principle when it comes to
sale of services. Although the services are performed in
the Philippines, there are certain sales of services that are
Read Section 106(A)(1), Tax Code
zero-rated. We will discuss this later when we get to
Section 108(B) or zero-rated sales of services. Q: What are considered as goods or
--------------------------------------------------------------- properties for VAT purposes?
7. Persons liable
--------------------------------------------------------------- All tangible and intangible objects which are capable
of pecuniary estimation, including:
1. Real properties held primarily for sale to
customers or held for lease in the ordinary
course of business
Q: In general, who are liable to pay the VAT?
2. The right or privilege to use patent, copyright,
design or model, plan, secret formula or
1. Any person who, in the course of trade or
process, good will, trademark, trade brand, or
business, sells, barters, exchanges or leases
other like property or right
goods or properties, or renders services
3. The right or privilege to use in the Philippines of
any industrial, commercial or scientific
Except: A person, whether or not VAT-
equipment
registered, whose annual gross sales or receipts
1 4. The right or the privilege to use motion picture
does not exceed P1,919,500.
files, films tapes and discs
5. Radio, television, satellite transmission and
2. Any person who imports goods, whether in the
cable television line (see SECTION 106(A)(1), TAX
course of trade or business or not.
CODE)
(see SECTION 105, TAX CODE, SECTION 4.105-1, RR
16-2005) Q: What is the tax base of VAT on sale of
goods or properties?
The 12% VAT is based on the gross selling price

(GSP) or gross value in money of the taxable goods
1
If the annual gross sales or receipts does not exceed or properties sold, bartered or exchanged.
P1,919,500, he shall be liable instead for the 3% percentage tax
on small business enterprises (see Section 116, Tax Code).

For goods and The total amount of exchange of goods or including dacion en
properties other than money or its equivalent properties for a pago, barter or
real properties which the purchaser valuable exchange,
pays or is obligated to consideration assignment, transfer
pay to the seller in 2. The sale is or conveyance, or
consideration of the sale, undertaken in the merely contract to
barter or exchange of course of trade or sell involving real
the goods or properties business or exercise property
excluding the VAT. Any of profession in the 2. The real property is
excise tax, if any, on Philippines located in the
such goods or properties 3. The goods or Philippines
shall form part of the properties are located 3. The seller or
GSP within the Philippines transferor is
and are for use or engaged in real
Note: If the consideration of consumption therein estate business
a sale is not wholly in 4. The sale is not either as a real
money as in a part- exempt from VAT estate dealer,
exchange or barter under Section 109 of developer or lessor
transaction, the base is the
price that would have been
the Tax Code, special 4. The real property is
charged in an open market law or international held primarily for
sale for purely monetary agreement binding sale or for lease in
consideration. upon the government the ordinary course
of the Philippines. of his trade or
In case of real property The gross selling price business
shall mean the Note: (1) The absence of 5. The sale is not
consideration stated in any of the above requisites exempt from VAT
the sales document or exempts the transaction under Section 109,
2 from VAT. However, special law or
the fair market value, percentage taxes may
whichever is higher. apply. Actually, the annual
international
gross sales or receipts agreement binding
must exceed P1,199,500. upon the
(see SECTION 4.106-4, RR 16-2005 [SEPTEMBER 1, Otherwise, it is subject to government of the
2005]) the 3% percentage tax on Philippines.
small business enterprises. 6. The threshold
Note: If the VAT is not billed separately, the selling price amount set by the
stated in the sales document shall be deemed to be (2) We can combine (3) and law should be met
inclusive of VAT (RR 16-2005) (4) by stating that the
transaction should not be a
VAT zero-rated or a VAT-
Note: (1) The absence of
Q: What are the requisites of a VAT-taxable exempt transaction.
any of the above requisites
sale? exempts the transaction
from VAT. However,
For goods or For real property percentage taxes may
apply.
properties other than
real property (2) As to (4) Remember
that real properties held
1. There is an actual or 1. The seller executes primarily for sale to
deemed sale, barter, a deed of sale, customers are ordinary
assets. Hence, the income
from the sale thereof shall
2
form part of ordinary
The fair market value shall mean whichever is the higher of (1) income subject to
the fair market value as determined by the CIR (zonal value) or
graduated income tax rates.
(2) the air market value as shown in the schedule of values of the
provincial and city assessors (real property tax declaration). In the If its a capital asset, the
absence of a zonal value, gross selling price shall refer to the income would be subject to
market value shown in the latest real property tax declaration or capital gains tax
the consideration, whichever is higher.

Of the amounts typically covering an advance

(3) As to (6), the threshold payment, only the pre-paid rent is subject to VAT.
amounts are: (1) The sale Other forms of advance payment such as option
of a residential lot with a money, security deposit, etc. are not subject to VAT.
GSP must exceed
P1,919,500 and (2) the sale
of a residential house and Q: A bought two adjacent condominium
lot or other residential units which he intended to combine so as to
dwelling with GSP must fit his family. Each unit has a GSP of 2
exceed P3,199,200. million. The two units were separately
Otherwise, they are not
exempt from VAT documented. After 2 years, A decided to sell
the two units. A contends that the units are
Installment sale of a exempt from VAT as the GSP did not
residential house and lot or exceeding 2.5 million. Is A correct?
other residential dwellings
3
exceeding P1 million shall
be subject to VAT.
No. By virtue of the amendment introduced by RR
13-2012 [OCTOBER 12, 2012], the sale of real
(See SECTION 4.106-4, RR properties subject to VAT shall include the sale,
16-2005 [SEPTEMBER 1, transfer, or disposal within a 12-month period of two
2005], AS AMENDED BY RR or more adjacent residential lots, house and lots, or
04-07 [FEBRUARY 7, 2007], other residential dwellings in favor of a buyer. Such
RR 16-2011 [OCTOBER 27, adjacent real properties although covered by
2011], RR 3-2013 separate titles and/or separate tax declarations,
[FEBRUARY 20, 2012] AND when sold to one and the same buyer, whether
RR 13-2012 [OCTOBER 12,
2012].)
covered by one or separate deeds of conveyance,
shall be presumed as a sale of one residential lot,
house and lot or residential dwelling.
Q: How is VAT imposed on real property
Q: Is the sale of the parking lot included in
transactions?
the sale of a condominium unit?
1. If cash or deferred payment, then the VAT on
No. The sale of parking lots is a separate and
the whole amount is already imposed
distinct transaction and is not covered by the rules
2. If installment, then the VAT is imposed on each
on the threshold amount not being a residential lot,
payment
house and lot, or a residential dwelling and thus
3. There is no VAT imposed on Section 40(C)(2)
should be subject to VAT regardless of the amount
exchanges.
of selling price. (see RR 13-2012 [OCTOBER 12,
Note: (1) In an installment plan, the initial payments do
2012])
not exceed 25% of the GSP. If the initial payments exceed
25%, the sale is on a deferred payment basis. ---------------------------------------------------------------
9. Zero-rated sales of goods or properties
(2) In case of installment, the buyer can claim the input tax and effectively zero-rated sales of goods or
in the same period as the seller recognized the output tax.
In deferred-payment basis, the output tax shall be
properties
recognized by the seller and the input tax shall accrue to ---------------------------------------------------------------
the buyer at the time of the execution of the instrument of
sale. Read Section 106(A)(2), Tax Code
Q: Assuming a VAT-taxable transaction, is Q: What are zero-rated transactions?

the advance payment in a real estate
transaction subject to VAT? A VAT zero-rated transaction are sales by VAT-
registered persons which are subject to 0% rate,
meaning the tax burden is not passed on to the
purchaser. A zero-rated sale by a VAT-registered
3
This value has not been changed by the amendments. person, which is a taxable transaction for VAT

purposes, shall not result in any output tax.

However, the input tax on his purchases of goods, The input VAT on the The seller in an exempt
properties or services related to such zero-rated sale purchases of a VAT- transaction is not
shall be available as tax credit or refund. registered person with entitled to any input tax
zero-rated sales may be on his purchases
Q: Distinguish VAT rating (VAT-taxable allowed as tax credits or despite the issuance of
transactions) from zero rating (Zero-rated refunded a VAT invoice or
receipt;
transactions).
As explained by the Supreme Court in CIR V.

Persons engaged in Registration is optional
BENGUET CORPORATION [JULY 14, 2006]:
transactions which are for VAT-exempt
zero-rated, being subject persons.
In transactions taxed at a 10% rate (now 12%),
to VAT, are required to
when at the end of any given taxable quarter the
register
output VAT exceeds the input VAT, the excess shall
be paid to the government; when the input VAT Q: What are the two types of zero-rated
exceeds the output VAT, the excess would be transactions?
carried over to VAT liabilities for the succeeding
quarter or quarters. 1. Automatically zero-rated which refers to
export sale of goods, properties, and supply
On the other hand, transactions which are taxed at of services by a VAT-registered person
zero-rate do not result in any output tax. Input VAT 2. Effectively zero-rated which refers to the
attributable to zero-rated sales could be refunded or local sale of goods and properties by a VAT-
credited against other internal revenue taxes at the registered person o a person or entity who
option of the taxpayer was granted direct and indirect tax
exemption under special lws or international
Note: As an example, assume that VAT-registered person agreements (RMC No. 50-2007)
purchases materials from his supplier at P100, P9.6 of
which was passed on to him by his supplier as the latters Q: Distinguish zero-rated (automatically
12% output VAT. In a zero-rated transaction, the taxpayer
zero-rated) from effectively zero-rated
can recover the P9.6 from the BIR either through a refund
or a tax credit. When the taxpayer sells his finished transactions.
product for lets say P120, he is not required to pay the
output VAT of P2.4 (12% of the P20 value he has added As distinguished by the Supreme Court in CIR V.
to the P100 material). SEAGATE TECHNOLOGY [FEBRUARY 11, 2006]:
In a transaction subject to VAT, however, he may recover

both the input VAT of P9.6 which he paid to the supplier Zero-rated Effectively zero-rated
and his output VAT of P2.4 by passing both these costs to
the buyer. The buyer then pays P12, the total 12% VAT.
generally refers to the refers to the sale of

Q: Distinguish zero rating from VAT-
export sale of goods goods or supply of
exemption. and supply of services services to persons or
entities whose
As differentiated by the Supreme Court in CIR v. exemption under
CEBU TOYO CORPORATION [FEBRUARY 16, 2005]: special laws or
international
agreements to which
Zero-rated VAT-Exempt the Philippines is a
signatory effectively
subjects such
It is a taxable transaction Not subject to the transactions to a zero
but does not result in an output tax rate.
output tax

Q: Enumerate the requisites that must be

The tax rate is set at As applied to the tax complied with in order to be entitled to a
zero. When applied to base, such rate does refund or issuance of a TCC for input VAT
the tax base, such rate not yield any tax due or paid attributable to zero-rated or
obviously results in no chargeable against the
effectively zero-rated sales.
tax chargeable against purchaser
the purchaser
1. There must be zerorated or effectively zero
rated sales;
2. Input taxes were incurred or paid;
The seller of such The seller who charges
3. Such input taxes are directly attributable to zero
transactions charges zero output tax on such
rated or effectively zerorated sales;
no output tax, but can transactions can also
4. Input taxes were not applied against any output
claim a refund of or a claim a refund of or a
VAT liability; and
tax credit certificate for tax credit certificate for
5. The claim for refund was filed within the two
the VAT previously the VAT previously
year prescriptive period. (see SITEL PHILIPPINES
charged by suppliers charged by suppliers
CORPORATION V. CIR [CTA CASE NO. 7623,
M ARCH 3, 2010])
intended to be enjoyed intended to benefit the Note: No more VAT TCCs shall be issued. In connection
by the seller who is purchaser who, not with this, Executive Order 68 [March 27, 2012] provides
directly and legally being directly and for the monetization of outstanding VAT TCCs. EO 68
liable for the VAT, legally liable for the allows qualified VAT-registered taxpayers to receive the
making such seller payment of the VAT, cash equivalent of their outstanding TCCs either: (1)
internationally will ultimately bear the Collecting in advance from a trustee bank a discounted
competitive by allowing burden of the tax shifted cash value of their TCCs or (2) Collect full cash value of
the refund or credit of by the suppliers. their TCC upon a certain maturity date to be determined
input taxes that are by the BIR and BOC. DOF Joint Circular 2-2012 provides
that the monetization will start in 2012 for TCCs issued
attributable to export prior to 2004 while those issued in 2011 and 2012 will be
sales. monetized in 2016. RMO 21-2012 [August 9, 2012]
provides the guidelines, policies and procedures for the
The taxpayer need not The rules are: implementation of the VAT TCC Monetization Program.
file an application form 1. Prior to RA 9337
and to secure BIR (before November Q: Enumerate the zero-rated sales of goods.
approval before sale 1, 2005)
application is 1. Export Sales (IF GONE)
needed except in
sales to PEZA, a) Sale and actual shipment of goods from the
sales to BOI- Philippines to a Foreign country
registered 100% b) Sale of raw materials or packaging materials
manufacturer- to a Non-resident buyer for delivery to a
exporter resident local export-oriented enterprise
2. RA 9337 up to c) Sale of raw materials or packaging materials
before RR 4-2007 to Export-oriented enterprise whose export
(November 1, 2005 sales exceed 70% of total annual production
to April 5, 2007) d) Sale of Gold to the BSP
application is e) Those that are not considered export sales
needed; no under the Omnibus Investment Code and
exceptions other special laws
3. RR 4-2007 (April 6, f) Sale of goods, supplies, and equipment and
2007 onwards) fuel to persons engaged in International
need for application shipping or international air transport
not expressly operations.
provided.

2. Foreign currency denominated sale the sale to As explained by the Court in the cases of CIR V. SEAGATE
a non-resident of goods assembled or TECHNOLOGY [FEBRUARY 11, 2005], CIR v. SEKISUI JUSHI
manufactured in the Philippines for delivery to a PHILIPPINES [JULY 21, 2006], CIR V. TOSHIBA INFORMATION
resident in the Philippines paid in acceptable EQUIPMENT [AUGUST 9, 2005], CIR V. CONTEX [JULY 2,
2004]:
foreign currency and accounted for in
accordance with BSP rules and regulations PEZA-registered enterprises, which would necessarily be
located within ecozones, are VAT-exempt entities not
3. Sales to persons or entities whose exemption because of Section 24 of RA 7926 (which imposes the 5%
under special laws and international agreements preferential tax rate on gross income of PEZA-registered
to which the Philippines is a signatory subjects enterprises in lieu of all taxes) but rather because of
such sales to 0% rate (effectively zero-rated Section 8 of the same which establishes the fiction that
transactions) ecozones are foreign territory. As a result, sales made by
a supplier in the Customs Territory (national territory of the
Philippines outside the borders of the ecozone) to a
Note: As to 1(e), considered export sales under E.O. 226
purchaser in the ecozone shall be considered as
includes the sale of goods and services by a VAT-
exportation from the Customs Territory. Conversely, sales
registered person in the customs territory to ecozone and
made by a supplier from the ecozone to a purchaser in the
Freeport enterprises so as to make them automatically
Customs Territory shall be considered as an importation
zero-rated (Section 4.106-5, RR No. 4-2007)
into the Customs Territory.
As to 1(f), the goods subject to zero-rating are limited to
The Philippine VAT system adheres to the cross-border
goods and passengers transported from a port in the
doctrine which means that no VAT shall be imposed to
Philippines directly to a foreign port, or vice versa, without
form part of the cost of goods destined for consumption
docking or stopping at any other port in the Philippines.
outside of the territorial border of the taxing authority.
(Ibid)
Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT; while
Now, I want to discuss the VAT treatment of PEZA-
those destined for use or consumption within the
registered enterprises. This has been the subject of much
Philippines shall be imposed with ten percent (10%) (now
confusion. The cases added more to the confusion. What
12% VAT). Sales made by an enterprise within a non-
you have to note in reading the cases is whether it was
ecozone territory, i.e., Customs Territory, to an enterprise
decided before or after the effectivity of RMC 74-99.
within an ecozone territory shall be free of VAT.
Before RMC 74-99, whether a PEZA-registered enterprise
was exempt or subject to VAT depended on the type of
This has been further clarified in RMC 50-2007 [July 30-
fiscal incentives availed of by the said enterprise. PEZA
2007].
entities can avail of two alternative or subsequent
incentives of income tax holiday (ITH) or 5% preferential
tax rate on gross income. If the entity avails of the 5% Q: Summarize the current tax treatment of
preferential tax rate, it is exempt from all taxes including PEZA-registered enterprises as provided in
VAT but if it avails of the ITH, it shall be exempt from RMC 74-99 and as further clarified in RMC
income taxes for a number of years but not VAT (see CIR 50-2007.
v. SEKISUI JUSHI PHILIPPINES [JULY 21, 2006]).
This explains the decisions in CIR V. TOSHIBA INFORMATION 1. Any sale of goods, property or services by a
EQUIPMENT [AUGUST 9, 2005] and CIR v. CEBU TOYO VAT-registered supplier from the customs-
CORPORATION [FEBRUARY 16, 2005] where in both cases territory to any Ecozone-registered enterprise
the Supreme Court held that the PEZA-registered regardless of incentive availed is zero-rated on
enterprise is entitled to a VAT refund/credit because it the part of the VAT-registered seller because
opted to avail itself of the income tax holiday. Having ecozones are foreign soil by fiction and thus the
availed of the income tax holiday and its export sales sale is considered an export sale.
being a zero-rated transaction, the PEZA-registered
enterprise was entitled to refund or credit for its unutilized
input taxes. In both cases, the transactions were made
2. Sales to an ecozone enterprise made by a non-
prior to the effectivity of RMC 74-99. VAT or unregistered supplier would only be
exempt from VAT and the supplier shall not be
Now, after the effectivity of RMC 74-99, the tax treatment able to claim credit/refund for its input VAT
of sales of goods and services of PEZA-registered because, under Section 109(O) of the Tax Code,
enterprises is now based on the principles of separate export sales by persons who are not VAT-
custom territory and cross border doctrine. registered are exempt transactions.

3. If the ecozone-enteprise is an exporter, its input enterprise seller

VAT are subject to refund not because of the if the service is
incentives it availed but because of the nature of performed
its transactions (export sales). outside or the
property leased
is located outside
4. Any sale of goods or property by an ecozone- the ecozone,
registered enterprise to a buyer in the customs
territory shall be subject to 12% VAT because it ---------------------------------------------------------------
shall be considered an importation. The tax is
10. Transactions deemed sale
imposed on the buyer/importer.
a) Transfer, use or consumption not in the
5. The sale of service or lease of properties by course of business of goods/properties
PEZA-registered enterprises to a customer or originally intended for sale or use in the
lessee from the customs territory shall be course of business
exempt from VAT if the service is performed b) Distribution or transfer to shareholders,
within the ecozone. The lease of properties will investors, or creditors
be exempt if the property is located within the c) Consignment of goods if actual sale not
ecozone. However, if the properties are located made within 60 days from date of
outside of the ecozone, payments to such consignment
enterprise shall be considered as royalties and
d) Retirement from or cessation of business
subject to final withholding VAT of 12%
with respect to inventories on hand
---------------------------------------------------------------
Sale of Goods Sale of Services
VAT - 0% VAT 0% VAT

Read Section 106(B), Tax Code
registered
supplier from Q: What is meant by transactions deemed
customs sale?
territory to
PEZA -
There is no actual sale. However, the law deems
registered
enterprise
that there is a taxable sale.
Q: Enumerate the deemed sale transactions

VAT-exempt VAT exempt VAT exempt
supplier from 1. Transfer of goods or properties not in the course
customs of business (originally intended for sale or for
territory to use in the course of business)
PEZA- 2. Property dividends (transfer to shareholders as
registered share in the profits of VAT-registered persons or
enterprise to creditors in payment of debt)
3. Consignment of goods without the sale being
made within 60 days
PEZA- 12% VAT imposed VAT-exempt if
registered
4. Retirement from or cessation of business with
on buyer in the service is
enterprise to addition to the performed or respect to inventories of taxable goods existing
buyer from import tax and rendered within (see SECTION 106(B), TAX CODE)
customs customs duties the ecozone.
territory Same rule Note: (1) Before considering whether the transaction is
(local/domestic applies to lease deemed sale, it must first be determined whether the sale
sales) of properties if was in the ordinary course of trade or business. Even if
located in the the transaction was deemed sale, if it was note done in
ecozone. the ordinary course of trade or business, still the
transaction is not subject to VAT (CIR v. MAGSAYSAY LINES
12% VAT [JULY 28, 2006]).
imposed on the
PEZA-registered

(2) As to (1), the transaction is deemed sale when the ---------------------------------------------------------------

taxpayer-seller withdraws goods from his inventory of 11. Change or cessation of status as VAT-
goods held primarily for sale for his own personal or non-
business use. The withdrawal or transfer of goods results registered person
in the use or consumption of such goods by a person (the a) Subject to VAT
seller himself) who is effectively the final consumer, such (i) Change of business activity from VAT
withdrawal or transfer is deemed a sale subject to output taxable status to VAT-exempt status
tax.
(ii) Approval of request for cancellation of
(3) As to (2), the requisites to constitute the distribution or registration due to reversion to exempt
transfer to a shareholder or creditor a transaction deemed status
sale are: (a) the VAT-registered person distributing or (iii) Approval of request for cancellation
paying is a domestic corporation; (b) what is being of a registration due to desire to revert to
declared or paid is either real property owned by the
company or shares of stocks owned in another company;
exempt status after lapse of 3
and (c) the domestic corporation is either a real estate consecutive years
dealer (in case of real property) or dealer in securities (in b) Not subject to VAT
case of shares of stock) (i) Change of control of a corporation
(ii) Change in the trade or corporate name
(4) As to (3), as a general rule, a consignment of goods by
the consignment-owner to the consignee is not a taxable (iii) Merger or consolidation of
transaction. However, it is subject to VAT when the corporations
consigned goods are: (a) not sold by the consignee; and ---------------------------------------------------------------
(b) not returned by him to the consignor-owner within 60
days from date of consignment.
(5) As to (4), the VAT-registered taxpayer who ceases or
retires from business, including an unregistered joint Q: When is a change in or cessation of
venture undertaking construction activity, must pay output status of a VAT registered person subject to
tax on the gross value of his inventory of materials, goods VAT?
and supplies existing at the time of cessation or retirement
of business.
1. Change of business When a VAT-registered
Q: San Roque Power entered into a activity from VAT- person engaged in a
purchase power agreement with NAPOCOR taxable status to VAT-taxable activity
to develop the hydroelectric potential of the VAT-exempt status decides to discontinue
Lower Agno River. During the testing such activity and engage
period, electricity was transferred by San in a non-VAT-taxable
Roque to NAPOCOR. Can the transfer be activity.
considered a sale of electricity?
2. Approval of a When a person
Yes. In SAN ROQUE POWER CORP. V. CIR [NOVEMBER request for commenced a business
25, 2009], the Supreme Court held that although the cancellation of a with the expectation that
transfer was not a commercial sale, the NIRC does registration due to is gross sales or receipts
not limit the definition of sale to commercial reversion to exempt will exceed P1,919,500
transactions in the normal course of business. status but failed to exceed this
Conspicuously, Section 106(B) of the NIRC, which amount during the first
deals with the imposition of VAT, does not limit the 12 months of operation.
term sale to commercial sales, rather it extends the
term to transactions that are deemed sale. In the 3. Approval of request When a person who is
said case, it was undisputed that San Roque for cancellation of a VAT-exempt and not
transferred to NPC all the electricity that was registration due to required to register for
produced during the trial period. The fact that it was desire to revert to VAT opted to register as
not transferred through a commercial sale or in the exempt status after a VAT taxpayer and after
normal course of business does not deflect from the lapse of 3 the lapse of 3 years
fact that such transaction is deemed as a sale. consecutive years desire to revert to
exempt status

Q: Does VAT apply to every importation?
Q: When is a change in or cessation of Yes. The VAT shall be imposed on every importation
status of a VAT registered person NOT of goods, whether or not in the course of trade or
subject to VAT? business. This is unlike VAT on sale of goods or
properties which must be in the course of trade or
business. Otherwise, the person/transaction shall
1. Change or control The goods or properties not be liable to pay VAT. (see CIR V. SEAGATE
of a corporation by used in the business or TECHNOLOGY [FEBRUARY 11, 2005]).
acquisition of the those comprising the
controlling interest stock-in-trade will not be Q: What is the tax base of VAT on
of such corporation considered sold, importation of goods?
by another bartered or exchanged
stockholder or because the corporation The tax base is the total value used by the BOC in
group of still owns them. determining tariff and customs duties plus customs
stockholders duties, excise taxes, if any, and other charges.
Subject to VAT:
Where the customs duties are determined on the
a. Exchange of basis of the quantity or volume of the goods, the
property by VAT shall be based on the landed cost plus excise
corporation taxes, if any.
acquiring control for
the shares of stocks Read Section 107(B), Tax Code
of the target
corporation Q: What is technical importation?
b. Exchange of
properties by a Technical importation is the subsequent sale,
person who wants to transfer or exchange of imported goods by VAT-
join the corporation exempt persons to non-exempt persons or entities.
of his properties
held for sale or for
Q: What is the legal consequence of
lease for shares of
stock whether technical importation?
resulting to
corporate control or The non-exempt buyers, transferees, or recipients
not shall be deemed the importers of the taxable goods
and shall be liable for the VAT due on such
2. Change in trade or importation. (see SECTION 107(B), TAX CODE)
corporate name
Q: Anshari, an alien employee of ADB, who
3. Merger or The unused input tax of is retiring soon has offered to sell you his
consolidation the dissolved corporation car, which he imported tax-free for his
as of the date of merger personal use. The privilege of tax exemption
or consolidation shall be is recognized by tax authorities. If you
absorbed by the decide to purchase the car, is the sale
surviving corporation.
subject to tax?
--------------------------------------------------------------- Yes. Section 107(B) provides that in case of tax-free
12. VAT on importation of goods importation of goods into the Philippines by persons,
a) Transfer of goods by tax exempt persons entities or agencies exempt from tax, where the
--------------------------------------------------------------- goods are subsequently sold, transferred, or
exchanged in the Philippines to non-exempt persons
Read Section 107(A), Tax Code or entities, the purchasers, transferees, or recipients
shall be considered as the importer thereof, who

shall be liable for any internal revenue tax on such Section 108 of the 1997 Tax Code is not exhaustive.
importation. Among those included in the enumeration is the
lease of motion picture films, films, tapes and
--------------------------------------------------------------- discs. This, however, is not the same as the
13. Tax on sale of service and use or lease showing or exhibition of motion pictures or films.
of properties Hence, since the showing or exhibition of motion
a) Requisites of taxability pictures or films Is not in the enumeration, such is
not a VAT-taxable transaction.
---------------------------------------------------------------
Q: Are association dues, membership fees,
Read Section 108(A), Tax Code
and other assessment and charges
collected by a condominium corporation/
Q: What is a sale or exchange of services?
homeowners association subject to VAT?
A sale of exchange of services means the
performance of all kinds of services in the Yes because they constitute as income payment or
Philippines for others for a fee, remuneration or compensation for the beneficial services the
consideration. condominium corporation/ homeowners association
provides for its tenants and members (RMC 65-
(See SECTION 108(A), TAX CODE for an extensive 2012).
enumeration of the type of services including in said
Note: (1) The fact that a condominium
definition) corporation/homeowners association is a non-stock, non-
profit organization is immaterial. As held in CIR V. CA &
Q: Are toll fees collected by tollway COMASERCO [MARCH 30, 2000], even a non-stock, non-
operators subject to VAT? profit organization or government entity is liable to pay
VAT on sale of goods and services.
Yes. The Supreme Court in DIAZ V. SECRETARY OF
FINANCE [JULY 10, 2011] answered this issue in the (2) Pursuant to Section 18 of RA 9904 (Magna Carta for
Homeowners and Homeowners Association), the
affirmative. The court held that VAT is imposed on
association dues and income derived from rentals of the
all kinds of services and tollway operations who are homeowners associations may be exempted from tax
engaged in construction, maintaining, and operating subject to the following conditions: (a) The homeowners
expressways are no different from lessors of association must be a duly constituted Association as
property, transportation contractors, etc. Further, defined under Section 3(b) of RA 9904; (b) The LGU
they also come under those described as all other having jurisdiction over the homeowners association must
franchise grantees which is not confined only to issue a certification identifying the basic services being
legislative franchise grantees since the law does not rendered by the association and its lack of resources to
distinguish. They are also not a franchise grantee render such services; and (c) the association must present
proof that the income and dues are used for the
under Section 119 of the Tax Code which would cleanliness, security and other basic services need by
have made them subject to percentage tax instead. members, including maintenance of the facilities in their
Neither are the services part of the enumeration respective subdivisions and villages. (RMC 9-2013
under Section 109 on VAT-exempt transactions. [January 29, 2013]
Note: RMC 63-2010 [JULY 19, 2010] was issued to Q: When is the lease of properties subject to
implement Section 108 and impose VAT on the gross
receipts of tollway operators from all types of vehicles
VAT?
starting August 16, 2010.
The use or lease of properties shall be subject to
Q: Are the gross receipts derived by VAT irrespective of the place where the contract of
lease or licensing agreement was executed if the
operators or proprietors of cinema/theater
property is leased or used in the Philippines.
houses from admission tickets subject to
VAT?
No. The Supreme Court in CIR v. SM PRIME

HOLDINGS [FEBRUARY 26, 2010] held that although
the enumeration of services subject to VAT under

Q: Is the lease of residential units subject to 5. The service is not exempt under the Tax
VAT? Code, special law or internal agreement
Yes as to the lease of residential units with a Note: Absence of any of the requirements renders the
monthly rental per unit exceeding P12,800, transaction exempt from VAT but may be subject to other
percentage tax.
regardless of the amount of aggregate rentals
received by the lessor during the year
---------------------------------------------------------------
Q: What is the tax treatment of the lease of 14. Zero-rated sale of services
residential units, where some are leased out ---------------------------------------------------------------
for exceeding P12,800 while others are
leased out for more than P12,800? Read Section 108(B), Tax Code
The tax treatment shall be as follows: Q: Enumerate the zero-rated sales of

services.
1. The gross receipts from rentals not exceeding
P12,800 per month per unit shall be exempt SECTION 108(B) provides for the following:
from VAT regardless of aggregate gross receipts
2. The gross receipts from rentals exceeding 1. Processing, Manufacturing, or Repacking Goods
P12,800 shall be subject to VAT if the aggregate for Other Persons Doing Business outside the
annual gross receipts from said units exceeds Philippines, which goods are subsequently
4
P1,919,500,000. exported, where the services are paid for in
acceptable foreign currency and accounted for
Q: Give the basis of VAT on sale of services in accordance with the rules and regulations of
and use or lease of properties? the BSP
2. Services Other than those mentioned in the
The basis shall be the gross receipts derived from preceding paragraph rendered to a person
the sale or exchange of services including the use or engaged in business conducted outside the
lease of properties. (see Section 108(A), Tax Code) Philippines or a nonresident person not engaged
in business who is outside the Philippines when
Note: Gross receipts means the total amount of money the services were performed, the consideration
or its equivalent representing the contract price, for which is paid for in acceptable foreign
compensation, service fee, rental or royalty actually or currency and accounted for in accordance with
constructively received during the taxable quarter for the the rules and regulations of the BSP.
services performed or to be performed for another person. 3. Services rendered to person or entities whose
exemption under Special Laws or International
Q: What are the requisites for the taxability Agreements effectively subjects the supply of
of the sale of services and use or lease of such services to a 0% rate. (effectively zero-
properties? rated transaction)
4. Sale of Services to Persons Engaged in
1. There is a sale or exchange of service or International Shipping or Air Transport
lease or use of property enumerated in the Operations
law or other similar services 5. Sale of Services for Export-Oriented Enterprise
2. The service is performed or to be performed whose export sales exceed 70% of total annual
in the Philippines production
3. The service is in the course of the taxpayers 6. Transport of Passengers and Cargo by Air or
trade or business or profession Seal Vessels from the Philippines to a Foreign
4. The service is for a valuable consideration Country
actually or constructively received and 7. Sale of Power Generated through Renewable
Sources of Energy
Q: Acesite is the operator of Holiday Inn

4
Hotel. It leases part of its premises to
Otherwise, the gross receipts will be subject to the 3% tax
imposed under Section 116 of the Tax Code. PAGCOR and caters food and beverages to

its patrons. Acesite contends that the sale while as a general rule, the VAT system uses the
of food and beverages to PAGCOR is zero- destination principle as a basis for the jurisdictional
rated and thus entitling them to claim a tax reach of the tax such that goods and services are
refund/credit. Is Acesite correct? taxed only in the country where they are consumed,
exceptions to the destination principle are found in
Yes. In CIR v. ACESITE PHILIPPINES [FEBRUARY 16, Section 108(B) of the 1997 Tax Code. In this case,
2007], the Supreme Court stated that services Amex Phils. facilitated in the Philippines the
rendered to persons or entities whose exemption collection and payment of receivables belonging to
under special laws or international agreements to its Hong Kong-based foreign client, Amex HK, and
which the Philippines is a signatory effectively getting paid for it in acceptable foreign currency and
subjects the supply of such services to zero (0%) accounted for in accordance with the rules and
rate shall be subject to 0%. Since the law clearly regulations of the BSP. As such, they are deemed
provides for PAGCORs exemption, the sale of exceptions because although the services are
services of Acesite to PAGCOR is effectively zero- performed in the Philippines, the sales of such
rated. Hence, Acesite may refund the VAT it paid on services are considered zero-rated.
its sale of food and beverages to PAGCOR.
Q: Placer Dome Inc (PDI) owns 39.9% of
Note: Lets now discuss the most important zero-rated Marcopper. It undertook to clean-up and
sale in the enumeration Section 108(B)(2). This is an rehabilitate the Makalupnit and Boac Rivers
exception to the destination principle. Remember that in Marinduque which was affected by its
under the destination principle, goods and services are mining operations. PDI engaged the
taxed only in the country where they are consumed.
Section 108(B)(2) is an exception because although the
services of Placer Dome Technical Services
services are performed in the Philippines, the sales of Limited (PD Canada), a non-resident foreign
such services are zero-rated. corporation in Canada which, in turn,
engaged the services of Placer Dom
Q: What are the requisites for the zero-rating Technical Services Philippines (PD
of the sale of service under Section Philippines). PD Philippines filed for a claim
108(B)(2)? for tax credit/refund and contends that its
sale of services to Placer Dome Canada was
zero-rated. The CIR invokes the destination
1. The service is performed in the Philippines
2. The service falls under any of the categories principle, contending that Placer Dome
provided in Section 108(B) Philippines services, while rendered to a
3. It is paid for in acceptable foreign currency that non-resident foreign corporation, are not
is accounted for in accordance with the destined to be consumed abroad. Is the CIR
regulations of the Bangko Sentral ng Pilipinas correct?
4. The recipient of such services is doing business
outside the Philippines. No. In CIR V. PLACER DOME [JUNE 8, 2007], the
Supreme Court reiterated its ruling in AMERICAN
Q: American Express Philippines (AMEX-P) EXPRESS INTERNATIONAL V. CIR [JUNE 29, 2005] to
is a Philippine Branch of AMEX the effect that the services enumerated in Section
International. AMEX-P is a servicing unit of 108B constitute as exceptions to the destination
AMEX Hong Kong (AMEX-HK) and facilitates principle and are zero-rated. Since Placer Dome
Philippines services meet the requirements of
the collections of AMEX-HK receivables
Section 108(B)(2), it is zero-rated.
from card members in the Philippines.
AMEX-P claimed a refund for its input taxes Q: A foreign consortium composed of
arising from zero-rated sales of services to Burmeister Denmark and Mitsui Engineering
AMEX-HK. CIR argues that AMEX-Ps entered into a contract with NAPOCOR for
services must be consumed abroad in order the operation and maintenance of two
to be zero-rated. Is the CIR correct? barges.. The Consortium appointed
Burmeister Denmark as coordination
No. In AMERICAN EXPRESS INTERNATIONAL V. CIR
[JUNE 29, 2005], the Supreme Court opined that manager. Burmeister Denmark established

Burmeister Mindanao which subcontracted No. The services performed by AB ROHQ to X Corp
the operation and maintenance of the two do not qualify for zero-rating because X Corp cannot
barges. NAPOCOR paid the foreign be considered doing business outside the
consortium while the consortium, in turn, Philippines. The phrase other persons doing
business outside the Philippines under Section
paid Burmeister Philippines foreign
108(B)(2) shall be deemed to pertain exclusively to
currency inwardly remitted into the affiliates, subsidiaries, or branches of ROHQs. X
Philippines. The BIR refused to grant a Corp, as the mother company of AB ROHQ, cannot
refund since the services were not destined be considered an affiliate, subsidiary or branch for
for consumption abroad. Are the services of the simple reason that X Corp and AB ROHWQ
Burmeister Philippines entitled to zero-rated must be considered as one and the same entity for
status? purposes of taxation. Further, X Corp is considered
doing business in the Philippines through AB ROHQ.
Yes. In CIR V. BURMEISTER AND W AIN SCANDINAVIAN
CONTRACTOR MINDANAO, INC. [JANUARY 22, 2007], Q: ABC is a business process outsourcing
they are entitled to zero-rated status and to the company and is engaged in the business of
refund but only for the period covered prior to the providing call center services from the
filing of the CIRs answer in the CTA. This is so Philippines to domestic and offshore
because prior, Burmeister was able to secure a businesses. Can ABC claim for a refund or
ruling from the BIR allowing zero-rating of its sales. issuance of a TCC for its excess input tax paid
However, such ruling is valid only until the time that on domestic purchases of goods and services
the CIR filed its answer in the CTA which amounted which were allegedly attributable to ABCs zero-
to a revocation of the said ruling. The revocation rated sales of services?
cannot be made retroactive.
Yes provided it meets the following requisites:
It must be noted, however, that without this special
circumstance, Burmeister would not have been 1. the services must be other than processing,
entitled to a zero-rated status. This is because the manufacturing or repacking of goods;
Consortium which was the recipient of the services 2. payment for such services must be in
rendered by Burmeister was deemed doing business acceptable foreign currency accounted for in
within the Philippines. While the Consortiums accordance with the BSP rules and regulations;
principal members are non-resident foreign and
corporations, the Consortium itself is doing business 3. the recipient of such services is doing business
in the Philippines. Hence, the transactions of BWSC outside the Philippines.
Mindanao are not subject to VAT at zero percent.
Note: In SITEL PHILIPPINES CORPORATION V. CIR [CTA CASE
Q: AB ROHQ is an ROHQ of X Corp, a NO. 7623, MARCH 3, 2010], ACCENTURE VS. COMMISSIONER
OF INTERNAL REVENUE [C.T.A. CASE NO. 7046, SEP. 22,
foreign corporation organized under the 2009], PARLANCE SYSTEMS VS. COMMISSIONER OF INTERNAL
laws of New York, USA. AB ROHQ is a VAT- REVENUE [C.T.A. CASE NO. 7459, JUL. 9, 2009], business
registered taxpayer engaged in providing process outsourcing companies were refused a refund of
services including logistics, research and their excess input VAT because their sale of services were
not zero-rated because they failed to prove that their
development, product development, data clients were non-resident foreign corporations doing
processing and communication, and business outside the Philippines.
business development. It provides services
solely and exclusively for its head office. AB
ROHQ filed a claim for refund or issuance of ACCENTURE V. CIR, G.R. NO. 190102, JULY
TCC for input VAT paid on purchases 11, 2012
arising from its alleged zero-rated sale of
services to X Corp. Are the services DOCTRINE: For VAT zero-rating of services rendered
to non-resident foreign corporation under Section
rendered by AB ROHQ to its head office 108(B)((2) of the NIRC, it is not enough that the
deemed VAT zero-rated? recipient of services be proven to be a foreign
corporation, it must be proven to be a non-resident
foreign corporation.

Q: Enumerate the exempt transactions5

FACTS: Taxpayer filed an application for refund of
unutilized input taxes allocated to its zero-rated sale of SECTION 109(A) TO (V) provides for the following:
services to foreign clients. In order to prove that its sales
are VAT zero-rated, taxpayer presented as evidence the
Official Receipts, Billing Statements, Memo Invoices- a) Sale or importation of agricultural and marine
6
Receivable, Memo Invoices-Payable and Bank food products in their original state.
Statements. Taxpayer argued that these documents show
that the zero-rated sales were paid in foreign currency and b) Sale or importation of fertilizers; seeds,
duly accounted for in accordance with the rules and seedlings and fingerlings; fish, prawn, livestock
7
regulations of the Bangko Sentral ng Pilipinas (BSP). and poultry feeds
HELD: The Court ruled that for sale of services to be VAT c) Importation of personal and household effects
zero-rated under Section 108(B) of the NIRC, the recipient
belonging to the residents of the Philippines
of service must be doing business outside the Philippines.
According to the Court, the documents presented by returning from abroad
taxpayer merely substantiated the existence of sales,
receipt of foreign currency payments and inward d) Importation of professional instruments and
remittance of the proceeds of such sales. There is no implements, wearing apparel, domestic animals
evidence that the clients were doing business outside the and personal household effects belonging to
Philippines. Accordingly, the Court denied the claim on the persons coming to settle for the first time in the
ground that no evidence was presented to prove the fact Philippines
that the foreign clients to whom the taxpayer rendered e) Services subject to percentage tax
services are clients doing business outside the
Philippines.
f) Services by agricultural contract growers and
milling for others of palay into rice, corn into grits
In MINDANAO GEOTHERMAL PARTNERSHIP VS.
and sugarcane into raw sugar
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO.
7801, JULY 10, 2012, the CTA held that in order to
g) Medical, dental, hospital and veterinary services
qualify for VAT zero-rating under Section 108(B)(7) 8
except those rendered by professionals
of the NIRC, as amended, the taxpayer must be able
to prove that it is a generation company and that it is
h) Educational services rendered by private
engaged in the sale of power or fuel generated
educational institutions duly accredited by
through renewable source of energy.
DEPED, CHED, and TESDA and those by
governmental educational institutions
---------------------------------------------------------------
15. VAT exempt transactions i) Services rendered pursuant to an employee-
a) VAT exempt transactions, in general employer relationship
b) Exempt transactions, enumerated
--------------------------------------------------------------- j) Services rendered by regional or area
headquarters established in the Philippines
Q: What are VAT-exempt transactions?
VAT-exempt transactions refer to the sale of goods

or properties and/or services and the use or lease of 5
Those underlined are the notable VAT-exempt transactions.
properties that is not subject to VAT (output tax) and These enumeration is exclusive.
6
the seller is not allowed any tax credit of VAT (input Such products are still considered in their original state even if
they have undergone simple processes of preparation or
tax) on purchases. preservation for the market, such as freezing, drying, salting,
broiling, roasting, smoking, or stripping. Polished and/or husked
The person making the exempt sale of goods, rice, corn grits, raw cane sugar and molasses, ordinary salt and
properties, or services shall not bill any output tax to copra shall be considered in their original state.
7
Does not include specialty feeds for race hourses, fighting
his customers because the said transaction is not cocks, aquarium fish, zoo animals, and other animals generally
subject to VAT. considered as pets.
8
But see discussion on VAT exemption of doctors registered with
the PRC and lawyers registered with the IBP.

k) Transactions which are exempt under u) Services of banks, non-bank financial

international agreements to which the intermediaries performing quasi-banking
Philippines is a signatory or under special laws functions and other non-bank financial
intermediaries
l) Sales by agricultural cooperatives duly
registered with the Cooperative Development v) Sale or lease of goods or properties or
Authority performance of services other than the
transactions mentioned in the preceding
m) Gross receipts from lending activities by credit or paragraphs, the gross annual sales and/or
multi-purpose cooperatives duly registered with receipts do not exceed the amount of
14
the Cooperative Development Authority whose P1,919,500. .
lending is limited to members
Q: Are senior citizens exempt from the 12%
n) Sales by non-agricultural, non-electric and non- VAT?
credit cooperatives duly registered with the
9
Cooperative Development Authority Yes. RA No. 9994 [February 15, 2010], otherwise
known as the Expanded Senior Citizens Act of 2010
exempts senior citizens from paying 12-percent VAT
o) Export sales by persons who are not VAT- on goods and services.
registered
Q: Are medical services rendered b doctors
p) Sales of real properties not primarily held for registered with the PRC and legal services
sale to customers or held for lease in the
rendered by lawyers registered with the IBP
ordinary course of trade or business or sales
10
within the low-cost cap of below 1,919,500 for subject to VAT?
11
a residential lot and P3,199,200 for a house
and lot and other residential dwelling No. RR 7-2004 [M AY 7, 2004] excludes services by
doctors registered with the PRC and services by
q) Lease of a residential unit with a monthly rental lawyers registered with the IBP as well as GPPs for
not exceeding P12,800
12 the sole and exclusive purport of practising law or
medicine from the coverage of VAT on services
r) Sale, importation, printing or publication of
books and any newspaper, magazine, review or Q: Are pawnshops liable to pay VAT?
bulletin which appears at regular intervals with
fixed prices for subscription and sale and is not No. As explained by the Supreme Court in
devoted principally to publication of paid TAMBUNTING PAWNSHOP V. CIR [JANUARY 21, 2010]:
advertisements Prior to the passage of the EVAT Law in 1994,
pawnshops were treated as lending investors
15
s) Sale, importation, or lease of passenger or subject to lending investors tax. Subsequently,
cargo vessels and aircraft
13 pawnshops were treated jurisprudentially as VAT-
able enterprises under the general classification of
t) Importation of fuels, goods and supplies by sale or exchange of services. RA No. 9238 which
persons engaged in international shipping or air passed in 2004 finally classified pawnshops as
transport operations other non-bank financial intermediaries.
9 14
Provided that the share capital contribution of each member Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27,
does not exceed P15,000 2011].
10 15
Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27, Note that in FIRST PLANTERS PAWNSHOP VS. CIR [JULY 30,
2011]. 2008], the Supreme Court held that First Planters Pawnshop was
11
Previously 2.5 million. Amended by RR 16-2011 [OCTOBER 27, subject to VAT as it was a lending investor. It must be noted that
2011]. the factual circumstances of the said case pertained to a taxable
12
Previously P10,000. Amended by RR 16-2011 [OCTOBER 27, period prior to RA No. 9238. What is important to note in this case
2011]. is that the Supreme Court stated that pawnshops should now be
13
Includes engine, equipment, and spare parts thereof for treated as non-bank financial intermediaries and, as such, not
domestic or international transport operations. subject to VAT.

Q: Is a health maintenance organization Q: Is the sale of e-books and e-journals

liable to pay VAT? appearing at regular intervals with fixed
prices for subscription and sale and not
Yes. In CIR V. PHILIPPINE HEALTH CARE PROVIDERS, devoted principally to publication of paid
INC. [APRIL 24, 2007], PHCPI claimed that its advertisements subject to VAT?
services were exempt from VAT and sought a BIR
ruling in this regard. The BIR ruled that PHCPI was No. The terms book, newspaper, magazine,
exempt. The CIR, however, later assessed PHCPI review and bulletin shall refer to printed materials
for deficiency VAT taxes. The CIR contended that in hard copies and do not include those in digital or
PHCPI does not actually render medical service but electronic format or computerized versions (RMC
merely acts as a conduit between the members and No. 75-2012 dated November 22, 2012)
PHCPIs accredited and recognized hospitals and
clinics. The Supreme Court opined that the services Q: Is PAGCORs sale of services subject to
of an entity which does not actually provide medical
VAT?
and/or hospital services but merely arranges for the
same are subject to VAT. The Court, however, ruled
No. In PAGCOR V. CIR [M ARCH 15, 2011], the
PHCPI cannot be faulted for its reliance on the BIR
Supreme Court held that RA 9337 only withdrew
ruling as such was issued when the term health
PAGCORs exemption from corporate income taxes
maintenance organization had no significance for
but does not contain any provision that subjects the
taxation purposes at the time. The failure of PHCPI
same to VAT. PAGCOR is exempt from the payment
to describe itself as a health maintenance
of VAT, because PAGCOR's charter, P.D. No. 1869,
organization subject to VAT does not amount to bad
is a special law that grants it exemption from taxes.
faith.
Moreover, the exemption of PAGCOR from VAT is
supported by Section 6 of R.A. No. 9337, which
Q: Is the sale of copra subject to VAT? retained Section 108 (B) (3) of R.A. No. 8424, thus:
Services rendered to persons or entities whose
No. RA 9337 amended Section 109(A) to include exemption under special laws or international
copra as those that should be considered in their agreements to which the Philippines is a signatory
original state. Previously in MISAMIS ORIENTAL V. effectively subjects the supply of such services to
DOF [NOVEMBER 10, 1994], the Supreme Court zero percent (0%) rate
opined that copra is not food and is not intended for
human consumption. Thus, it is not exempt from
VAT. The rule now is the sale of copra is VAT- Q: S and ABS-CBN entered into an
exempt. agreement where S will provide his services
exclusively to ABS-CBN as a talent for the
Q: Is the sale of Andoks chicken subject to latters TV and radio shows. Is he liable to
VAT? pay VAT?
No. The sale of Andoks chicken is exempt from No provided that there exists no employer-employee
VAT. However, should Andoks maintain a facility by relationship between S and ABS-CBN. In SONZA V.
which the roasted chicken will be offered as a menu ABS-CBN [JUNE 10, 2004], the Supreme Court held
to customers who would dine-in, then it will be that an independent contractor is liable to pay VAT.
subject to VAT on sale of service which is similarly Section 109 only exempts from VAT services
imposed on restaurants and other eateries (VAT rendered pursuant to an employer-employee
Ruling No. 009-07 dated June 21, 2007) relationship.
Note: Ano lessons sa ruling na ito sa mga gusto

magnegosyo diyan para ma-exempt sa VAT? Una, stall CIR v. PILIPINAS SHELL [G.R. 188497, APRIL
lang itatayo mo na pang-take out. If may dine-in, sale of
service yun! That is subject to VAT. Pangalawa, ito lang 25, 2012]
puwede mo gawin sa manok mo o baboy or isda:
freezing, drying, salting, broiling, roasting, smoking, or DOCTRINE: Oil companies are not exempt from the
stripping. Kapag nagbenta ka ng adobong manok, payment of excise tax on petroleum products
nilagang baboy or sinigang na isda, hindi na original state manufactured and sold by them to international carriers.
yan!

FACTS: The taxpayer filed with the Large Taxpayers Audit of the excise tax.
& Investigation Division II of the (BIR) the several formal
claims for refund or tax credit for various years. It filed Furthermore, considering that the excise taxes attaches to
petitions for review since no action was taken by the BIR petroleum products as soon as they are in existence as
on its claims. The CTAs First Division ruled that the such, there can be no outright exemption from the
taxpayer is entitled to the refund of excise taxes in the payment of excise tax on petroleum products sold to
reduced amount. It relied on a previous ruling rendered by international carriers. The sole basis then of the taxpayers
the CTA En Banc in a previous case involving the same claim for refund is the express grant of excise tax
taxpayer, where the CTA also granted the taxpayers claim exemption in favor of international carriers under Sec.
for refund on the basis of excise tax exemption for 135(a) for their purchases of locally manufactured
petroleum products sold to international carriers of foreign petroleum products.
registry for their use or consumption outside the
Philippines. On appeal, the CTA En Banc upheld the ruling Citing its ruling in Philippine Acetylene, it held that a tax
of the First Division. exemption being enjoyed by the buyer cannot be the basis
of a claim for tax exemption by the manufacturer or seller
HELD: The Supreme Court held that both the earlier of the goods for any tax due to it as the manufacturer or
amendment in the 1977 Tax Code and the present Sec. seller. The excise tax imposed on petroleum products
135 of the 1997 NIRC did not exempt the oil companies under Sec. 148 is the direct liability of the manufacturer
from the payment of excise tax on petroleum products who cannot thus invoke the excise tax exemption granted
manufactured and sold by them to international carriers. to its buyers who are international carriers.
Because an excise tax is a tax on the manufacturer and

not on the purchaser, and there being no express grant Note: Although hindi kasama sa coverage, note na rin that
under the NIRC of exemption from payment of excise tax by virtue of RA No. 10378 approved March 7, 2013,
to local manufacturers of petroleum products sold to transport of passengers by international carriers is a VAT-
international carriers, and absent any provision in the exempt transaction.
Code authorizing the refund or crediting of such excise
taxes paid, the Court holds that Sec. 135 (a) should be In COMMISSIONER OF INTERNAL REVENUE VS.
construed as prohibiting the shifting of the burden of the
SEMIRARA MINING CORPORATION [CTA EB NO. 752,
excise tax to the international carriers who buys petroleum
products from the local manufacturers. Said provision thus
M ARCH 22, 2012], the CTA held that a coal operator
merely allows the international carriers to purchase with coal operating contract with the government is
petroleum products without the excise tax component as exempt from value-added tax. In order to encourage
an added cost in the price fixed by the manufacturers or and promote said policy, Section 16 of PD 972
distributors/sellers. Consequently, the oil companies which expressly grants tax incentive to operators of a
sold such petroleum products to international carriers are contract under the said Decree which exempts them
not entitled to a refund of excise taxes previously paid on from all taxes except income tax.
the goods.
The Supreme Court pointed out that the taxpayers failure ---------------------------------------------------------------
to make a distinction on the exemption under Sections 134 16. Input tax and output tax, defined
and 135 of the Tax Code, apparently led it to mistakenly ---------------------------------------------------------------
assume that the tax exemption under Sec. 135 (a)
attaches to the goods themselves such that the excise Note: I already discussed this.
tax should not have been paid in the first place. The
exemption found in Sec. 134 makes reference to the
nature and quality of the goods manufactured (domestic
---------------------------------------------------------------
denatured alcohol) without regard to the tax status of the 17. Sources of input tax
buyer of the said goods while Sec. 135 deals with the tax a) Purchase or importation of goods
treatment of a specified article (petroleum products) in b) Purchase of real properties for which a
relation to its buyer or consumer. VAT has actually been paid
Further, it held that Sec. 135 (a) in relation to the other c) Purchase of services in which VAT has
provisions on excise tax and from the nature of indirect actually been paid
taxation, may only be construed as prohibiting the d) Transactions deemed sale
manufacturers-sellers of petroleum products from passing e) Presumptive input
on the tax to international carriers by incorporating
previously paid excise taxes into the selling price. In other
f) Transitional input
words, the taxpayer cannot shift the tax burden to ---------------------------------------------------------------
international carriers who are allowed to purchase its
petroleum products without having to pay the added cost

Read Section 110(A), Tax Code Q: What is the rule on transitional input
credits?
Q: What are the sources of input tax?
A person who becomes liable to VAT or any person
1. Purchase or importation of goods who elects to be VAT-registered shall, subject to the
a. For sale; or filing of an inventory, be allowed input tax on his
b. For conversion into or intended to form beginning inventory of goods, materials and supplies
part of a finished product for sale equivalent to 2% of the value of such inventory or
including packaging materials; or the actual VAT paid on such goods, materials and
c. For use as supplies in the course of supplies, whichever is higher, which shall be
business; creditable against the output tax.
d. For use as materials supplied in the sale
of service;
e. For use in trade or business for which FORT BONIFACIO DEVELOPMEN CORPORATION V.
deduction for depreciation or CIR, G.R. NO. 173425, SEPTEMBER 4, 2012
amortization is allowed under the Tax
Code except automobiles, aircraft and DOCTRINE: Prior payment of taxes is not required for
yachts. a taxpayer to avail of the 8% transitional input tax
credit.
2. Purchase of real properties for which ha
VAT has actually been paid FACTS: Fort Bonifacio Development Corporation (FBDC)
3. Purchase of services in which VAT has purchased from the government in 1995 portion of the Fort
actually been paid Bonifacio reservation, now known as the Fort Bonifacio
4. Transactions deemed sale Global City. No VAT on the sale of the land was passed
5. Presumptive input tax on by the government to FBDC. On January 1, 1996,
6. Transitional input tax (see Section 4.110-1, Republic Act 7716 took effect, amending certain
RR 16-2005) provisions of the NIRC. One of the amendments is the
extension of the coverage of the VAT to sale of real
properties held primarily for sale to customers or held for
--------------------------------------------------------------- lease in the ordinary course of business. In September
e) Presumptive input 1996, FBDC submitted to the BIR an inventory of all its
--------------------------------------------------------------- real properties, claiming that it is entitled to the transitional
input tax credit on said inventories. FBDC started selling
Read Section 111(B), Tax Code Global City lots in October 2006. For the 1st quarter of
1997, FBDC paid output taxes on the sale of lots after
deducting input taxes. Realizing that the transitional input
Q: What is the rule on presumptive input tax taxes were not applied against the output VAT, which
credits? would have resulted to no net output VAT liability (the
transitional input taxes being higher), FBDC filed a claim
Persons or firms engaged in the processing of for refund for the VAT payment. The Court of Tax Appeals
sardines, mackerel and milk, and in the (CTA) denied the claim on the ground that the benefits of
the transitional input tax credit comes with the condition
manufacturing or refined sugar, cooking oil and
that business taxes should have been paid. Since FBDC
packed noodle-based instant meals, shall be acquired the property from the government free of VAT, it
allowed a presumptive input tax, creditable against cannot avail of the transitional input tax credit. The Court
the output tax, equivalent to 4% of the gross value in of Appeals (CA) affirmed the decision of the CTA, saying
money of their purchases of primary agricultural that FBDC is not entitled to the transitional input tax credit
products which are used as inputs to their since it did not pay any VAT when it purchased the Global
production. City property.
HELD: The Supreme Court (SC) reversed the decision of

---------------------------------------------------------------
the CA and granted the refund. According to the SC, there
f) Transitional input is nothing in Section 105 of the old NIRC that indicate that
--------------------------------------------------------------- prior payment of taxes is necessary for the availment of
the transitional input tax credit. All that is required is for the
Read Section 111(A), Tax Code taxpayer to file a beginning inventory with the BIR.

Note: There are 3 issues in this case: (1) Is the FBDC ---------------------------------------------------------------
entitled to claim transitional input vat (2) If yes, is the 19. Determination for output/input tax; VAT
transitional input vat applicable only to improvements and
(3) should there be a previous payment for the transitional payable; excess input tax credits
input VAT to be creditable. a) Determination of output tax
b) Determination of input tax creditable
The issues were first resolved in the case of FORT c) Allocation of input tax on mixed
BONIFACIO DEVELOPMENT CORP. V. CIR [APRIL 2, 2009] and
was affirmed in a motion for reconsideration in FORT
transaction
BONIFACIO DEVELOPMENT CORP. V. CIR [OCTOBER 2, 2009]. d) Determination of the output tax and VAT
The recent case of FORT BONIFACIO DEVELOPMENT CORP. V. payable and computation of VAT payable or
CIR [SEPTEMBER 4, 2012] simply reaffirmed the doctrines excess tax credits
laid down in the previous cases, which are as follows: ---------------------------------------------------------------
As to (1): Yes, FBDC is entitled to claim transitional input
Note: Remember the formula!
VAT by virtue of Section 111(A) (previously Section 105)
As to (2): No, RR 7-95 cannot limit the application and

coverage of Section 105 (now Section 111(A) by stating
that in the case of real estate dealers, the basis of the ---------------------------------------------------------------
presumptive input tax shall be the improvements. This is a a) Determination of output tax
legislative act beyond authority of the CIR and the ---------------------------------------------------------------
Secretary of Finance. The term goods and properties
includes real properties held primarily for sale to
customers or held for lease in the ordinary course of Q: How is output tax determined?
business. Thus, FBDC is entitled to claim transitional input
VAT based not only the improvements but also on the The output tax is computed by:
value of the entire real property and regardless of whether
or not there was actual payment on the purchase price of 1. Multiplying the GSP (for sellers of goods or
the real property or not. properties) or the gross receipts (for sellers
of services) by 12% or
As to (3): No, the transitional input tax operates to the
2. Where the amount of VAT is erroneously
benefit of newly VAT-registered persons, whether or not
they previously paid taxes in the acquisition of their
billed in the invoice or receipt, by dividing
beginning inventory of goods, materials and supplies. the total invoice amount by a fraction using
the rate of VAT as numerator and 100% plus
--------------------------------------------------------------- the rate of VAT as the denominator (Section
4.110-6, RR 16-2005)
18. Persons who can avail of input tax credit
---------------------------------------------------------------
---------------------------------------------------------------
b) Determination of input tax creditable
Q: Who may avail of input tax credit?
---------------------------------------------------------------
1. The importer upon payment of VAT prior to
the release of goods from customs custody Read Section 105(C), Tax Code
2. The purchaser of the domestic goods or
properties upon consummation of he sale Q: How is the creditable input tax
3. The purchaser of services of the lessee or determined?
licensee upon payment of compensation,
rental, royalty or fee The amount of input taxes creditable during a month
4. Purchaser of real property under or quarter shall be determined by:
cash/deferred payment basis upon
consummation of the sale or if upon 1. Adding all the creditable input taxes arising
instalment basis upon every instalment from the transactions during the month or
payment (Section 4.110-2, RR 16-2005) quarter plus any amount of input tax carried
over from the preceding month or quarter
2. Reduced by the amount of claim for VAT
refund or TCC and other adjustments such
as purchase returns or allowances, input tax

attributable or allocated to exempt sales, The following input taxes were passed on by its VAT
and input tax attributable to sales to suppliers:
government subject to final withholding VAT
(Section 4.110-5, RR 16-2005) Input tax on taxable goods at 12% - P5,000
Input tax on zero-rated sales - P3,000
Input tax on sale of exempt goods - P2,000
--------------------------------------------------------------- Input tax on sale to government - P4,000
c) Allocation of input tax on mixed Input tax on depreciable capital - P20,000
transaction Not attributable to any specific activity
--------------------------------------------------------------- (monthly amortization for 60 months)
The creditable input VAT available for each of the

Q: Explain the rule on the apportionment of respective type of transactions entered into by ABC Corp
input VAT on mixed transactions. are as follows:
SECTION 4.110-4 OF RR16-2005 [SEPTEMBER 1, 1. For the sales subject to 12% VAT (i) actual input of
2005] provides that a VAT-registered taxpayer who P5,000 and (ii) ratable portion of P5,000
is also engaged in transactions not subject to VAT 2. For the sales subject to 0% VAT (i) actual input VAT
of 3,000 and (ii) ratable portion of P5,000
shall be allowed to recognize input tax credit on 3. For sale of exempt goods no input VAT is creditable
transactions subject to VAT as follows: as the transactions are VAT-exempt
4. For the sales to government no input VAT is
1. All the input taxes that can be directly attributed creditable as the law imposes a 5% FWT obligation
to transactions subject to VAT may be on the government agency-payor.
recognized for input tax credit
How was the ratable portion of creditable input VAT for
Exception: Input taxes that can be directly VAT-taxable and zero-rated sales computed?
attributable to VAT taxable sales to the
For input VAT creditable on VAT-taxable sales:
Government or any of its political subdivisions,
instrumentalities or agencies shall not be
credited against output taxes arising from sales
to non-Government entities.
2. The input tax attributable to VAT-exempt sales

shall not be allowed as credit against output tax,
but should be treated as part of cost of asset or
operating expense
For input VAT creditable on VAT zero-rated sales
3. If any input tax cannot be directly attributed to
either a VAT-taxable or VAT-exempt transaction,
the input tax shall be pro-rated to the VAT
taxable and VAT-exempt transactions and only
the ratable portion pertaining to transactions
subject to VAT may be recognized for input tax
credit.
Note: To illustrate by way of computation.

---------------------------------------------------------------
ABC Corporation had the following sales during the d) Determination of the output tax and VAT
month: payable and computation of VAT payable or
Sale to private entities subject to 12% - P100,000 excess tax credits
Sale to private entities subject to 0% - P100,000 ---------------------------------------------------------------
Sale of exempt goods - P100,000
Sale to govt subject to 5% FWT - P100,000 Read Section 110(B), Tax Code
Total Sales for the month - P400,000

Q: Give the three possible scenarios that transactions Note: We will discuss what the
may arise in computing the VAT payable. required invoices are later.
7. Input tax from Copy of the Monthly Remittance

If at the end of any taxable month or quarter: payments made to Return of Value Added Tax
non-residents Withheld (BIR Form 1600) filed
Output tax = input tax No VAT payable by the resident payor in behalf
of the non-resident evidencing
Output tax > input tax The excess shall be paid by remittance of VAT due which
the VAT-registered person was withheld by the payor
Output tax < input tax The excess shall be carried
over to the succeeding 8. Advance VAT on Payment Order showing
quarter or quarters sugar payment of the advance VAT.
Note: If input vat results from zero-rated or effectively (Section 4.110-8, RR 16-2005)
zero-rated transactions, any excess over the output taxes
shall be refunded to the taxpayer or credited against other ---------------------------------------------------------------
internal revenue taxes, at the taxpayers option. 21. Refund or tax credit of excess input tax
a) Who may claim for refund/apply for
--------------------------------------------------------------- issuance of tax credit certificate
20. Substantiation of input tax credits b) Period to file claim/apply for issuance of
--------------------------------------------------------------- TCC
c) Manner of giving refund
Q: What are the substantiation requirements d) Destination principle or cross-border
of input tax credits? doctrine
---------------------------------------------------------------
Input taxes must be substantiated and supported by
the following documents, and must be reported in
the information returns required to be submitted to Read Section 112(c), Tax Code
the Bureau:
Q: Who may claim for refund/apply for
1. For the Import entry or other equivalent issuance of tax credit certificate?
importation of document showing actual
goods payment of VAT on the A VAT-registered person whose sales of goods,
imported goods properties or services are zero-rated or effectively
zero-rated may apply for the issuance of a TCC or
2. For the domestic Invoice showing the information
refund of input tax attributable to such sales
purchase of required under Section 113 and
goods and 237 of the Tax Code (Section 4.112-1, RR No. 16-2005).
properties
3. For the purchase Public instrument i.e., deed of Note: The refund or application for issuance of TCC must
of real property absolute sale, deed of be filed with the appropriate BIR Office-Large Taxpayers
conditional sale, Service (LTS) or RDO having jurisdiction over the principal
contract/agreement to sell, etc., place of business of the taxpayer. Direct exporters may file
together with VAT invoice their claim for TCC with the One Stop Shop Center of the
issued by the seller. DOF. (see Section 4.112-1, RR No. 16-2005). The filing
of the claim with one office shall preclude the filing of the
4. For the purchase same claim with another office.
Official receipt showing the
of services information required under
Section 113 and 237 of the Tax The proper party to seek refund of an indirect tax is
Code. the statutory taxpayer, not the person on whom it is
shifted to. (EXXON MOBIL PHILIPPINES V. CIR
5. Transitional input Inventory of goods as shown in [JANUARY 26, 2011]; SILKAIR V. CIR [FEBRUARY 25,
tax a detailed list to be submitted to 2010]
the BIR
6. Input tax on Invoice required

Deemed sale

and paid the related excise taxes thereon before the same
SILKAIR V. CIR [G.R. NO. 166482, JANUARY 25, were sold to the petitioner. The purchase price for the raw
2012] alcohol included, among others, the excise taxes paid by
the supplier. Subsequently, petitioner exported its locally
DOCTRINE: The proper party to question or seek a manufactured liquor products and received the
corresponding foreign currency proceeds of such export
refund of an indirect tax is the statutory taxpayer, the
sales. Petitioner then filed applications for tax refund/
person on whom the tax is imposed by law and who paid
issuance of tax credit certificates corresponding to the
the same even if he shifts the burden thereof to another.
excise taxes which its supplier paid but passed on to it as
part of the purchase price of the subject raw alcohol
FACTS: Petitioner filed an administrative claim for refund invoking Section130(D) of the Tax Code.
on the excise taxes paid on the purchase of jet fuel from
HELD: The Court ruled that the right to claim a refund or
its supplier oil company for the period of July 1, 1998 to
be credited with the excise taxes belongs to its supplier.
December 31, 1998, which it alleged to have been
Any excise tax paid thereon shall be credited or refunded
erroneously paid based on Section 135(a) and (b) of the
requires that the claimant be the same person who paid
Tax Code of 1997. Due to inaction by respondent
the excise tax.
Commissioner, petitioner filed a Petition for Review with
the Court of Tax Appeals. The CTA denied the petition
and ruled that while petitioners country indeed exempts
from excise taxes petroleum products sold to international Q: What are the requirements for a claim for
carriers, petitioner nevertheless failed to comply with the VAT refund/credit?
second requirement under Section 135 (a) of the 1997 Tax
Code as it failed to prove that the jet fuel delivered by 1. The taxpayer is engaged in sales which are
Petron came from the latters bonded storage tank. Upon zero-rated or effectively zero-rated
the denial of the motion of reconsideration, petitioner
2. The taxpayer is VAT-registered
elevated the case to the CA. The CA affirmed the denial
and ruled that petitioner is not the proper party to seek for 3. The claim must be filed within two years after
the refund of the excise taxes paid. the close of the taxable quarter when such sales
were made
HELD: The Supreme Court held that excise taxes, which 4. The input taxes are due or paid;
apply to articles manufactured or produced in the 5. The input taxes are not transitional input taxes
Philippines for domestic sale or consumption or for any 6. The input taxes have not been applied against
other disposition and to things imported into the output taxes during and in the succeeding
Philippines, is basically an indirect tax. While the tax is quarters
directly levied upon the manufacturer/importer upon
7. The input taxes claimed are attributable to zero-
removal of the taxable goods from its place of production
or from the customs custody, the tax, in reality, is actually rated or effectively zero-rated sales
passed on to the end consumer as part of the transfer 8. In certain types of zero-rated sales, the
value or selling price of the goods, sold, bartered or acceptable foreign currency exchange proceeds
exchanged. The proper party to question, or seek a refund thereof had been duly accounted for in
of an indirect tax is the statutory taxpayer, the person on accordance with BSP rules and regulations
whom the tax is imposed by law and who paid the same [Sections 106(A)(2)(a)(1) and (2); Section
even if he shifts the burden thereof to another. Petitioner, 106(B); Sections 108(B)(1) and (2)]
as the purchaser and end-consumer, ultimately bears the 9. Where there are both zero-rated or effectively
tax burden, but this does not transform its status into a
zero-rated sales and taxable or exempt sales,
statutory taxpayer.
and the input taxes cannot be directly and
entirely attributable to any of these sales, the
input taxes shall be proportionately allocated on
the basis of sales volume. (See INTEL
DIAGEO PHILIPPINES V. CIR [G.R. NO. 183553, TECHNOLOGY PHILIPPINES V. CIR [APRIL 27,
NOVEMBER 12, 2012] 2007])
DOCTRINE: The claimant for the refund of excise taxes Note: In JP MORGAN CHASE BANK, N.A. PHILIPPINE
related to exported products shall be the same person CUSTOMER CARE CENTER VS. COMMISSIONER OF INTERNAL
who paid the taxes. REVENUE [CTA CASE NOS. 7650, 7681 AND 7782, MARCH
13, 2012], the CTA held that Input taxes incurred prior to
FACTS: Diageo Philippines, Inc. purchased raw alcohol registration as VAT taxpayer with the BIR cannot be the
from its supplier for use in the manufacture of its beverage subject of a refund.
and liquor products. The supplier imported the raw alcohol

An application for refund/tax credit certificate on the basis application for effective zero-rating. The BIR issued
of the cancellation of VAT registration filed before the a ruling stating that the supply of electricity by Mirant
effectivity of the cancellation is premature. MINDANAO I to NAPOCOR shall be subject to 0% VAT. On April
GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL 14, 1998, Mirant paid Mitsubishi the VAT component
REVENUE, CTA CASE NO. 8247, AUGUST 10, 2012
billed by the latter for services rendered. Mirant files
nd
its quarterly VAT return for the 2 quarter of 1998,
Amounts reflected in the supporting documents must the
same with the amount reported as zero-rated sales in its
where it reflected the input VAT paid to Mitsubishi.
VAT Return for the period subject for refund. (HARTE- Subsequently, on December 20, 1999, Mirant filed
HANKS PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL an administrative claim for refund of unutilized input
REVENUE, CTA CASE NO. 7975 & 7998, JULY 2, 2012) VAT arising from purchase of capital goods from
Mitsubishi and its domestic purchase of goods and
A VAT-registered person claiming VAT zero rated direct services attributable to its zero-rated sales of power-
export sales must present at least three (3) types of generation services to NAPOCOR. The claim was
documents, to wit: (a) the sales invoice as proof of sale of denied for being filed beyond the prescriptive period
goods; (b) the export declaration and bill of lading or of two years.
airway bill as proof of actual shipment of goods from the
Philippines to a foreign country; and (c) bank credit advice,
certificate of bank remittance or any other document The Supreme Court held that Mirants claim has
proving payment for the goods in acceptable foreign prescribed. Unutilized input VAT payments must be
currency or its equivalent in goods and services. PHILEX claimed within two years reckoned from the close of
MINING CORPORATION INC. VS. COMMISSIONER OF INTERNAL the taxable quarter when the relevant sales were
REVENUE, CTA CASE NO. 8284, JULY 30, 2012 made pertaining to the input VAT even if the
payment for the VAT was made some quarters after
16
--------------------------------------------------------------- that. The fact that there was a pending request for
b) Period to file claim/apply for issuance of zero-rating cannot be a basis for the late filing of
TCC return and payment of taxes. Further, Mirant cannot
--------------------------------------------------------------- avail itself of the provisions of either Section 204(C)
or 229 of the NIRC which, for the purpose of refund,
Q: What is the prescriptive period to file the prescribes the payment of the tax as the starting
point for the two-year prescriptive limit for the filing of
claim for refund or application for issuance
a claim. These provisions apply only to instances of
of TCC? erroneous payment or illegal collection of internal
revenue taxes.
The written application for the issuance of a TCC or
refund must be filed with the BIR within 2 years after Note: In the case of claims for refund of unutilized VAT on
the close of the taxable quarter when the relevant account of cessation of business, the 2-year period shall
sales were made. commence from the date of cancellation of registration of
the taxpayer and not from the close of the taxable quarter
Q: In claims for VAT refund/credit, what is when the sales were made (Associated Swedish Steels
the reckoning point for the two-year v. CIR [CTA Case No. 7850, August 23, 2012).
prescriptive period? The cancellation of VAT registration commences from the
first day of the month following the application, under
The reckoning period is from the close of the taxable Section 236 of the Tax Code. (Ibid)
when the relevant sales were made.
Q: What is the period within which tax
Note: For this matter, It is important to discuss the leading refund/credit of input taxes shall be made?
case of CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12,
2008].
The CIR shall grant a tax credit certificate/refund for
In CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12, creditable input taxes within 120 days from the date
2008], Mirant generated power which it sells to
NAPOCOR in which connection it secured the
services of Mitsubishi Corporation of Japan. In the
belief that its sale of power generation services to 16
Note that previously in ATLAS CONSOLIDATED MINING V. CIR
the NPC was VAT zero-rated because of [JUNE 8, 2007], the rule was that the two-year prescriptive period
NAPOCORs tax exempt status, Mirant filed an for filing a claim for refund/credit of input VAT on zero-rated sales
was counted from the date of filing of the return

of submission of complete documents in support of the Court the authority to entertain the same.
the application. (see Section 112(C), Tax Code) COMMISSIONER OF INTERNAL REVENUE, VS. TEAM SUAL
CORPORATION [C.T.A. EB NO. 686, MAY 22, 2012]; CE
Note: The 120-day period is counted from the submission CASECNAN WATER AND ENERGY COMPANY, INC. VS. CIR, CTA
of the complete documents with the BIR. (PILIPINAS TOTAL EB NO. 726 [CTA CASE NO. 7739, June 26, 2012]; PHILEX
GAS, INC. VS. COMMISSIONER OF INTERNAL REVENUE [CTA, MINING CORPORATION VS. CIR [CTA EB NO. 778 CTA CASE
JANUARY 05, 2012]) NO. 7720, JUNE 26, 2012]
Non-submission of complete documents at the As the provision is phrased, the word "may" relates to the
administrative level is not fatal to a judicial claim (PHILEX taxpayer's option to appeal or not to appeal, upon the
MINING CORPORATION VS. COMMISSIONER OF INTERNAL denial of its claim for refund or after the expiration of the
REVENUE [CTA CASE NO. 8228, MAY 31, 2012]) 120-day period. However, if the tax payer opts to appeal,
such claim must be filed within the 30-day period given
What is fatal to the taxpayer's cause is its failure to submit from receipt of the denial or the expiration of the 120-day
sufficient evidence such as invoices and receipts in period. Thus, it is the option to appeal which is permissive,
support of its claim before the CTA and not its failure of to however, the period to appeal must be mandatorily
submit complete documents before the BIR and not before complied with. (MINDANAO II GEOTHERMAL PARTNERSHIP VS.
the CTA. COMMISSIONER OF INTERNAL REVENUE VS. COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO.
PHILIPPINE AIRLINES, INC., CTA EB CASE NO. 775, JULY 24, 750, JULY 5, 2012)
2012
Q: Can the taxpayer appeal to the CTA
Q: What is the remedy in case of denial of without waiting for the lapse of the 120 day
the CTA of the claim for refund or if the CIR period?
failed to act on the claim within the 120-day
period? No. Where the taxpayer did not wait for the decision
of the CIR or the lapse of the 120-day period, the
In case of full or partial denial of the claim for tax filing of the said judicial claim with the CTA is
credit certificate/refund: premature. The non-observance of the 120-day
period is fatal to the filing of a judicial claim.
a) The taxpayer may appeal to the CTA within
30 days from the receipt of said denial, Note: In this regard, let us discuss the leading case of CIR
V. AICHI FORGING COMPANY OF ASIA [ OCTOBER 6, 2010].
otherwise the decision shall be come final
In CIR V. AICHI FORGING COMPANY OF ASIA [
b) If no action on the claim for tax credit
OCTOBER 6, 2010], Aichi Forging is a VAT-registered
certificate/refund has been taken by the CIR
corporation engaged in manufacturing and
after the 120 day period in which he must
processing of steel. Aichi filed a tax credit/refund for
decide, the taxpayer may appeal to the CTA
its unutilized input tax from purchases and
within 30 days from the lapse of the 120 day
importation attributed to its zero-rated sales. The
period.
CIR and CTA ruled that the administrative and
Note: Judicial claim for refund should be filed within thirty
judicial claims were filed beyond the period allowed
(30) days from the receipt of the decision of the by law. Moreover, the CIR puts in issue the fact that
Commissioner of Internal Revenue (CIR) or upon the the administrative claim and the judicial claim were
expiration of the one hundred twenty (120) days in case of filed on the same day. The CIR opines that
inaction of the CIR. KEPCO PHILIPPINES CORPORATION VS. simultaneous filing of the claims contravenes the
COMMISSIONER OF INTERNAL REVENUE, [CTA EB NO. 736 NIRC which requires the prior filing of an
695, JANUARY 10, 2012]; DIAGEO PHILIPPINES, INC. VS. administrative claim.
COMMISSIONER OF INTERNAL REVENUE, [CTA CASE NOS.
7846 AND 7865, JANUARY 16, 2012]; PHILEX MINING The Supreme Court first reiterated that the unutilized
CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE,
C.T.A. EB NO. 728, AUGUST 31, 2012; PILIPINAS TOTAL GAS,
input VAT must be claimed within two years after the
INC. VS. CIR, C.T.A. EB NO. 776, OCTOBER 11, 2012; close of the taxable quarter when the sales were
NORTHWIND DEVELOPMENT CORPORATION VS. CIR, CTA made as laid down in CIR V. MIRANT PAGBILAO
CASE NO. 7918, OCTOBER 03, 2012 CORP. [SEPTEMBER 12, 2008]. Going to the
administrative and judicial claims, the Court ruled
In case of inaction by the BIR, judicial claim for refund filed that the administrative claim was timely filed while
beyond thirty (30) days from the expiration of the one the judicial claim was premature. In this case,
hundred twenty (120) days is filed out of time and deprives

applying the Administrative Code which states that a Thus:

year is composed of 12 calendar months instead of
the Civil Code (a year is equivalent to 365 days), it is 1. For the administrative claim, file
clear that Aichi timely filed its administrative claim within 2 years from end of the taxable
quarter when sales were made.
within the two-year prescriptive period. On the other
hand, the claim of Aichi must be denied for non- 2. For judicial claim, BIR has 120 days
observance of the 120-day period Where the to decide. If adverse decision within
taxpayer did not wait for the decision of the CIR or the 120 day period, 30 days from
the lapse of the 120-day period, it having receipt of decision to appeal to CTA. If
simultaneously filed the administrative and the no BIR decision within 120 days, 30
th
judicial claims, the filing of the said judicial claim with days from the 120 day to appeal to
the CTA is premature. The non-observance of the the CTA.
120-day period is fatal to the filing of a judicial claim.
The claim of Aichi that such non-observance is not Note: (1) Thus, Aichi affirmed the Courts ruling in Mirant
in that the 2-year prescriptive period shall be reckoned
fatal as long as both the administrative and judicial
from the end of the taxable quarter when the relevant
claim is filed within the 2-year prescriptive period is sales were made but clarified that such prescriptive period
without legal basis. The 2 year prescriptive period applies only to the filing of the administrative claim.
refers to applications for refund/credit filed with the
CIR and not to appeals made to the CTA. Applying See THIRD MILLENNIUM OIL MILLS, INC. VS. CIR [CTA EB
the two-year period to judicial claims would render NO. 729 (CTA CASE NO. 7583), JUNE 7, 2012]; CIR VS.
nugatory Section 112(D) of the NIRC, which already PENN PHILIPPINES, INC., CTA EB NO. 693 [CTA CASE NO.
provides for a specific period within which a taxpayer 7457), JUNE 27, 2012]
should appeal the decision or inaction of the CIR.
The taxpayers compliance with the 120-day period under
The 120-day period is crucial in filing an appeal with
Section 112(C) is both mandatory and jurisdictional.
the CTA.
See PROCTER & GAMBLE ASIA, PTE. LTD. VS. CIR [CTA EB
Note: In other words, the 2-year prescriptive period CASE NO. 740 (CTA CASE NO. 7683), JUNE 18, 2012];
applies only to the filing of the administrative claim CARGILL PHILIPPINES, INC. VS. CIR, [CTA EB CASE NO. 779
meaning the filing of the claim for refund or application for (CTA CASE NOS. 6714 & 7262), JUNE 18, 2012]; PHILEX
TCC with the CIR. If you want to file a suit with the CTA, MINING CORPORATION VS. CIR, [CTA EB NO. 817 (CTA
you wait for the 120-day period to lapse. Dahil dun, you CASE NO. 7798), JUNE 13, 2012]; DIAGEO PHILIPPINES, INC.
cannot simultaneously file a claim with the CIR and file a VS. CIR, [CTA EB NO. 806 (CTA CASE NO. 7778), JUNE 21,
suit with the CTA. This early on I will tell you that the rule 2012]; PHILEX MINING CORPORATION VS. CIR, CTA EB NO.
is different pagdating sa refund or credit of an erroneously 808 (CTA CASE NOS. 7859 & 7886), JUNE 6, 2012; CE
or illegally collected tax under Section 229. Doon, both the CASECNAN WATER AND ENERGY COMPANY, INC. VS. CIR, CTA
administrative and judicial claim must be filed within the 2 EB NO. 726 (CTA CASE NO. 7739), JUNE 26, 2012;
year prescriptive period. Further, you need not wait for the
BIR to act. You can simultaneously file your claim for (2) Citing Aichi, the CTA in numerous cases have held that
refund or credit and the suit with the CTA. We will discuss filing the judicial claim without waiting for the lapse of the
that later in Tax Remedies. 120-day period is fatal. The premature filing of the judicial
claim warrants dismissal.
Q: How do we reconcile CIR V. MIRANT
PAGBILAO CORP. [SEPTEMBER 12, 2008] and SEE DEUTSCHE KNOWLEDGE SERVICES, PTE. LTD. VS.
CIR V. AICHI FORGING COMPANY OF ASIA [ COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 8165,
OCTOBER 6, 2010]? JANUARY 08, 2013]; CASECNAN WATER AND COMPANY, INC.
VS.COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 836,
JANUARY 28, 2013]; HEDCOR SIBULAN, INC. VS.
In both Mirant The 2-year prescriptive period is COMMISSIONER OF INTERNAL REVENUE [C.T.A. CASE NO.
and Aichi counted from the end of the taxable 8051, JANUARY 05, 2012]; SITEL PHILIPPINES CORPORATION
quarter when the sales were made. VS. COMMISSIONER OF INTERNAL REVENUE, [C.T.A. EB NO.
In Mirant The 2-year prescriptive period applies 668, JANUARY 06, 2012]; CE CEBU GEOTHERMAL POWER
to both the administrative and judicial COMPANY, INC. VS. COMMISSIONER OF INTERNAL REVENUE
claim. Thus, both claims must be filed [CTA EB NO. 741, JANUARY 12, 2012]; CBK POWER
within 2 years from the end of the COMPANY LIMITED VS. COMMISSIONER OF INTERNAL REVENUE
taxable quarter when the sales were [CTA EB NO. 760, FEB 1, 2012]; SAN ROQUE POWER
made CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE
In Aichi The 2-year prescriptive period only [CTA CASE NO, 7937, FEBRUARY 8, 2012]; AIR LIQUIDE
applies to the administrative claim.

PHILIPPINES INC., VS. COMMISSIONER OF INTERNAL REVENUE ---------------------------------------------------------------

[CTA EB NO. 704, FEBRUARY 27, 2012]; PANAY POWER c) Manner of giving refund
CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE
[CTA EB NO. 709, MAY 17, 2012]; ENERGY DEVELOPMENT ---------------------------------------------------------------
CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE
[CTA EB NO. 809, MAY 31, 2012]; CHEVRON HOLDINGS, INC. Q: What is the manner of giving refund?
VS. CIR, [CTA CASE NOS. 7776 & 7813, JUNE 6, 2012]; CIR
VS. PENN PHILIPPINES, INC., CTA EB NO. 693 [CTA CASE
Refunds shall be made upon warrants drawn by the
NO. 7457), JUNE 27, 2012]; AIR LIQUIDE PHILIPPINES, INC. VS.
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8017,
Commissioner or by his duly authorized
JULY 03, 2012; MINDANAO II GEOTHERMAL PARTNERSHIP VS. representative without the necessity of being
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NOS. 7899 countersigned by the Chairman, Commission on
AND 7942, AUGUST 1, 2012; CBK POWER COMPANY LIMITED Audit, the provisions of the Administrative Code of
VS. CIR, CTA EB NO. 758, OCTOBER 04, 2012; VISAYAS 1987 notwithstanding: That refunds shall be subject
GEOTHERMAL POWER COMPANY VS. CIR, CTA EB CASE NO. to post audit by the Commission on Audit. (See
864, OCTOBER 08, 2012; PROCTER & GAMBLE ASIA PTE. LTD. Section 112(D), Tax Code)
VS. CIR, CTA EB NO. 765, OCTOBER 11, 2012; HEDCOR
SIBULAN, INC. VS. COMMISSIONER OF INTERNAL REVENUE,
Note: If you ask for a tax credit, you get what you call a
CTA EB CASE NO. 890, DECEMBER 06, 2012
Tax Credit Certificate (TCC). However, note Executive
Order 68 [March 27, 2012]. No more issuance of VAT
Now, let us outline the process. TCCs and the EO provides for the monetization of
outstanding VAT TCCs. EO 68 allows qualified VAT-
Q: Outline the process for the refund or registered taxpayers to receive the cash equivalent of their
credit of excess or unutilized input taxes outstanding TCCs either: (1) Collecting in advance from a
under Section 112(c). trustee bank a discounted cash value of their TCCs or (2)
Collect full cash value of their TCC upon a certain maturity
date to be determined by the BIR and BOC. DOF Joint
1. Filing and Payment Circular 2-2012 provides that the monetization will start in
2012 for TCCs issued prior to 2004 while those issued in
2. Administrative 2011 and 2012 will be monetized in 2016.
claim within 2 years counted from the close .
of the taxable quarter when the relevant sales ---------------------------------------------------------------
were made d) Destination principle or cross-border
doctrine
3. Submission of additional and relevant ---------------------------------------------------------------
support documents within 60 days from filing
of claim Note: I already discussed this.
4. Appeal to CTA Division within 30 days from
---------------------------------------------------------------
receipt of notice of denial or from lapse of 120
days of inaction counted from submission of 22. Invoicing Requirements
documents. The appeal should not be made a) Invoicing requirements in general
within the 2-year prescriptive period. Otherwise, b) Invoicing and recording deemed sale
the judicial claim is premature. The Motion for transactions
Reconsideration or New Trial to CTA Division c) Consequences of issuing erroneous VAT
within 15 days from receipt of decision. invoice or VAT official receipt
---------------------------------------------------------------
5. Appeal to CTA En Banc within 15 days from
receipt of resolution. Motion for Reconsideration ---------------------------------------------------------------
to the CTA En Banc within 15 days from receipt a) Invoicing requirements in general
of decision
---------------------------------------------------------------
6. Appeal to the SC within 15 days from receipt
of resolution under Rule 45 Read Section 113(A), Tax Code

Q: What are required to be issued by a VAT- Read Section 113(B), Tax Code
registered person?
Q: What information should be contained in
1. VAT invoice for every sale, barter or the VAT invoice or VAT official receipt?
exchange of goods or properties
2. VAT official receipt for every lease of 1. A statement that the seller is a VAT-registered
goods or properties and for every sale, person, followed by his taxpayer's identification
barter or exchange of services. number (TIN);
Note: Only VAT-registered persons are required to print 2. The total amount which the purchaser pays or is
their Tax Identification Number (TIN) followed by the word obligated to pay to the seller with the indication
VAT in their invoice or official receipt, which shall be
considered the VAT invoice or VAT official receipt. All
that such amount includes the value-added tax
purchases not covered by invoices/receipts other than the provided, that:
VAT invoice or VAT official receipt shall not give rise to
any input tax (see Section 4.113-1(A), RR 16-2005] a) The amount of the tax shall be shown as a
separate item in the invoice or receipt;
Q: Is there a difference between an invoice b) If the sale is exempt from value-added tax,
and official receipt for purposes of the term "VAT-exempt sale" shall be written
substantiation? or printed prominently on the invoice or
receipt;
In KEPCO PHILIPPINES V. CIR [NOVEMBER 24, 2010], c) If the sale is subject to zero percent (0%)
in ruling on Kepcos contention that an invoice and value-added tax, the term "zero-rated sale"
an official receipt are interchangeable, the Supreme shall be written or printed prominently on the
Court stated that only a VAT invoice might be invoice or receipt;
presented to substantiate a sale of goods or d) If the sale involves goods, properties or
properties, while only a VAT receipt could services some of which are subject to and
substantiate a sale of services. The VAT invoice is some of which are VAT zero-rated or VAT-
the sellers best proof of the sale of the goods or exempt, the invoice or receipt shall clearly
services to the buyer while the VAT receipt is the indicate the breakdown of the sale price
buyers best evidence of the payment of goods or between its taxable, exempt and zero-rated
services received from the seller. Even though VAT components, and the calculation of the
invoices and receipts are normally issued by the value-added tax on each portion of the sale
supplier/seller alone, the said invoices and receipts, shall be shown on the invoice or receipt:
taken collectively, are necessary to substantiate the Provided, That the seller may issue separate
actual amount or quantity of goods sold and their invoices or receipts for the taxable, exempt,
selling price (proof of transaction), and the best and zero-rated components of the sale.
means to prove the input VAT payments (proof of
payment). Hence, VAT invoice and VAT receipt 3. The date of transaction, quantity, unit cost and
should not be confused as referring to one and the description of the goods or properties or nature
same thing. Certainly, neither does the law intend of the service; and
the two to be used alternatively
4. In the case of sales in the amount of one
Note: The unamended Section 113 did not thousand pesos (P1,000) or more where the
distinguish between an invoice and a receipt when sale or transfer is made to a VAT-registered
used as evidence of a zero-rated transaction. Thus, person, the name, business style, if any,
in the case of transactions which took place during address and taxpayer identification number
the period of the unamended law, the Court could (TIN) of the purchaser, customer or client. (see
accept either or both of the documents as evidence Section 4.113-1(B), RR 16-2005)
of zero-rated transactions (SOUTHERN PHILIPPINES V.
CIR [OCTOBER 19, 2011]; AT&T COMMUNICATIONS ---------------------------------------------------------------
SERVICES PHILIPPINES V. CIR [AUGUST 3, 2010] b) Invoicing and recording deemed sale
transactions
---------------------------------------------------------------

Q: What are the invoicing and recording disposed of it VAT-

requirements for deemed sale transactions? registered buyers, an
invoice or instrument of sale
or transfer shall be
prepared, citing the invoice
Deemed sale Invoicing and recording
number wherein the tax was
transaction requirements
imposed on the deemed
sale. At the same time, the
tax paid corresponding to
1. Transfer, use or A memorandum entry in the the goods sold should be
consumption not in subsidiary sales journal to separately indicated in the
the course of record withdrawal of goods for instrument of sale
business of goods personal use
or properties
originally intended (Section 4.113-2, RR 16-2005)
for sale or use in
the course of
business ---------------------------------------------------------------
c) Consequences of issuing erroneous VAT
2. Distribution or Invoice, at the time of the invoice or VAT official receipt
transfer to transaction, which should ---------------------------------------------------------------
shareholders/invest include all the info prescribed in
ors or creditors Sec. 113(B)
Read Section 113(D), Tax Code
3. Consignment of Invoice, at the time of the Q: What are the consequences of issuing
goods if actual sale transaction, which should erroneous VAT invoices or VAT official
is not made within include all the info prescribed in
60 days Sec. 113(B)
receipts?
4. Retirement from or An inventory shall be prepared 1. If a person who is not VAT-registered issues an
cessation of and submitted to the RDO who invoice or receipt showing his TIN, followed by
business with has jurisdiction over the the word VAT, the erroneous issuance shall
respect to all goods taxpayers principal place of result to the following:
on hand business not later than 30 days
after retirement or cessation a) The Non-VAT person shall be liable to the:
from the business. An invoice
shall be prepared for the entire
inventory, which shall be the i. percentage taxes applicable
basis of the entry into the ii. VAT due on the transactions without
subsidiary sales journal. The the benefit of any input tax credit
invoice need not enumerate the iii. 50% surcharge as penalty
specific items appearing in the
inventory regarding the b) The VAT shall, if the other requisite
description of the goods. information required is shown on the invoice
However, the sales invoice or receipt, be recognized as an input tax
number should be indicated in
credit to the purchaser.
the inventory filed and a copy
thereof shall form part of this
invoice. 2. If a VAT-registered person issues a VAT invoice
or VAT official receipt for a VAT-exempt
i. If the business is to be transaction, but fails to display prominently on
continued by the new the invoice or receipt the term VAT-exempt
owners or successors, the Sale, the issuer shall be liable to account for the
entire amount of output tax VAT imposed. The purchaser shall be entitled to
on the amount deemed sold claim an input tax credit on said purchase. (see
shall be allowed as input
Section 4.113-4, RR 16-2005)
taxes.
ii. If the business is to be
liquidated and the goods in Note: Failure or refusal to comply with the requirement
the inventory are sold or that the amount of tax shall be shown as a separate item

in the invoice or receipt shall, upon conviction, for each act same Tax Code and its amendments. It cited the cases of
or omission, be punished by a fine of not less than P1,000 Panasonic Communications Imaging Corporation of the
but not more than P50,000 and suffer imprisonment of not Philippines v. Commissioner of Internal Revenue, G.R.
less than 2 years but not more than 4 years (RR 18-2011 No. 178090, 8 February 2010, were it was ruled that this
[November 21, 2011]) provision is reasonable and is in accord with the efficient
collection of VAT from the covered sales of goods and
Q: What is the effect of the failure to comply services and Kepco Philippines Corporation v.
with the invoicing requirements on the claim Commissioner of Internal Revenue, G.R. No. 179961, 31
January 2011 where it was ruled that the subsequent
for refund or credit of input VAT on zero- incorporation of Section 4.108-1 of RR 7-95 in Section 113
rated sales? (B) (2) (c) of R.A. 9337 actually confirmed the validity of
the imprinting requirement on VAT invoices or official
The claim for refund of unutilized or excess input receipts a case falling under the principle of legislative
taxes on the alleged zero-rated sales will be denied. approval of administrative interpretation by reenactment.
The invoicing requirements are mandatory and the
failure to comply is fatal in claims for a refund or
credit of input VAT on zero-rated sales. (SILICON
PHILIPPINES V. CIR [JANUARY 21, 2011]. EASTERN TELECOMMUNICATIONS V. CIR, G.R.
NO. 168856, AUGUST 29, 2012
See also MICROSOFT PHILIPPINES V. CIR [APRIL 6,
2011]; PANASONIC COMMUNICATION IMAGING CORP V. DOCTRINE: Failure of a taxpayer to print the word
CIR [FEBRUARY 8, 2010]; JRA PHILIPPINES V. CIR zero-rated on its invoices or receipts is fatal to its
claim for tax refund.
[OCTOBER 11, 2010]; HITACHI GLOBAL STORAGE
TECHNOLOGIES PHILIPPINES CORP V. CIR [OCTOBER FACTS: Taxpayer rendered incoming telecommunication
20, 2010]; KEPCO PHILIPPINES CORP V. CIR services for non-resident foreign telecommunication
[NOVEMBER 24, 2010]. companies. For these services to non-resident foreign
telecommunication companies, taxpayer generated foreign
currency revenues which were inwardly remitted in
WESTERN MINDANAO POWER CORPORATION V. accordance with the rules and regulations of the BSP.
CIR, G.R. NO. 181136, JUNE 13, 2012 Believing that these are zero-rated sales, taxpayer filed an
application for refund for the unutilized input taxes
DOCTRINE: Failure to print the word zero-rated on allocated to such sales, for the period January 1 to
the VAT invoices or official receipts is fatal in claims December 31, 1999.
for a refund or credit of input VAT on zero-rated sales,
even if the claims were made prior to the effectivity of HELD: The Court denied the claim on the ground that the
R.A. 9337. taxpayer failed to imprint the word zero-rated on the face
of its VAT invoices or receipts, in violation of Revenue
FACTS: Taxpayer contends that RR 7-95 constitutes Regulations No. 7-95. The absence of the word zero-
undue expansion of the scope of the legislation it seeks to rated on the invoices and receipts of a taxpayer will result
implement on the ground that the statutory requirement for in the denial of the claim for tax refund.
imprinting the phrase zero-rated on VAT official receipts The claim was also denied on the ground that the taxpayer
appears only in Republic Act No. 9337. This law took failed to substantiate its taxable
effect on 1 July 2005, or long after petitioner had filed its and exempt sales, the verification of which was not
claim for a refund. included in the examination of the commissioned
independent certified public accountant.
HELD: the Supreme Court held that in a claim for tax
refund or tax credit, the applicant must prove not only Q: Kepco filed a claim for refund of
entitlement to the grant ofnthe claim under substantive unutilized input VAT based on its zero-rated
law. It must also show satisfaction of all the documentary sale of power to NAPOCOR. A substantial
and evidentiary requirements for an administrative claim
for a refund or tax credit. Hence, the mere fact that portion of the claim was denied for having
taxpayers application for zero-rating has been approved been supported by VAT invoices which only
by the CIR does not, by itself, justify the grant of a refund had the TIN-VAT stamped and not printed. Is
or tax credit. The taxpayer claiming the refund must further Kepco entitled to the claim for refund?
comply with the invoicing and accounting requirements
mandated by the NIRC, as well as by revenue regulations
implementing them. It further held that RR 7-95 proceeds
No. In KEPCO PHILIPPINES V. CIR [NOVEMBER 24,
from the rule-making authority granted to the Secretary of 2010], the Supreme Court ruled that the requirement
Finance by the NIRC for the efficient enforcement of the that the TIN be imprinted and not merely stamped is

a reasonable requirement imposed by the BIR.. The 3. Any person who imports goods
failure to adhere to this rule will not only expose the 4. Professional practitioners whose gross
taxpayer to penalties but should also serve to professional fees exceed P1,919,500 for any
disallow the claim. 12-month period.
Q: Is the printing of the Authority to Print Q: What are the rules regarding the time for
(ATP) required in the invoices or receipts? filing the return and payment of the tax?
No. The ATP need not be reflected in the invoices or Every person liable to pay VAT shall file a:
receipts because there is no law or regulation
requiring it. Failure to print the ATP on the invoices a. The monthly VAT Declarations of taxpayers
or receipts should not result in the outright denial of whether large or not shall be filed and the
a claim or the invalidation of the invoices or receipts taxes paid not later than the 20th day
for purposes of claiming a refund. following the end of each month
b. A quarterly VAT return of the amount of his
But, while there is no such law, the Tax Code gross sales or receipts within 25 days after
requires persons engaged in business to secure the close of each taxable quarter prescribed
ATP from the BIR prior to printing invoices or for each taxpayer.
receipts. Since the ATP is not indicated in the
receipts or invoices, the only way to verify whether Note: (1) A VAT-registered person shall pay VAT on a
the invoices or receipts are duly registered is by monthly basis. Amounts reflected in the monthly VAT
requiring the claimant to present its ATP from the return for the first 2 months of the quarter shall be included
BIR. Without which, the invoices or receipts would in the quarterly VAT return which reflects the cumulative
figures for the taxable quarter. Payments in the monthly
not have probative value for the purpose of refund. returns shall be credited in the quarterly return to arrive at
(SILICON PHILIPPINES V. CIR [JANUARY 21, 2011]). the net VAT payable or excess input tax as of the end of
the quarter
Note: A taxpayer exempt from VAT but opting to be
registered as VAT taxpayer may be held liable for VAT (2) Taxable quarter shall mean the quarter that is
deficiency for failure to print the words VAT-exempt sale synchronized to the income tax quarter of the taxpayer.
on the official receipts issued to its PEZA-registered
lessee First Sumiden Realty, Inc. vs. CIR, CTA Case
No. 8151, September 27, 2012
---------------------------------------------------------------
24. Withholding of final VAT on sales to
Refund claim under Section 229 of the Tax Code does not government
require proof of compliance with the invoicing ---------------------------------------------------------------
requirements. ERICSSON TELECOMMUNICATIONS, INC. VS.
AUGUST 2, 2012
--------------------------------------------------------------- Q: What is the rule on withholding of VAT by

23. Filing of return and payment government agencies?
---------------------------------------------------------------
The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs,
Read Section 114(A) and (B), Tax Code shall, before making payment on account of each
purchase of goods or services subject to VAT,
Q: Who are required to file a VAT return? deduct and withhold a final VAT equivalent to 5% of
the gross payment thereof provided that the
1. Every person or entity who in the course of payment for lease or use of properties or property
his trade or business, sells or leases goods, rights to non-resident owners shall be subject to
properties and services subject to VAT if the 10% withholding tax at the time of payment.
aggregate amount of actual gross sales or (Section 4.114-2, RR 16-2005)
receipts exceed P1,919,500 for any 12-
month period Note: The 5% final VAT shall represent the net VAT
2. A person required to register as a VAT payable of the seller or, otherwise stated, the presumed
taxpayer but failed to register input VAT cost of the entity dealing with the government

agency. The remaining 7% effectively accounts for the No. In LVM CONSTRUCTION CORPORATION V.
standard input VAT, in lieu of the actual input VAT directly SANCHEZ [DECEMBER 5, 2011], the Supreme Court
attributable or ratably apportioned to such sales. (Ibid) held that as an entity which dealt directly with the
Okay, I sense confusion. government insofar as the main contract was
Let me explain. Remember na in order for the taxpayer to
concerned, LVM was itself required by law to pay
determine yung tax liability niya, yan ang formula! the 8.5% (now 5%) VAT which was withheld by
Remember also na if input tax > output tax, pwde mo i- DPWH. Given that the JV complied with their own
carry over ito to the succeeding quarters or kapag yung obligation when they paid their VAT from their gross
input vat results from a zero-rated or effectively zero-rated receipts and the fact that the contract between LVM
transaction, puwede humingi ng refund or credit. Ang and the JV did not stipulate any obligation on LVM
implication in case of 5% final VAT ay hindi magaaply assuming the VAT, LVM has no basis to withhold
yang formula na output tax minus input tax. So automatic payments. Although the burden to pay an indirect
kapag withholding by the government, do not use that tax like the VAT can be passed on, the liability to
formula!
pay the same remains with the seller. IN this case,
Tanong: Is the taxpayer still entitled to the excess input both LVM and the JV are liable for their respective
VAT if meron? It depends. Ito ang rules. If the actual input VAT obligations as respective sellers.
VAT is above 7% of gross payments, then the difference
between the actual input VAT and the 7% or the excess
may form part of sellers expense or cost. On the other
hand, if the actual input VAT is below 7% of gross
payments, the different must be closed or deducted to
expense or cost. Hence, the taxpayer will realize
additional income.
Q: In what instances shall the 12% final VAT

be withheld?
1. Lease or use of properties or property rights
owned by non-residents;
2. Services rendered to local insurance companies,
with respect to reinsurance premiums payable to
non-residents; and;
3. Other services rendered in the Philippines by
non-residents
Q: LVM Construction Corp. was engaged by

the DPWH for the construction of roads and
bridges. LVM subcontracted one of the
projects to a Joint Venture. After
completion, the JV demanded full payment
to which LVM responded that they
discovered that no deductions for VAT were
made on previous payments and as such
they were going to deduct 8.5% (now 5%)
from the payments still due. The JV
disputed this and argued that all the
receipts issued to LVM would have made
JV subject to VAT and, hence, LVM could
claim such as input tax. Can LVM rightfully
deduct the amount representing the
withholding VAT due on its transaction with
DPWH?

---------------------------------------------------------- (b) Suspension of running of statute of

E. TAX REMEDIES limitations
---------------------------------------------------------- (iv) General provisions on additions to
the tax
Note: I want to start by saying that the bar syllabus (a) Civil penalties or Surcharges
creates an impression that the remedies of the (b) Interest
taxpayer are assessment, collection and refund. (c) Compromise penalties
That is wrong. Assessment and collection are the (v) Assessment process
powers of the taxing authority/government. Under (a) Tax audit
the power of collection, different remedies are (b) Notice of informal conference
available to the government namely: (1) tax lien, (2)
(c) Issuance of preliminary
compromise, (2) distraint of personal property or levy
of real property or garnishment of bank deposits (3) assessment notice
sale of property, (4) forfeiture, (5) compromise and (d) Exceptions to issuance of
abatement, (6) penalties and fines, (7) suspension of preliminary assessment notice
business operations, (8) civil action and (9) criminal (e) Reply to preliminary assessment
action. (1) to (7) are the administrative remedies notice
while (8) to (9) are the judicial remedies. Taxpayers (f) Issuance of formal letter of demand
have two remedies: (1) administrative protest (you and assessment notice/final
protest the assessment) and (2) claim for refund. assessment notice
(g) Disputed assessment
In this chapter, I wont discuss the topics under the
(h) Administrative decision on a
Syllabus in the order provided because if I do, I dont
think we will have a good understanding of tax disputed assessment
remedies. Heres what Ill do. Ill follow the outline up ---------------------------------------------------------------
to Protest. And then Ill rearrange the topics under b)
Collection and 2. Government Remedies and ---------------------------------------------------------------
integrate the discussion. After that, Ill discuss a) Assessment
Refunds. (i) Concept of assessment
(a) Requisites for valid assessment
--------------------------------------------------------------- (b) Constructive method for income
a) Assessment determination
(i) Concept of assessment (c) Inventory method for income
(a) Requisites for valid assessment determination
(b) Constructive method for income (d) Jeopardy assessment
determination (e) Tax delinquency and tax deficiency
(c) Inventory method for income ---------------------------------------------------------------
determination
(d) Jeopardy assessment Read Sections 56 and 71, Tax Code
(e) Tax delinquency and tax deficiency
(ii) Power of the Commissioner to make Q: Define assessment
assessments and prescribe additional
requirements for tax administration and The term assessment may refer to:
enforcement 1. The official action of an administrative officer
(a) Power of the Commissioner to in determining the amount of tax due from a
obtain information and to taxpayer
summon/examine and take testimony 2. A notice to the effect that the amount therein
of persons stated is due from the taxpayer as a tax with
(iii) When assessment is made a demand for payment of the tax or
deficiency stated therein.
(a) Prescriptive period for assessment
(1) False, fraudulent, and non-filing
of returns

Q: May the CIR be compelled by mandamus

to make an assessment? (2) A jeopardy assessment is an indication of the doubtful
validity of the assessment, hence it may be subject to a
compromise.
No. In MERALCO SECURITIES CORP V. SAVELLANO [
OCTOBER 23, 1982], the Supreme Court held that
---------------------------------------------------------------
mandamus cannot lie to compel the CIR to impose a
deficiency tax assessment. The CIRs power to (a) Requisites for valid assessment
assess is a discretionary one. ---------------------------------------------------------------
Q: How are taxes assessed? Q: What are the requisites of a valid

assessment?
1. Self-assessment Taxpayers are required
to file tax returns for various kinds of income 1. A formal letter of demand and assessment notice
earned which may be subject to tax. When a shall be issued by the CIR or his duly authorized
taxpayer files the tax return, he is actually representative
making a self-assessment. 2. The letter of demand calling for payment of the
taxpayers deficiency tax or taxes shall state the
2. Deficiency assessment is an assessment facts, the law, rules and regulations or
made by the BIR after the conduct of an jurisprudence on which the assessment is based.
investigation or audit when it finds that the Otherwise, the formal letter of demand and
tax return filed by the taxpayer contains an assessment notice shall be void
under-declaration of income or when the 3. The same shall be sent to the taxpayer only be
taxpayer does not at all file a tax return registered mail or by personal delivery
4. If sent by personal delivery, the taxpayer or his
3. Jeopardy assessment a tax assessment duly authorized representative shall acknowledge
which was assessed without the benefit of a receipt thereof in duplicate copy of the letter of
complete or partial audit by an authorized demand, showing the following:
revenue officer who has reason to believe i. His name
that the assessment and collection of a ii. Signature
deficiency tax will be jeopardized by delay iii. Designation and authority to act for and in
because of the taxpayers failure to comply behalf of the taxpayer, if acknowledge
with audit and investigation requirements to received by a person other than the taxpayer
present his books of accounts and/or himself; and
pertinent records or substantiate all or any of iv. Date of receipt thereof (see Section 3.1.4, RR
the deductions, exemptions, or credits No. 12-99)
claimed in his return. (see Section 3(1)(a),
RR No. 30-2002) Note: (1) Previously, it is sufficient that the taxpayer be
notified of the findings of the CIR. The rule now is that
the taxpayer must be informed of not only the law but
Note: (1) Section 56, Tax Code provides that, as a
also of the facts on which an assessment would be made.
general rule, the total amount of the tax shall be paid at
(see CIR V. REYES [JANUARY 27, 2006].
the time the return is filed. This is otherwise known as the
pay-as-you-file system. The pay-as-you-file system is a
(2) An assessment must be based on actual facts and not
self-assessing tax return. Note that internal revenue taxes
on mere presumptions (see CIR V. BENIPAYO [JANUARY 31,
are self-assessing. The tax becomes due and payable
1962])
without need of any prior assessment by the BIR. The
taxpayer himself computes and pays without intervention
(3) In CIR V. PASCOR REALTY [JUNE 29, 1999], the Supreme
from the BIR. Thus, the term self-assessment. However,
court held that an assessment must not only contain a
if the taxing authority is first required to investigate or audit
computation of tax liabilities but also a demand for
and after such investigation or audit to issue the
payment within the prescribed period.
assessment that creates the tax liability, then the tax is not
self-assessed and is most likely a deficiency
(4) An assessment is deemed made only when he BIR
assessment. If despite not having done a complete or
releases, mails or sends such notice to the taxpayer. (Ibid)
partial audit, the BIR issues an assessment believing that
the assessment and collection of the deficiency tax will be
(5) In ADAMSON V. CA [MAY 21, 2009], at issue was
jeopardized by delay, the assessment is called a jeopardy
whether the CIRs recommendation letter for the filing of a
assessment.

criminal complaint against the taxpayer for fraudulent ---------------------------------------------------------------

returns and tax evasion can be considered a formal (b) Constructive method for income
assessment. The Supreme Court held that such was not
equivalent to a formal assessment. An assessment is a determination
written notice and demand may by the BIR on the (c) Inventory method for income
taxpayer for the settlement of a due tax liability that is determination
there definitely set and fixed. A written communication ---------------------------------------------------------------
containing a computation and giving him an opportunity to
contest or disprove the findings is not an assessment
since it is yet indefinite. Q: What are the constructive methods of
income determination?
(6) As held in CIR V. GONZALEZ [OCTOBER 12, 2010], the
formality of a control number in the assessment notice is The following are the general methods developed by
not a requirement for its validity but rather the contents the BIR for reconstructing a taxpayers income
thereof which should inform the taxpayer of the declaration
of deficiency tax against the said taxpayer.
where the records do not show the true income or
where no return was filed or what was filed was a
(7) In BONIFACIO SY PO V. CTA [AUGUST 18, 1988], the false or fraudulent return.
Supreme Court held that tax assessments by tax
examiners are presumed correct and made in good faith. a. Percentage method
The taxpayer has the duty to provide otherwise. b. Net worth method
c. Bank deposit method
(8) Reasons for presumption of correctness of d. Cash expenditure method
assessments: (a) lifeblood theory (b) presumption of
regularity in the performance of public functions (c)
e. Unit and value method
likelihood that the taxpayer will have access to relevant f. Third party information or access to records
information (d) the desirability of bolstering the record- method
keeping requirements of the Tax Code g. Surveillance and assessment method
(9) When prima facie correctness of a tax assessment Note: As to the third party information or access to records
does not apply In CIR V. HANTEX TRADING [MARCH 31, method, see Section 5(b) of the Tax Code. If the revenue
2005], the Supreme Court held that the rule does not officers were not given the opportunity to examine the
apply when the CIR comes out with a naked assessment taxpayers documents, they are authorized under Section
(an assessment that is without any foundation and hence, 5 of the Tax Code to gather information from third parties
arbitrary and capricious). (CIR V. HON. RAUL M. GONZALES [OCTOBER 15, 2010])
In UNITED DISTRIBUTION MANAGEMENT, INC. VS. CIR, CTA

CASE NO. 7885, SEPTEMBER 24, 2012, the CTA held that
Q: What is the inventory method for income
the BIR has neither legal nor factual basis to presume that determination? (Net worth method)
payments made to the stockholder and the interest paid
are dividends. It is true that as a general rule, tax The general theory underlying this method is that the
assessments by tax examiners are presumed correct and taxpayers money and other assets in excess of the
made in good faith. However, the prima facie correctness liabilities after accurate and proper adjustment of
of a tax assessment does not apply upon proof that an non-deductible and non-taxable items not accounted
assessment is utterly without foundation, meaning it is
arbitrary and capricious. Where the BIR has come out with
for in his tax return is deemed to be unreported
a naked assessment i.e., without any foundation income. In other words, the theory is that the
character, the determination of the tax due is without unexplained increase in net worth of the taxpayer is
rational basis. presumed to be derived from taxable sources.
An assessment that does not state the factual and legal Q: What are the conditions for the use of the
bases is void and cannot give rise to an obligation to pay net worth method?
deficiency taxes. LIQUIGAZ PHILIPPINES CORPORATION VS.
NOVEMBER 22, 2012; COMMISSIONER OF INTERNAL REVENUE 1. That the taxpayers books of accounts do not
VS. TOLEDO POWER COMPANY, CTA EB NO. 833, OCTOBER reflect his income or the taxpayer has no books
1, 2012 or if he has books, he refuses to produce them,
or that the few records that he had were
destroyed

2. That there is evidence of possible source or ---------------------------------------------------------------

sources of income to account for the increases of (ii) Power of the Commissioner to make
net worth or expenditures assessments and prescribe additional
3. That here is a fixed starting point or opening net requirements for tax administration and
worth
enforcement
4. That the circumstances are such that the method
does reflect the taxpayers income with (a) Power of the Commissioner to obtain
reasonable accuracy and certainty, and proper information and to summon/examine
and just additions of personal expenses and and take testimony of persons
other non-deductible expenditures were made, ---------------------------------------------------------------
and correct, fair, and equitable credit adjustments
were given by way of eliminating non-taxable Read Section 6, Tax Code
items (see RMC No. 43-74)
Q: Enumerate the powers of the CIR in the
--------------------------------------------------------------- assessment of taxes.
(d) Jeopardy assessment
--------------------------------------------------------------- 1. Examination of returns and determination of tax
due
Note: I already discussed this. 2. Use of the best evidence obtainable
3. Authority to conduct inventory-taking,
--------------------------------------------------------------- surveillance, and to prescribe presumptive gross
(e) Tax delinquency and tax deficiency sales and receipts
--------------------------------------------------------------- 4. Authority to terminate the taxable period
5. Authority to prescribe real estate values
Q: When is the taxpayer considered 6. Authority to inquire into bank deposits
delinquent? 7. Authority to accredit and register tax agents
8. Authority to prescribe additional procedural or
1. Self-assessed tax per return filed by the documentary requirements
taxpayer on the prescribed date was not
paid at all or only partially paid or Examination of returns and determination of
2. Deficiency tax assessed by the BIR became tax due
final and executory
Q: When a taxpayer files his return, can he
Q: What is a tax deficiency? still (1) withdraw it; or (2) amend it?
The term deficiency means: Once filed, the taxpayer may no longer withdraw it
but he may amend it subject to the following
1. The amount by which the tax imposed requirements:
exceeds the amount shown as the tax by the
taxpayer upon his return 1. It is made within 3 years from filing
2. If no amount is shown as the tax by the 2. No notice for audit or investigation has been
taxpayer upon his return, then the amount actually served to him (see Section 6, Tax
by which the tax exceeds the amount Code)
previously assessed (or collected without
assessment) Use of the best evidence obtainable
Note: If the taxpayer is considered delinquent or there is a
tax deficiency, he taxpayer is subjected to a civil penalty or Q: Explain the best obtainable evidence
surcharge and, if applicable, interests. We will discuss this rule.
later.
The rule is that an assessment must made based on
the best evidence obtainable. In CIR V. HANTEX
TRADING [M ARCH 31, 2005], the Supreme Court
opined that assessments must be based on actual

facts. It ruled that best evidence includes the consultation with competent appraisers both from
corporate and accounting records of the taxpayer the public and private sectors.
who is subject of the assessment process while the
best evidence obtainable does not include mere Authority to inquire into bank deposits
photocopies of records and documents. Such
photocopies have no probative value and cannot be Q: Does the CIRs power to obtain
used as basis for any deficiency taxes against the information include the power to inquire into
taxpayer.
bank deposits?
Note: (1) The BIR is allowed to make or amend a tax
return from his own knowledge or obtained through No as a general rule. However, the CIR is
testimony or otherwise. (see CIR v. Hantex Trading Co. authorized to inquire into the bank deposits of:
[March 31, 2005])
1. A decedent to determine his gross estate
(2) The rule is that in the absence of accounting records of 2. Any taxpayer who has filed an application
a taxpayer, his tax liability may be determined by for compromise of his tax liability under
estimation. The CIR is not required to compute such tax Section 204(A)(2) of the Tax Code by
liabilities with mathematical exactness (Ibid)
reason of financial incapacity to pay his tax
liability.
Authority to conduct inventory-taking, 3. Specific taxpayers subject of a request for
surveillance, and to prescribe presumptive exchange of information by a foreign tax
gross sales and receipts authority pursuant to an international
convention or agreement on tax matters to
Q: In what instance will the CIR exercise which the Philippines is a signatory or a
such authority? party of provided that the requesting foreign
tax authority is able to demonstrate the
It will exercise such authority if there is reason to foreseeable relevance of certain information
believe that the taxpayer is not declaring his correct required to be given to the request (see RA
income, sales or receipts for internal revenue 10021 (Exchange of Information on Tax
purposes Matters Act of 2009) and RR 10-2010
[OCTOBER 6, 2010])
Authority to terminate the taxable period 4. Where the taxpayer has signed a waiver
authorizing the CIR or his duly authorized
Q: In what instances can the CIR terminate representatives to inquire into the bank
the taxable period of a taxpayer? deposits
When the taxpayer is: Authority to accredit and register tax agents
a. Retiring from business
b. Intending to leave the country Q: Who are tax practitioners/tax agents?
c. Removing his property
d. Obstructing tax collection RR 11-2006 [JUNE 15, 2006] defines a tax
practitioner/agent as those who are:
Authority to prescribe real estate values
1. engaged in the regular preparation,
Q: Does the CIRs power to prescribe real certification, audit and filing of tax returns,
estate values include the power to information returns or other statements or
unilaterally reclassify the zonal valuation of reports
2. engaged in the regular preparation of
properties?
requests for ruling, petitions for
reinvestigation, protests, requests for refund
As held in CIR V. AQUAFRESH SEAFOODS [OCTOBER or tax credit certificates, compromise
20, 2010], the Supreme Court ruled that although the settlement and/or abatement of tax liabilities
CIR has the authority to prescribe real property and other official papers and
values and divide the Philippines into zones, the law correspondence
is clear that the same should be done upon

3. regularly appear in meetings, conferences,

and hearings before any office of the BIR Q: A was assessed for deficiency taxes on
officially on behalf of a taxpayer or client in his Feb 1, 2010 income tax returns by the
all matters relating to a client's rights, BIR. The formal demand letter and
privileges, or liabilities
assessment was stamped Jan 31, 2013,
Note: Tax practitioners and agents are required to apply denoting the date of its release in the mail.
for accreditation. RR 11-2006 [JUNE 15, 2006], as In Feb 2, 2013, A has not yet received the
amended by RR 4-2010 [FEBRUARY 24, 2010] and RR 14- formal demand letter and assessment. He
2010 [NOVEMBER 25, 2010] provide for the guidelines on contends that the assessment is already
accreditation of tax practitioners/agents as a pre-requisite
for their practice and representation before the BIR.
barred by prescription. Is A correct?
No. The assessment is not barred by prescription.

Read Section 5, Tax Code The BIR has 3 years to assess from the date of last
filing. As long as the release of the
Note: As ruled in FITNESS BY DESIGN V. CIR [OCTOBER 17,
2008], the BIR can obtain all relevant records and data in
assessment/demand is effected within the
the person of the taxpayer without his consent. prescriptive period, the assessment is deemed
made on time even though the taxpayer actually
--------------------------------------------------------------- received the assessment/demand after the
expiration of the prescriptive period (see BASILAN
(iii) When assessment is made
ESTATES V. CIR [SEPTEMBER 5, 1967]).
(c) Prescriptive period for assessment
(2) False, fraudulent, and non-filing
Q: What is the exception to the above rule
of returns
that assessment is deemed made when BIR
(d) Suspension of running of statute of
releases, mails, or sends such notice to
limitations
taxpayer?
---------------------------------------------------------------
If the receipt is disputed and for this presumption of
Note: Whats the importance of determining when the
receipt of mail to apply, the CIR must prove that:
assessment is made or deemed made? Ill give you two
reasons. First, it is important in order to know if the right to
assess has already prescribed. The assessment must be 1. The letter was properly addressed
made within the 3-year prescriptive period. Any 2. The letter was mailed; otherwise,
assessment made thereafter shall be barred. Second, the presumption of receipt cant apply. (see
date in which the assessment was made is the reckoning NAVA V. CIR [JANUARY 30, 1965])
point of the prescription of the power to collect.
In REPUBLIC V. CA [APRIL 30, 1987], the Supreme
Q: When is an assessment deemed made? Court held that a direct denial of receipt of a mailed
demand letter by the addressee shifts the burden
The assessment is deemed to have been made on upon the party favored by the presumption of receipt
the date when the demand letter or notice of of letter to prove that the mailed letter was indeed
17
assessment is released, mailed or sent, even though received.
the same is actually received by the taxpayer after
the expiration of the prescriptive period (see In COMMISSIONER OF INTERNAL REVENUE VS. GJM
BASILAN ESTATES V. CIR [SEPTEMBER 5, 1967]). PHILIPPINES M ANUFACTURING, INC. [CTA EB CASE
NO. 637, M ARCH 6, 2012], the CTA held that if the
Note: RR 12-99 [SEPTEMBER 6, 1999] provides that if the taxpayer denies receiving the final assessment
notice to the taxpayer is served by registered mail and no notice, it is incumbent upon the BIR to prove that the
response is received from the taxpayer within the assessment was indeed received by the taxpayer.
prescribed period from date of the posting thereof in the
mail, the same shall be considered actually or
constructively received by the taxpayer. Further, if the
same is personally served and the taxpayer refuses to
acknowledge receipt thereof, the same shall be 17
Also important to note in this case is the ruling that a follow-up
constructively received by the taxpayer. letter which reiterates demand for payment of taxes is considered
a notice of assessment.

Note: (1) When an estate is under administration, the Pursuant to Section 229 of the Tax Code, he had two
notice of assessment must be sent to the administrator years from the filing of its final adjusted return to file a
(see Republic v. Leonor dela Rama [Nov. 29, 1956]) claim for tax refund or credit. The CIR argued that the
taxpayer had 730 days to file its claim given that Article 13
(2) Service of an assessment notice made to the agent of of the Civil Code states that a year is understood to mean
the decedent after the decedents death is not effective. 365 days. The taxpayer contended that under the 1987
As held in ESTATE OF LATE JULIAN DIEZ V. CIR [JANUARY 27, Administrative Code, a year consists of 12 calendar
2004], service of assessment notice on the trust months and having filed the claim on the last day of the
th
officer/agent of the decedent made after the death is 24 calendar month, the claim was filed within the
invalid since at that time the legal relationship between the prescriptive period. The Supreme Court ruled in favor of
principal and his agent had been automatically severed by the taxpayer. There exists a manifest incompatibility
the death of the principal even if the agent continued to act between the manner of computing legal periods under the
as such by filing the decedents ITR. The fact of failure to Civil Code and the Administrative Code. Given that the
file a notice of death will not later this effect but will only Administrative Code is the more recent law, its treatment
expose the estate to penalties and will not continue the of a year governs the computation of legal periods.
relationship with the agent.
Ano kapag the date of which the assessment is due to
prescribe falls on a Saturday? As held in CIR V. WESTERN
Q: What is the significance of the taxpayers PACIFIC CORPORATION [MAY 27, 1965], where the last day
indicating in the previous years ITR its new for issuing a tax assessment falls on a Saturday, it may be
validly issued the following business day. And anong araw
address? yun? Eh di Monday! What if itll prescribe on Sunday? You
can still assess on Monday. What if prescription falls due
As held in CIR V. BPI AS LIQUIDATOR OF PARAMOUNT on a legal holiday? You can still assess on the next day
ACCEPTANCE CORP [SEPTEMBER 23, 2003], any which is neither a Saturday, Sunday or a legal holiday.
service of assessment notice on the old address
subsequent to such previous year invalidates the Read Section 203 and 222, ax Code
assessment.
Q: When does the governments right to
---------------------------------------------------------------
assess prescribe?
(a) Prescriptive period for assessment
(3) False, fraudulent, and non-filing General Rule: The governments right to assess
of returns prescribes in 3 years from the date of the last day of
--------------------------------------------------------------- filing.
Note: As a preliminary matters, lets talk about how to However:

compute the legal period. If we will follow the old 1. If the return is filed after such date, the 3
Administrative Code and the Civil Code, the BIR may year period is reckoned from date of actual
assess the deficiency tax only within 1,095 days because
they both state that a year is 365 days. 365 times 3 equals
filing
1095. So, kapag nag-assess ang CIR sa dulo ng 3 year 2. If the return is filed before the last day, then
period na may leap year, prescribed na! Bakit? A leap considered as filed on last day.
year has 366 days. So 365 + 365 + 366 equals 1096 days!
Kapag may libro or notes ka na ganyan pa rin sinasabi, Exceptions: Section 222, Tax Code provides for
patay tayo diyan! The doctrine to that effect as laid down the following instances
in NAMARCO v. Tecson [29 SCRA 70] has been
abandoned! 1. False return
2. Fraudulent return
The rule now is very simple. Susundin natin ang
Administrative Code of 1987. A year is 12 calendar
3. Failure to file a return
months. Wag mo na bilangin ang total number of days. So
if the CIR assesses in the last day of the last month of the In such cases, the tax may be assessed or a
3-year period, hindi pa prescribed yun. Ano kapag may proceeding in court for collection may be filed
leap year yung isang taon sa 3-year period. It aint gonna without assessment at any time within 10 years from
matter. discovery of the falsity, fraud, or omission.
On a serious note, the relevant case is CIR V. PRIMETOWN Note: (1) In contrast, the right to collect the tax prescribes
PROPERTY [AUGUST 28, 2007]. In that case, the taxpayer in 5 years and the period is reckoned from the date the
filed a claim for tax refund of income tax paid in 1997. assessment is made.

Yes. A false return merely implies deviation from the

(2) May there be a proceeding in court when no truth, whether intentional or not, while a fraudulent
assessment is made within the 3 year period? Yes in the return refers to an intentional evasion of tax. (see
case of false return, fraudulent return, or failure to file AZNAR V. CTA [AUGUST 23, 1974])
return. You can file within 10 years from discovery.
Q: What is the effect if the assessment is Q: A filed his tax return in 2000. The CIR
made beyond the prescribed period? assessed A for deficiency taxes in 2004
alleging fraud in its complaint. Has the right
Assessments made beyond the prescribed period to assess prescribed?
would not be binding on the taxpayer. (see TUPAZ V.
ULEP [OCTOBER 1, 1999]; CIR v. AYALA SECURITIES Yes. As held in REPUBLIC V. LIM DE YU [APRIL 30,
CORPORATION [M ARCH 31, 1976] 1964], it is not enough the fraud is alleged in the
complaint, it must be proven and established.
Q: What if the return is incomplete, will the
prescriptive period to assess run? Q: The CIR contends that seven lots were
deliberately omitted by A in his return filed
No. As held in REPUBLIC V. M ARSMAN DEVELOPMENT as the representative of the heirs. A
COMPANY [APRIL 27, 1972], in order that the filing of contends that the lots were excluded
a return may serve as a starting point of the period because one belonged to one of the heirs,
for making an assessment, the return must be as three were already declared in the return of
substantially complete as to include the needed the surviving spouse, and three were
details on which the full assessment may be made. actually included. Is there a deliberate intent
to evade taxes on the part of A?
Q: What is the reckoning point with respect
to amended returns? No. As held in REPUBLIC V. HEIRS OF CESAR
JALANDONI [SEPTEMBER 20, 1965], the omission as
From the filing of the amended return if the described above was not deliberate and did not
amendment is substantial. In CIR V. PHOENIX [MAY amount to fraud indicative of an intention to evade
20, 1965], the taxpayer filed its ITR for 1952 on 1 payment of the proper tax due the government.
April 1953. It amended the said return on 30 August
1955. Thereafter, on 24 July 1958, the CIR Q: May the period of assessment be
assessed deficiency income tax on the basis of the
extended?
amended return contending that his right to assess
Yes. Before the expiration of the 3-year prescriptive
has not yet prescribed inasmuch as the same was
18 period, both the CIR and the taxpayer may agree in
availed of within 5 years from the filing of the
writing to extend the period of assessment. The
amended return. The Supreme Court ruled that
period so agreed upon may be further extended by
where the deficiency assessment is based on the
subsequent written agreement made before the
amended return, which is substantially different from
expiratiton of the period previously agreed upon (see
the original return, the period of limitation of the right
Section 222(b), Tax Code)
to issue the same should be counted from the filing
of the amended return. In this case, the changes
and alterations embodied in the amended return Q: What are the requirements of a valid
constituted substantial ones and thus the CIRs waiver of the statute of limitations?
deficiency assessment was not barred by
prescription. As provided in RMO No. 20-90:
Q: Is there a difference between a false 1. The waiver must be in the proper form
return and a fraudulent return? 2. The waiver shall be signed by the taxpayer
himself or his duly authorized
representative.
3. Signature of the proper authority (For tax
cases involving Php 1 million or above, the
18
Note that the case was governed under the old law which
provides for 6 tears to assess and another 5 years to collect.

CIR must sign) indicating that the BIR has This led some to believe that the Waiver form prescribed
accepted and agreed to the waiver under RMO No. 20-90 should be used instead of the
4. The date of the acceptance by the BIR waiver form mandated under RDAO No. 05-01. RMC No.
should be indicated. Both the dae of 29-2012 clarifies that while the provisions of RMO No. 20-
90 should be strictly complied with in order for a Waiver to
execution by the taxpayer and the date of be valid, the Waiver form prescribed in RMO No. 20-90
the acceptance by the BIR should be before should no longer be used as the same has been revised
the expiration of the period of prescription or per RDAO No. 05-01.
before the lapse of the period agreed upon
in case a subsequent agreement is In SMC STOCK TRANSFER SERVICE CORPORATION VS.
executed. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 7944,
5. The waiver must be executed in 3 copies, JANUARY 10, 2012], the CTA held that the waiver of the
the original to be attached to the docket, the Statute of Limitations executed by the taxpayer is
second copy for the taxpayer and the third defective if: (a) It fails to indicate the fact of receipt by the
taxpayer of his file copy of the waiver The Court noted
copy for the Office accepting the waiver. that the fact of receipt by the taxpayer must be indicated in
Taxpayer must be furnished a copy of the the original copy, which is to be attached to the docket of
waiver in order to perfect the agreement the case; (b) It fails to indicate the specific kind of tax and
since the waiver is not a mere unilateral act the amount of tax due if the amount of tax were not
indicated in the said waiver, there is no agreement to
Note: (1) The signatures of both the CIR and the taxpayer speak of; (c) It was not duly notarized; (d) Both the
are required for a waiver of the prescriptive period, thus a acceptance by the BIR and the execution by the taxpayer
unilateral waiver on the part of the taxpayer does not of the subsequent waiver was made at a time when the
suspend the prescriptive period (CIR v. CA [February 25, period previously agreed upon had already lapsed. See
1999]) also UNION CEMENT CORPORATION VS. COMMISSIONER OF
INTERNAL REVENUE [CTA CASE NO. 6842, JANUARY 18,
Q: What is the effect of failure to conform to 2012]; EAST ASIA POWER RESOURCES CORPORATION V. CIR
[CTA CASE NO. 7936, FEBRUARY 6, 2012]; NEXT MOBILE,
the requirements of a waiver of the statute INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE
of limitations? NO. 7965, DECEMBER 11, 2012
A waiver of the statute of limitations under the Tax A waiver of the defense of prescription which does not
Code must conform strictly with the provisions of indicate the date of acceptance by the BIR does not toll
Revenue Memorandum Order No. 20-90 in order to the running of the three-year prescriptive period. FIRST
be valid and binding. (See RMC 06-05 [February 2, GAS POWER CORPORATION VS. CIR, CTA CASE NO. 7281,
2005]; PHILIPPINE JOURNALISTS INC. V. CIR SEPTEMBER 24, 2012
[DECEMBER 16, 2004]).
Q: ABC Bank executed two Waivers of the
The period to assess and collect taxes may only be
Defense of Prescription covering internal
extended upon a written agreement between the
revenue taxes due for the years 1994 and 1995,
CIR and the taxpayer executed before the expiration
extending the period of the BIR to assess up to
of the 3-year period. RMO 20-90 and RDAO 05-01
December 31, 2000. A Formal Letter of Demand
lay down the procedure for the proper execution of
was issued by the BIR which was protested by
the waiver. If not followed, any assessment issued
ABC Bank. Another Formal Letter of Demand
by the BIR beyond the 3-year period is void. (CIR V.
was received by ABC with a reduced assessment
KUDOS METAL CORP [M AY 5, 2010]; see also AVON
which was paid by ABC on the same day except
PRODUCTS V. CIR [MAY 13, 2010])
for two other taxes. ABC argues that the waivers
Note: RMC No. 29-2012 [June 29, 2012] clarifies the form
it executed were not valid because it was not
to be used for Waiver of the Statute of Limitations. In RMO signed or conformed to by the CIR. Are the
20-90, there is a particular waiver form attached as an waivers valid?
Annex. Revenue Delegation Authority Order (RDAO) No.
05-01 was issued in August 2, 2001 prescribing a new Yes. Partial payment of the assessment issued
waiver form to be used. With the decision of the SC in within the extended period to assess as provided in
PHILIPPINE JOURNALISTS INC. V. CIR [DECEMBER 16, 2004], the Waiver of Defense of Prescription is an implied
RMC No. 06-05 was issued on February 2, 2005 citing the admission of the validity of the waiver. (RCBC v.
said decision that "a waiver of the statute of limitations CIR [September 7, 2011])
under the Tax Code must conform strictly with the
provisions of Revenue Memorandum Order No. 20-90.

Q: Can the waiver cover taxes already (c) Compromise penalties

prescribed? ---------------------------------------------------------------
---------------------------------------------------------------
No. As held in REPUBLIC V. LIM DE YU [APRIL 30, (a) Civil penalties or Surcharges
1964], the waiver of the statute of limitations ---------------------------------------------------------------
executed by the taxpayer cannot be deemed to
include taxes already prescribed. Read Section 247-248, Tax Code
Q: Can the doctrine of estoppel be applied Q: What are the civil penalties (surcharges)
as an exception to the statute of limitations?
under the Tax Code and in what instances
are they imposable?
No. In CIR V. KUDOS METAL CORPORATION [M AY 5,
2010], the Supreme Court held that the doctrine of
estoppels cannot be applied as an exception to the 1. 25% surcharge, which is imposable in case
statute of limitations on the assessment of taxes of:
considering that there is a detailed procedure for the a. Failure to file a return and pay tax
proper execution of the waiver. due thereon
b. Filing with unauthorized revenue
office
--------------------------------------------------------------- c. Failure to pay deficiency tax within
(a) Suspension of running of statute of time prescribed in assessment
limitations notice
--------------------------------------------------------------- d. Failure to pay full or part of the
amount shown in ITR required to be
Read Section 223, Tax Code filed or the full amount of tax due
for which no return is required to be
Q: When is the running of the period of filed on or before the date
prescribed for its payment
prescription suspended?
2. 50% surcharge, which is imposable in case
It is suspended when: of:
1. The CIR was prohibited from making the a. Willful neglect to file the return
assessment or beginning distraint/levy and within the period prescribed
19
for 60 days thereafter b. False or fraudulent return is willfully
2. Taxpayer requests reinvestigation which is made (see Section 248, Tax
granted by the CIR Code).
3. Taxpayer cannot be located in address
4. A warrant of distraint and levy is served (not Note: (1) Surcharges are imposed in addition to the tax
only issued) and no property could be found required. They are in the nature of penalties and shall be
5. Taxpayer is out of the Philippines collected at the same, in the same manner, and as part of
the tax (see Section 248(A), Tax Code)
---------------------------------------------------------------
(2) There is a prima facie evidence of false or fraudulent
(iv) General provisions on additions to return when there is a substantial under-declaration of
the tax taxable sales, receipts or income in an amount exceeding
(a) Civil penalties or Surcharges 30% of that declared per returm.
(b) Interest
(1) In general (3) As held in PHILIPPINE REFINING COMPANY V. CA [MAY 8,
1996], it is mandatory to collect penalty and interest at the
(2) Deficiency interest stated rate in case of delinquency. The intention of the
(3) Delinquency interest law is to discourage the delay in the payment of taxes due
(4) Interest on extended payment the Government, and, in this sense, the penalty and
interest is not penal but compensatory for the concomitant
use of the funds by the taxpayer beyond the date when he
19
is supposed to have paid them to the government.
An example would be when an injunction is allowed under the
CTA law is availed of.

Q: ABC is a cement company. Initially, the tasked to implement the tax are sufficient
BIR ruled that cement is a mineral product justification to delete the imposition of surcharges
rather than a manufactured product and is (MICHEL J. LHUILLIER PAWNSHOP V. CIR [SEPTEMBER
therefore subject to ad valorem tax, not 11, 2006])
sales tax. Subsequently, the CIR ruled that
cement is a manufactured product and Some Problems on Civil Penalty Impositions
therefore subject to sales tax. The BIR then
assessed ABC for deficiency sales tax and Q: If a taxpayer who files a return
imposed the 25% surcharge. Is the 25% subsequently realizes that the return filed
surcharge imposable? was insufficient, will his amended return be
subject to the 25% surcharge?
No. In CIR V. REPUBLIC CEMENT CORP [AUGUST 10,
1983], the Supreme Court noted that the 25% No. As long as the taxpayer files the amended return
penalty contemplates a case where the liability for before the lapse of any demand by the BIR to pay
the tax is undisputed or indisputable. In this case, his deficiency assessment, the taxpayer is not liable
the assessments are disputed. The dispute as to the for any surcharge.
tax liability of Republic Cement for sales tax arose
not simply because of ordinary divergence of views Q: Taxpayer A filed and paid taxes on April
in good faith vis--vis the interpretation of the law, 15, 2009 worth 5 million. On May 15, 2009,
the position of Republic Cement was founded upon he realized he should have paid 6 million
the original stand of the BIR itself that cement is a and thus pays the additional 1 million. Is A
mineral product. Under such circumstances, the subject to the 25% surcharge?
25% surcharge imposition must be deleted.
No. None of the violations mentioned was committed
Q: What is the nature of the fraud by the taxpayer.
contemplated in the act of making a
fraudulent return which would subject the Q: Taxpayer B filed and paid taxes on April
taxpayer to a 50% surcharge? 15, 2009 worth 5 million. On May 15, 2009,
the BIR issued an assessment and required
In CIR V. AIR INDIA [JANUARY 29, 1988], the Supreme B to pay an additional 1 million on or before
Court explained the fraud contemplated by the law in June 15, 2009. If B pays before June 15,
this way: It must be intentional fraud, consisting of
2009, is he subject to the 25% surcharge?
deception willfully and deliberately done or resorted
to in order to induce another to give up some legal
right. Negligence, whether slight or gross, is not No. None of the violations mentioned was committed
equivalent to the fraud with intent to give up some by the taxpayer.
legal right. Negligence, whether slight or gross, is
not equivalent to the fraud with intent to evade the Q: Taxpayer C did not file any return nor pay
tax contemplated by the law. It must amount to any taxes on April 15, 2009. On May 15,
intentional wrongdoing with the sole object of 2009, he realized he should have paid 6
avoiding the tax. million and thus pays the whole 6 million. Is
he subject to the 25% surcharge?
Q: As a result of divergent rulings on
whether he is subject to tax or not, the Yes. Taxpayer C failed to file a return and pay the
taxpayer failed to pay taxes on time. The CIR tax due thereon which is the first type of act which
imposed surcharges and interests for such requires a 25% surcharge imposition.
delay. The taxpayer invokes good faith. Is
good faith a defense? Q: Taxpayer D filed and paid taxes on April
15, 2009 worth 10 million. On May 15, 2009,
Yes. The settled rule is that good faith and honest the BIR issued an assessment and required
belief that one is not subject to tax on the basis of D to pay an additional 5 million on or before
previous interpretation of government agencies

June 15, 2009. If D pays after June 15, 2009, from the date of notice and demand until it is
is he subject to any surcharge? paid (see Section 249, Tax Code)
Yes. Taxpayer D will be subject to the 50% Note: (1) For delinquency interest, it is important to note
surcharge since (a) he failed to pay within the time that the instances in which it is applied is the same as
those enumerated under 25% surcharge except (b) filing
prescribed in the notice of assessment; and (b) the with unauthorized officer.
under declaration is 50% or in excess of the 30%
threshold which raises the prima facie presumption (2) Note that in deficiency interest, it is imposed on the
of a false or fraudulent return. As such allegation is deficiency not the amount of tax due. On the other hand,
only prima facie, it may be rebutted. in delinquency interest, it is imposed on the tax due. Thus,
it is an interest earning interest.
---------------------------------------------------------------
(3) Interest on deficiency tax may be waived when the
(d) Interest assessment is highly controversial as in the case of
(1) In general CAGAYAN ELECTRIC POWER & LIGHT CO. V. CIR [SEPTEMBER
(2) Deficiency interest 25, 1985], where there was a withdrawal of its exemption
(3) Delinquency interest from income tax and a subsequent reinstatement of such
exemption. Thus, non-payment during the short time when
(4) Interest on extended payment the taxpayer was exempt was not subjected to interest
--------------------------------------------------------------- payment.
Read Section 249, Tax Code The deficiency interest should be computed from the date
prescribed for the payment of the deficiency tax until full
payment thereof. On the other hand, delinquency interest
Q: What are the types of interests collected should be computed from the due date prescribed under
under the Tax Code the Assessment Notice until the full payment thereof.
REPUBLIC CEMENT CORPORATION (AS SURVIVING
1. In general there shall be assessed and CORPORATION IN A MERGER INVOLVING FR CEMENT
collected any unpaid amount of tax, interest CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE,
at the rate of 20% per annum or such higher CTA EB CASE NO. 821, JULY 18, 2012)
rate as may be prescribed from the date
prescribed for payment until fully paid Deficiency interest and delinquency interest, having
different nature for their existence, cannot be assailed as
double imposition of interests as the law itself allows the
2. Deficiency interest any deficiency in the simultaneous imposition of these two kinds of interests.
tax due shall be subject to 20% per annum Deficiency interest on any deficiency tax shall be
assessed from the date prescribed for its payment until
3. Delinquency interest the unpaid amount the full payment thereof; while the assessment of
shall be subject to 20% per annum in case delinquency interest that is imposed upon failure to pay a
of: deficiency tax, or any surcharge or interest thereon, shall
be reckoned from the due date appearing in the notice
a. Failure to pay the amount of tax due and demand of the Commissioner until the amount is fully
on any return required to be filed paid.TAKENAKA CORPORATION PHILIPPINE BRANCH, CTA EB
CASE NO. 745 (CTA CASE NO. 7701), SEPTEMBER 4, 2012
b. Failure to pay the amount of tax due
for which no return is required
c. Failure to pay a deficiency tax or ---------------------------------------------------------------
surcharge or interest thereon on the (e) Compromise penalties
due date appearing on the notice ---------------------------------------------------------------
and demand of the CIR
Note: I will discuss this fully later under Compromise and
4. Interest on Extended Payments if any Abatement but note that in the two instances where the
person is qualified and elects to pay CIR may compromise payment of internal revenue taxes
(doubtful validity of the assessment and financial
installments but fails to pay the tax or any incapacity), there is what you call a compromise penalty. A
installment on or before the date prescribed, compromise penalty is the amount agreed upon between
there shall be assessed and collected the taxpayer and the CIR to be paid as a penalty in cases
interest at the rate of 20% per annum on the of a compromise. For doubtful validity of the assessment,
tax or deficiency tax or part thereof unpaid the minimum compromise rate is 40%. For other cases

(including financial incapacity), the minimum compromise

rate is 10%. See RR 12-99 [SEPTEMBER 6, 1999])
---------------------------------------------------------------
(v) Assessment process 1. The CIR or Revenue Regional Director (RD)
(i) Tax audit issues a Letter of Authority (LA) to the
(j) Notice of informal conference Revenue Officer (RO)
(k) Issuance of preliminary
a. The LA must be served within 30 days from
assessment notice
date of issuance. Otherwise, it shall become
(l) Exceptions to issuance of null and void.
preliminary assessment notice b. The LA is issued to the RO by the:
(m) Reply to preliminary assessment
notice i. CIR or his duly authorized representatives
(n) Issuance of formal letter of demand after a return has been filed or
and assessment notice/final ii. Revenue Regional Director for all audit
assessment notice cases within his regional jurisdiction except
(o) Disputed assessment in:
(p) Administrative decision on a
disputed assessment (1) Cases involving civil or criminal tax
fraud falling under the jurisdiction of
---------------------------------------------------------------
the Tax Fraud Division of the
Enforcement Service
Note: Lets simplify the discussion. Ill give you two
versions of the assessment process: a simplified and an
(2) Policy cases under audit by Special
expanded version. I want you first to get an overview of Teams in the National Office (RMO
the whole process first and then in the expanded version, No. 36-99)
we will discuss what happens in each step and other
details. Note: (1) The Letter of Authority is the authority given to
the revenue officer to perform assessment functions.
There must be a grant of authority before any revenue
Q: Enumerate the steps in the assessment officer can conduct an examination or assessment and the
process (simplified) revenue officer must not go beyond the authority given
[CIR v. SONY PHILIPPINES [NOVEMBER 17, 2010].
1. The CIR or Revenue Regional Director (RD)
issues a Letter of Authority (LA) to the Revenue (2) A LA that was issued to cover an audit of unverified
Officer (RO) prior years is invalid. A LA should cover a taxable period
2. The RO conducts an Audit within 120 days from not exceeding one taxable year. The practice of issuing
LOAs covering audit of unverified prior years is
date of issuance and service of the LOA prohibited. If the audit of a taxpayer shall include more
3. RO sends Notice of Informal Conference (NIC) than one taxable period, the other periods shall be
4. Taxpayer responds within 15 days from receipt of specifically indicated. (see RMO 43-90 [SEPTEMBER 20,
NIC 1990]. In CIR V. SONY PHILIPPINES [NOVEMBER 17, 2010], a
5. The Assessment Division of the Revenue Letter of Authority was issued covering the period 1997
Regional Office or CIR or his duly authorized and unverified prior years. The deficiency VAT
representative issues a Preliminary Assessment assessment was based on records from January to March
Notice 1998. The Supreme Court held that the CIR went beyond
6. Taxpayer responds within 15 days from receipt of the scope of their authority as indicated in the LOA.
Further, the fact that the LOA covers unverified prior years
PAN via a Reply invalidates it and a VAT deficiency assessment made on
7. The CIR or his duly authorized representative the basis thereof must be disallowed.
issues a Formal Letter of Demand and
Assessment Notice (FAN) which may be objected (3) Eh ano itong tinatawag na Letter Notice? A Letter
to via Protest within 30 days from receipt of the Notice (LN) is a discrepancy notice issued by the CIR
FAN after conducting data matching processes, informing the
taxpayer of findings of discrepancy. A LN covers only a tax
Q: Enumerate the steps in the assessment indicated therein on a given particular period or quarter
rd
(e.g. VAT liabilities for 2002 3 quarter). It must be noted,
process (expanded) however, that under RMC 40-2003 [JULY 7, 2003] and

RMO 55-2010 [JUNE 15, 2010], a LN shall be treated as a Regional Office or to the Commissioner or his
notice of audit or investigation in the absence of evident duly authorized representative, as the case
error or clear abuse of discretion. In order to expedite the may be, for appropriate review and issuance
processing of LN cases, the issuance of NICs may of a deficiency tax assessment, if warranted.
immediately commence, even without prior issuance of
LOAs. Ano daw? Ito ibig sabihin: a LN is effectively
Note: Ano ba ang nangyayari sa Informal Conference?
equated to a LA.
This is where youre given the chance to present your
side. And of course, sasabihin mo ay tama ang binayad
2. The RO conducts an Audit within 120 days mo!
from date of issuance and service of the LOA
5. The Assessment Division of the Revenue
a. If the audit is not completed within the 120 Regional Office or CIR or his duly authorized
day period, the LA is revalidated. representative issues a Preliminary
b. If the RO finds: Assessment Notice
i. No deficiency, the audit ends a. If there is no sufficient basis to assess,
ii. Any deficiency, the RO will inform the dismissed.
taxpayer and write in his report whether b. If there is sufficient basis to assess, a
the taxpayer agrees with his findings: Preliminary Assessment Notice (PAN) shall be
issued for the proposed assessment, showing
(1) If the taxpayer is amenable, the in detail, the facts and the law, rules and
taxpayer pays the tax regulations, or jurisprudence on which the
(2) If the taxpayer is not amendable, the proposed assessment is based
RO shall state such fact in his report of c. A PAN is not required in the following
investigation and submit the same to instances
the RDO or by the Special
Investigation Division (in case of the i. Assessment is purely mathematical error
Revenue Regional Office) or by the ii. Excise tax on excisable article not paid
Chief of Division (in the case of the iii. Discrepancy between tax withheld and
BIR National Office). remitted
iv. Goods imported by tax-exempt entity are
3. RO sends Notice of Informal Conference (NIC) sold to a taxable entity
v. Claim for refund is filed when it was
a. The taxpayer shall be informed, in writing, by previously carried over
the RDO or by the Special Investigation
Division (in case of the Revenue Regional Note: The PAN must be issued by the BIR before issuing
Office) or by the Chief of Division (in the case the FAN and letter of demand. In CIR V. METRO STAR
of the BIR National Office) of the discrepancy SUPERAMA [DECEMBER 8, 2010], where the taxpayer
or discrepancies in the taxpayers payment of received only a FAN, the Supreme Court ruled that such
his internal revenue taxes for the purpose of amounted to a denial of due process. The taxpayer must
Informal Conference be informed of the facts and law upon which the
assessment is made. The law imposes a substantive, not
merely a formal requirement. However, if you fall under
4. Taxpayer responds within 15 days from the 5 exceptions, then you can go straight to the FAN.
receipt of NIC
The issuance of Preliminary Assessment Notice is
a. If the taxpayer responds within 15 days, there mandatory in tax assessments except in a few instances,
will be an Informal Conference specifically enumerated by law, where it is not required.
b. If the taxpayer fails to reply, he shall be COMMISSIONER OF INTERNAL REVENUE VS. UNIOIL
considered in default. The Revenue District CORPORATION, CTA EB CASE NO. 857, NOVEMBER 13, 2012
Officer or the Chief of the Special
Investigation Division of the Revenue See LAURENCE LEE V. LUANG V. HON. SIXTO S. ESQUIVIAS IV
[CTA CASE NO. 7967, JANUARY 5, 2102] where the CTA
Regional Office, or the Chief of Division in the held that in the absence of proof that taxpayer received
National Office, as the case may be, shall preliminary assessment notice, the assessment is void.
endorse the case with the least possible delay
to the Assessment Division of the Revenue

6. Taxpayer responds within 15 days from Supreme Court reiterated that the assessment must state
receipt of PAN via a Reply the fact, the law, the rules and regulations or jurisprudence
on which the assessment is based, otherwise the
a. If the taxpayer fails to respond within 15 days, assessment shall be void (see also CIR V. METRO STAR
SUPERAMA [DECEMBER 8, 2010] and CIR v. ENRON SUBIC
he shall be considered in default, in which POWER CORPORATION [JANUARY 19, 2009]; FLUOR DANIEL
case, a formal letter of demand and PHILIPPINES V. CIR [CTA CASE NO. 7793, APRIL 17, 2012])
assessment notice shall be caused to be
issued calling for payment of the taxpayer's (2) Remember the requisites of a valid assessment we
deficiency tax liability, inclusive of the discussed earlier. If the assessment does not have these
applicable penalties. requisites or, in other words, if the assessment is not valid,
the implication is that the 30-day period allowed to the
Note: (1) Failure to file a reply to the PAN will not bar the taxpayer in which to appeal to the CTA shall not begin to
taxpayer from protesting the FAN. Why? The PAN is not run.
the final assessment contemplated by the NIRC which can
be protested. The only consequence of failure to file a (3) The taxpayer or his duly authorized representative may
reply to the PAN is that the taxpayer shall be considered in protest administratively against the FAN within thirty (30)
default and the BIR can now make a final assessment. days from date of receipt thereof. Otherwise, the FAN will
become final and executory. You can no longer appeal to
7. The CIR or his duly authorized representative the CTA.
issues a Formal Letter of Demand and
Assessment Notice (FAN) which may be Lets now discuss the remedy of the taxpayer if youre
given a FAN.
objected to via Protest within 30 days from
receipt of the FAN
---------------------------------------------------------------
a. The formal letter of demand and assessment a) Protest
notice shall be issued by the Commissioner or (i) Protesting assessment
his duly authorized representative. (a) Protest of assessment by taxpayer
b. The letter of demand calling for payment of (1) Protested assessment
the taxpayer's deficiency tax or taxes shall (2) When to file a protest
state the facts, the law, rules and regulations, (3) Forms of protest
or jurisprudence on which the assessment is (4) Content and validity of protest
based, otherwise, the formal letter of demand (b) Submission of documents within 60
and assessment notice shall be void days from filing of protest
c. The same shall be sent to the taxpayer only
(c) Effect of failure to protest
by registered mail or by personal delivery. If
sent by personal delivery, the taxpayer or his (d) Period provided for the protest to
duly authorized representative shall be acted upon
acknowledge receipt thereof in the duplicate (ii) Rendition of decision by
copy of the letter of demand. Commissioner
(a) Denial of protest
Note: (1) The requirement that the assessment must first (1) Commissioners actions
sate the facts and the law on which the assessment is equivalent to denial of protest
based is not merely a procedural requirement but a
substantive requirement which determines the taxpayers (a) Filing of criminal action
ability to protest. Thus, the same must be complied with against taxpayer
otherwise the assessment is void. Thus, assessment (b) Issuing a warrant of distraint
notices which only have computations are invalid. This is and levy
the reason why the new Tax Code provides that the
taxpayer be informed and not merely notified. Given that
(2) Inaction by Commissioner
this new rule benefits the taxpayer, the same may be (iii) Remedies of taxpayer to action by
applied retroactively (CIR V. AZUCENA REYES [JANUARY 27, Commissioner
20
2006]. In CIR V. GONZALEZ [OCTOBER 13, 2010], the (a) In case of denial of protest
thereof which should inform the taxpayer of the declaration of

20
Further, the formality of a control number in the assessment deficiency tax.
notice is not a requirement for its validity but rather the contents

(b) In case of inaction by ---------------------------------------------------------------

Commissioner within 180 days (i) Protesting assessment
from submission of documents (a) Protest of assessment by taxpayer
(c) Effect of failure to appeal (1) Protested assessment
--------------------------------------------------------------- (2) When to file a protest
(3) Forms of protest
Read Section 228, Tax Code (4) Content and validity of protest
(b) Submission of documents within 60
Note: First, Ill give you the overview of the steps in an
administrative protest and then well go to the topics in the
days from filing of protest
outline. (c) Effect of failure to protest
(d) Period provided for the protest to
Q: Outline the steps in disputing an be acted upon
assessment starting from the filing of the ---------------------------------------------------------------
return until the appeal to the Supreme
Court. ---------------------------------------------------------------
(1) Protested assessment
1. Filing of the Return - period begins on date of ---------------------------------------------------------------
filing or last day required by law, whichever is
later) Q: What is a protested assessment?
2. Issuance of LA served to the taxpayer within
30 days from issuance A protested assessment or a disputed assessment
3. Audit within 120 days from date of receipt of is where the taxpayer questions an assessment and
LA by taxpayer asks the BIR to reconsider or cancel the same
4. Notice of Informal Conference taxpayer because he believes he is not liable therefor
submits explanation within 15 days from receipt
of notice ---------------------------------------------------------------
21
5. Preliminary Assessment Notice (PAN) (2) When to file a protest
taxpayer submits reply within 15 days from ---------------------------------------------------------------
receipt of notice
6. Final Assessment Notice Q: When should a taxpayer file a protest
7. Taxpayer files protest within 30 days from
with the CIR?
receipt of FAN and Formal Notice of Demand
8. Relevant supporting documents submitted
The taxpayer or his duly authorized representative
within 60 days from filing of letter of protest
may protest administratively against the formal letter
9. CIRs denial of protest or inaction for 180
of demand and assessment notice within thirty (30)
days
days from date of receipt thereof. (see RR No. 12-
10. Appeal to CTA Division within 30 days from
99)
date of receipt of CIRs denial or from the lapse
of 180 days of inaction counted from Q: Is payment prior to protest required?
submission of documents to CIR. CTA Division
has to decide the case within 30 days after
General Rule: no prior payment of assessed
submission for decision. Motion for
internal revenue tax is required when protested or
Reconsideration or New Trial to CTA Division
disputed.
within 15 days from receipt of decision.
11. Appeal to CTA En Banc within 15 days from
Exception: If there are several issues involved in
receipt of resolution.
the formal letter of demand and assessment notice
12. Appeal to the SC within 15 days from receipt
but the taxpayer only disputes or protests against
of resolution under Rule 45
the validity of some of the issues raised, the
taxpayer shall be required to pay the deficiency tax
or taxes attributable to the undisputed issues, in
which case, a collection letter shall be issued to the
21
When PAN is not required, from filing of return, a final taxpayer calling for payment of the said deficiency
assessment notice will be issued.

tax, inclusive of the applicable surcharge and/or (3) The period utilized for reinvestigation is deducted from
interest. No action shall be taken on the taxpayer's the period within which to collect. (see REPUBLIC V. LOPEZ
22
disputed issues until the taxpayer has paid the [MARCH 30, 1963])
deficiency tax or taxes attributable to the said
The running of the statute of limitations shall not be
undisputed issues. (see RR No. 12-99) suspended or interrupted unless the taxpayers request for
reinvestigation is acted upon by the Commissioner. BRAVO
Note: In contrast, payment prior to protest is required in ALABANG, INC. VS. COMMISSIONER OF INTERNAL REVENUE,
real property taxes and customs duties. CTA CASE NO. 8199, NOVEMBER 29, 2012
---------------------------------------------------------------
(3) Forms of protest Q: What happens if the CIR does not
--------------------------------------------------------------- consider or act upon the request for
reinvestigation?
Q: What are the two ways of protesting an
assessment notice for an internal revenue As there was no evidence that the request was
tax? (Two forms of protest) considered or acted upon, it did not suspend the
running of the period for filing an action for collection
1. Request for Reconsideration refers to a plea for (see REPUBLIC V. ABECEDO [M ARCH 29, 1968])
reevaluation of an assessment on the basis of
existing records without need of additional In BPI v. CA [OCTOBER 17, 2005] as reiterated in
evidence. It may involve both a question of fact or BPI V. CA [M ARCH 17, 2008], the Supreme Court
of law or both emphasized that the BIR must first grant the request
2. Request for Reinvestigation refers to a plea for for reinvestigation as a requirement for the
reevaluation of an assessment on the basis of suspension of the statute of limitations.
newly discovered evidence or additional evidence
that a intends to present in the investigation. It Q: Can a taxpayer invoke the defense of
may also involve a question of fact or law or both prescription when he made repeated
(see RR No. 12-85) requests for reinvestigation and repeated
requests for extension of time to pay?
Q: What is the difference between a request
for reinvestigation and a request for No. As held explained by the Supreme Court in
reconsideration for purposes of tolling the REPUBLIC V. ARCACHE [FEBRUARY 29, 1964]: While
running of the prescriptive period? we may argue with the Court of Tax Appeals that a
mere request for re-examination or re-investigation
It is the request for reinvestigation acted upon which may not have the effect of suspending the running of
suspends the prescriptive period to collect. A the period of limitation for in such a case there is
request for reconsideration does not toll the need of a written agreement to extend the period
prescriptive period (see BPI V. CIR [OCTOBER 17, between the Collector and the taxpayer, there are
2005]; CIR V. PHILIPPINE GLOBAL COMMUNICATIONS cases however where a taxpayer may be prevented
[OCTOBER 31, 2006]) from setting up the defense of prescription even if he
has no previously waived it in writing as when by his
Note: (1) The ruling in CIR V. CAPITOL SUBDIVISION [APRIL repeated requests or positive acts the Government
30, 1964] to the effect that the prescriptive period to collect has been, for good reasons, persuaded to postpone
a deficiency tax is interrupted when there is a request for collection to make him feel that the demand was not
review or reconsideration is no longer controlling. unreasonable or that no harassment or injustice is
(2) Why does a request for reinvestigation toll the running
meant by the Government.
of the prescriptive period? Well, a reinvestigation will take
more time because you need to receive and evaluate
additional evidence. 22
Example: If the assessment was made on 1/1/2000 and the
collection was made on 1/1/2006 but it was shown that from
1/1/2000 to 1/1/2003 or a period of 2 years that the assessment
was being reinvestigated, the action to collect has not yet
prescribed since deducting the 2 year period when reinvestigation
was made will only amount to 4 years and is thus still within the 5
year period to collect.

Q: When must the taxpayer submit all

--------------------------------------------------------------- relevant supporting documents?
(4) Content and validity of protest
--------------------------------------------------------------- Within 60 days from filing of protest, the taxpayer
shall submit all relevant supporting documents.
Q: What are the requirements for the validity
of a taxpayers protest? Note: Relevant supporting documents should be
understood as those documents necessary to support the
legal basis in disputing a tax assessment as determined
1. Must be in writing and addressed to the CIR by the taxpayer. The BIR can only inform the taxpayer to
2. Must contain the information required, namely: submit additional documents. The BIR cannot demand
what type of supporting documents should be submitted.
a. Name of the taxpayer and address for the Otherwise, the taxpayer will be at the mercy of the BIR,
immediate past 3 taxable years which may require the production of documents that a
b. Nature of the request, specifying the newly taxpayer cannot submit (CIR V. FIRST EXPRESS PAWNSHOP
discovered evidence he intends to present [JUNE 16, 2009]; CIR VS. LA SUERTE CIGAR AND CIGARETTE
c. Taxable periods covered by the assessment FACTORY, TELENGTAN BROTHERS AND SONS, INC., CTA EB
d. Amount and kind of tax involved and the CASE NO. 820 (CTA CASE NO. 7390) JUNE 11, 2012.
assessment notice and number
e. Date of receipt of assessment notice or letter ---------------------------------------------------------------
of demand (b) Effect of failure to protest
f. Itemized statement of the finding to which the ---------------------------------------------------------------
taxpayer agrees (if any) as basis for the
computation of the tax due, which must be Q: What is the effect of failure to protest the
paid immediately upon filing of protest FAN?
g. Itemized schedule of the adjustments to which
the taxpayer does not agree If the taxpayer fails to file a valid protest against the
formal letter of demand and assessment notice
3. The taxpayer must not only show the errors of within thirty (30) days from date of receipt thereof,
the BIR but also the correct computation through: the assessment shall become final, executory and
demandable.
a. A statement of the facts, the applicable law,
rules and regulations, or jurisprudence on ---------------------------------------------------------------
which the taxpayers protest is based. (c) Period provided for the protest to
Otherwise, his protest shall be considered
be acted upon
void and without force and effect.
b. If there are several issues involved in the ---------------------------------------------------------------
disputed assessment and the taxpayer fails to
state the facts, the applicable law, rules and Q: What is the period for the CIR to act upon
regulations, or jurisprudence in support of his a valid protest against the FAN?
protest against some of the several issues on
which assessment is based, the same shall The CIR or his duly authorized representative may
be considered undisputed issue or issues, in act on the taxpayers protest within 180 days from
which case, the taxpayer shall be required to the date of submission by the taxpayer of the
pay the corresponding deficiency tax or taxes required documents in support of his protest
attributable
Note: The 30-day period to appeal set by Section 228 of
4. It must be filed within the reglementary period of the NIRC, as amended, should be reckoned from the
lapse of the 180-day period for the BIR to act on the
30 days from receipt of the notice of assessment protest without any decision having been rendered and not
--------------------------------------------------------------- from the date the taxpayer received the Final Demand and
(a) Submission of documents within 60 Assessment Notice (LA FLOR DELA ISABELA, INC. V. CIR
days from filing of protest [C.T.A. EB NO. 672, FEBRUARY 02, 2012])
---------------------------------------------------------------

--------------------------------------------------------------- Note: This is not an the MR being contemplated in

(iii) Remedies of taxpayer to action by FISHWEALTH CANNING CORPORATION VS. COMMISSIONER OF
INTERNAL REVENUE [JANUARY 21, 2010] which tolls the
Commissioner running of the period to appeal to the CTA.
(a) In case of denial of protest
(b) In case of inaction by Q: Enumerate some acts of the CIR that may
Commissioner within 180 days be considered as denial of the taxpayers
from submission of documents protest?
(c) Effect of failure to appeal
--------------------------------------------------------------- 1. An indication to the taxpayer by the CIR in
clear and unequivocal language of his final
--------------------------------------------------------------- denial not the issuance of the warrant of
(a) In case of denial of protest distraint and levy. What is the subject of the
appeal is the final decision not the warrant of
---------------------------------------------------------------
distraint. (CIR v. Union Shopping [May 21,
1990])
Q: What are the remedies of the taxpayer if 2. Filing by the BIR of a civil suit for collection
the protest is denied? of the deficiency tax is considered a denial
of the request for reconsideration (CIR v.
1. Appeal to the CTA within 30 days from date Union Shopping [May 21, 1990])
of receipt of the said decision. Otherwise, 3. Filing of criminal action against the taxpayer
the assessment becomes final, executory (Ibid)
and demandable. 4. A BIR demand letter sent to the taxpayer
2. Instead of appealing to the CTA at once, the after his protest of the assessment notice is
taxpayer may first opt to file a MR of the considered as the final decision of the CIR
denial of the administrative protest with the on the protest (Surigao Electric v. CTA [57
CIR. If the MR is denied, the taxpayer may SCRA 523])
then appeal o the CTA, but only within the 5. A letter of the CIR reiterating to a taxpayer
remaining period of the original 30-day his previous demand to pay an assessment
period to appeal (if any) (see FISHWEALTH is considered a denial of the request for
CANNING CORPORATION VS. COMMISSIONER reconsideration or protest and is appealable
OF INTERNAL REVENUE [JANUARY 21, 2010]) to the CTA (CIR v. Ayala Securities [70
SCRA 204])
Q: Will a Motion for Reconsideration toll the 6. Final notice before seizure considered as
30 day period to appeal the denial of the CIRs decision of taxpayers request for
protest of the FAN? reconsideration who received no other
response. (CIR v. Isabela Cultural Corp
No. A motion for reconsideration of the denial of the [July 11, 2001])
administrative protest does not toll the 30-day period
to appeal to the CTA. (see FISHWEALTH CANNING Q: The BIR issued a Formal Letter of
CORPORATION VS. COMMISSIONER OF INTERNAL Demand which stated The opinions
REVENUE [JANUARY 21, 2010]) promulgated by the Secretary of Justice are
advisory in natureand any aggrieved party
Q: What is the remedy of the taxpayer if it is has the court for recourse. The taxpayer
the duly authorized representative of the did not protest the assessment and instead
CIR who denied the protest? filed a Petitioner for Review with the CTA. Is
the taxpayer correct?
The taxpayer may elevate his protest to the CIR
within 30 days from date of receipt of the final Yes. Estoppel is an exception to the doctrine of
decision of the Commissioner's duly authorized exhaustion of administrative remedies as when the
representative since the latters decision is not be wording of the Formal Letter of Demand with
considered final, executory and demandable. Assessment Notices led the taxpayer to believe that
it was in fact a final decision of the CIR. The
statement of the BIR led the taxpayer to believe that

only a final judicial ruling in its favor would be Director of the BIR for the reason that the case was not
accepted by the CIR (ALLIED BANK V. CIR elevated to the Court of Tax Appeals as mandated by the
[FEBRUARY 5, 2010]. provisions of the last paragraph of Section 228 of the Tax
Code. By virtue thereof, the said assessment notice has
become final, executor and demandable.
---------------------------------------------------------------
(b) In case of inaction by HELD: The Supreme Court held that it is not correct to say
Commissioner within 180 days that the assessment became final and executory by the
from submission of documents sole reason that the taxpayer failed to appeal the inaction
of the Commissioner within 30 days after the 180-day
--------------------------------------------------------------- reglementary period because in effect, it limited the
remedy of the taxpayer under Section 228 of the NIRC to
Q: What happens if the protest is not acted just one, that is - to appeal the inaction of the
upon within 180 days by the CIR? Commissioner on its protested assessment after the lapse
of the 180-day period.
1. File a petition for review with the CTA within
30 days after the expiration of the 180 day ---------------------------------------------------------------
period (a) Effect of failure to appeal
2. Await the final decision of the CIR on the ---------------------------------------------------------------
disputed assessment and appeal such final
decision to the CTA within 30 days after Q: What is the effect of the failure of the
receipt of a copy of such decision (see CIR taxpayer to appeal the denial of the protest
V. FIRST EXPRESS PAWNSHOP COMPANY, INC by the CIR to the CTA in due time?
[JUNE 16, 2009]; RCBC V. CA [APRIL 24,
2007]) Failure of the taxpayers to appeal to the CTA in due
time make the assessments in question, final,
Q: If a taxpayer files out of time his petition executory and demandable. (see DAYRIT V. CRUZ
23
for review with the CTA, can he wait for the [SEPTEMBER 26, 1988]).
final decision of the CIR and then appeal the
same to the CTA? Taxpayers failure to file a petition for review with the
CTA within the statutory period renders the disputed
No. After availing of the first option (filing of the assessment final, executory and demandable.
petition for review) which was however filed out of PHILIPPINE DREAM COMPANY, INC. VS. BUREAU OF
time, a taxpayer cannot successfully resort to the INTERNAL REVENUE, CTA CASE NO. 7700, DECEMBER
second option (await final decision and appeal the 06, 2012
same to the CTA) on the pretext that there is yet no
final decision on the disputed assessment because Q: Will the failure of the taxpayer to appeal
of the CIRs inaction. (see also LASCONA LAND V. the inaction result in the finality of the FAN?
CIR [M ARCH 5, 2012])
No. The failure of the taxpayer to appeal the inaction
on the disputed assessment by the CIR or his
LASCONA LAND CO. V. CIR, G.R. NO. 171251, representative within 30 days after the lapse of 30
MARCH 5, 2012 days from the submission of supporting documents
will not result in the finality of the FAN (see RCBC V.
DOCTRINE: Under Section 228, in case of the inaction of CA [APRIL 24, 2007])
the CIR on the protested assessment, the taxpayer
has two options, either: (1) file a petition for review Q: Is the requirement that the appeal of the
with the CTA within 30 days after the expiration of the decision of the CIR to the CTA be brought
180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment and
within 30 days jurisdictional?
appeal such final decision to the CTA within 30 days
from the receipt of a copy of such decision.
FACTS: Taxpayer filed a letter protest against the

Assessment Notice issued alleging deficiency income tax 23
The Court also stated that a suit for collection of internal
for the year 1993. The protest was denied by the Regional revenue taxes where the assessment has already become final
and executory is akin to an action to enforce judgment.

In RCBC V. CIR [JUNE 16, 2006], the Supreme Court b) Collection

held that while the right to appeal a decision of the (i) Requisites
CIR to the CTA is merely a statutory remedy, (ii) Prescriptive periods
nevertheless the requirement that it must be brought ---------------------------------------------------------------
within 30 days is jurisdictional. If a statutory remedy
provides as a condition precedent that the action to
enforce it must be commenced within a prescribed Read Section 203, 222-223, Tax Code
time, such requirement is jurisdictional and failure to
comply may be raised in a motion to dismiss. Q: What are the requisites for the collection
of taxes?
Note: From here on, you will notice that I have already
deviated from the order in the bar syllabus. Ill integrate We must make a distinction between delinquency
the discussion of Collection and Government Remedies as
they are closely related. In fact, the government remedies
tax and deficiency tax.
are meant to ensure collection, But before that, I want to
dispose of the topic of injunctions. This is just a review. 1. Delinquency tax can be immediately
We already discussed this in General Principles. collected administratively through issuance
of a warrant of distraint or levy and/or
--------------------------------------------------------------- through judicial action (see Section 205,
(v) Non-availability of injunction to Tax Code)
restraint collection of tax 2. Deficiency tax can be collected also
--------------------------------------------------------------- through administrative and/or judicial
remedies but has to go through the process
Read Section 218, Tax Code of filing the protest by the taxpayer against
the assessment and the denial of such
protest by the CIR.
Q: Can an injunction be issued to restrain
the collection of any internal revenue tax,
Q: When may collection of taxes be made?
fee or charge?
It may be made within 5 years from assessment
General Rule: No court can issued an injunction, as
provided under Section 218, Tax Code.
Q: Summarize the prescriptive periods for
Exception: Section 11, RA 9282 provides that an the collection of taxes.
injunction may be issued by the CTA to restrain the
collection of taxes when in the opinion of the Court Regular ITR No ITR, False ITR,
the collection may jeopardize the interest of the Fraudulent ITR
Government and/or the taxpayer, the Court at any Collection w/ prior assessment
stage of the proceeding may suspend the said Assess within 3 years Assess within 10 years
collection and require the taxpayer either to deposit from actual filing or last from discovery of fraud,
the amount claimed or to file a surety bond for not day to file, whichever is falsity or omission
more than double the amount with the Court. later
Note: (1) TROs and injunctions issued by courts other Collect within 5 years Collection within 5 years
than the CTA against the BIR should be annulled and from date of assessment from date of assessment
cancelled for lack of jurisdiction [see RMO 042-10 [MAY 4, by summary or judicial by summary or judicial
24
2010].)
Collection w/o prior assessment
(2) As held in ANGELES CITY V. ANGELES ELECTRIC This cannot be done Collection within 10
CORPORATION [JUNE 29, 2010], the prohibition on the anymore because there years from date of
issuance of a writ of injunction to enjoin the collection of must be an assessment discovery of the falsity,
taxes is applied only to national internal revenue taxes, not before collection in the fraud, omission by
to local taxes. However, the Supreme Court noted that
such injunctions enjoining the collection of local taxes are
frowned upon.
24
The rule is to the effect that once there is already an
assessment, the period to collect is always 5 years even if the
--------------------------------------------------------------- return is fraudulent, false, or was not filed.

case of a regular ITR judicial proceedings Note: We already discussed this in assessment.
only.
Q: A tax was assessed in September 27,
Note: Apparently, there is a conflict as to the proper 1999. The CIR filed a suit to collect
prescriptive period for collecting taxes when a return was deficiency taxes in December 27, 2009. The
filed by the taxpayer and such return is not false or CIR claims that there was a waiver of the 5-
fraudulent. Domondon says it is 3 years. Sababan,
Mamalateo, and Dimaampao says that it is 5 years. Gruba year prescriptive period and presented a
and Montero adhere to this view. 5 years, it is then! waiver dated December 17, 2005. Is the
Majority wins. waiver valid?
Q: What are the alternatives of the CIR in No. As held in REPUBLIC V. ABECEDO [M ARCH 29,
cases of a false, fraudulent return or the 1968], the waiver must be executed within the 5 year
failure to file a return in terms of collection? period. A waiver executed beyond the five-year
limitation is in effective and, as such, the CIR can no
25
As held in REPUBLIC V. RET [M ARCH 31, 1962], the longer revive the right of action.
CIR has two alternatives:
Q: What is effect of the failure of the waiver
1. Assess the tax within 10 years from the to bear the written consent of the CIR?
discovery of the falsity, fraud or failure and
then collect within 5 years by judicial or In CIR V. CA [FEBRUARY 25, 1999], the Supreme
summary proceedings Court reiterated that waiver of the five-year
2. Do not assess and instead collect the tax prescriptive period must be in writing and signed by
without assessment within 10 years from the both the BIR Commissioner and the taxpayer.
discovery of the falsity, fraud or failure by Hence, a waiver which does not have the consent of
judicial proceedings only. the CIR is invalid and without any binding effect.
Thus, when there is an assessment, the 10 year Q: How should the waiver be construed
period to collect from discovery of falsity, fraud, and when the specified period in the waiver
failure is not applicable.
refers to both assessment and collection?
Q: The CIR maintains that the prescription If the waiver refers to both assessment and
of his right to collect the amount of collection and interpreting such will in effect shorten
deficiency taxes is governed by Article 1145 the collection period, then such waiver is deemed to
of the Civil Code, which gives him 6 years. refer to assessment only and not collection (see
Is the CIR correct? REPUBLIC V. LIM DE YU APRIL 30, 1964])
No. As held in GUAGUA ELECTRIC LIGHT COMPANY V. Q: Can a letter of demand be deemed an
CIR [APRIL 24, 1967], the right to assess and collect assessment such that the 5-year period
is governed by the Tax Code and not by Article 1145
of the Civil Code. A special law (Tax Code) shall for collection shall commence from the
prevail over a general law (Civil Code). time such letter was sent?
Q: Can the prescriptive period to collect be Yes. In REPUBLIC V. LIMACO & DE GUZMAN [AUGUST
waived? 31, 1962], the Supreme Court held that a letter of
demand should be deemed an assessment if it
Yes, provided the requirements of a valid waiver as declares and fizes th tax to be payable against the
provided for in RMO No. 20-90 are present. party liable thereto and demands the settlement
thereof. Hence, the 5-year period for collection of the
tax due should commence anew from time said letter
of demand was sent to the taxpayer.
25
In the said case, the Supreme Court noted that Section 332 (no
w Section 222) does not apply in the collection of income taxes by
summary proceedings. But when the collection of income taxes is
to be effected by court action, the provision is controlling.

Q: What is the effect of pendency of

appeal on the running of the prescriptive No. In VERA V. FERNANDEZ [M ARCH 30, 1979], the
Supreme Court held that claims for taxes are
period?
collectible even after distribution of decedents
estate among his heirs who are liable in proportion
Under SECTION 223 OF THE TAX CODE, the running of of their share in the inheritance to the payment of
the prescriptive period to collect deficiency taxes taxes. Claims for taxes against the estate are
shall be suspended for the period during which the excepted from the statute of non-claims and are not
CIR is prohibited from beginning a distraint or levy or barred forever.
instituting a proceeding in court and for 60 days
---------------------------------------------------------------
thereafter.
2. Government Remedies
In REPUBLIC V. KER & CO. [SEPTEMBER 29, 1966], the a) Administrative Remedies
Supreme Court held that the pendency of a (i) Tax lien
taxpayers appeal has the effect of temporarily (ii) Compromise and Abatement
staying the hands of the CIR. The running of the (a) Authority of the Commissioner
prescriptive period is suspended. to compromise and abate taxes
(b) Compromise
In PROTECTORS SERVICES V. CA [APRIL 12, 2000], (c) Abatement
the Supreme Court held that the act of a taxpayer in (iii) Distraint of personal property
filing a petition before the CTA to prevent the
including garnishment
collection of the assessed deficiency tax and in
elevating the case to the Supreme Court for review (a) Summary remedy of distraint of
after the CTA dismissed the petition suspended the personal property
running of the statute of limitations. (1) Purchase by the government
at sale upon distraint
Q: An informer filed a case with the CTA (2) Report of sale to the BIR
against the taxpayer and BIR. The informer (3) Constructive distraint to
was seeking to (1) declare the taxpayer as protect the interest of the
having an assessment; and (2) as a government
consequence, to collect his informers (iv) Summary remedy of levy on real
reward. This case was filed by the informer property
within 3 years from the time that the (1) Advertisement and sale
taxpayer filed his return. However, apart (2) Redemption of property sold
from this action initiated by the informer, no (3) Final deed of purchaser
other action was filed by the government (v) Forfeiture to government for want
seeking to collect against the taxpayer. Has of bidder
the right to collect already prescribed? (a) Remedy of enforcement of
forfeitures
No. In PNOC V. CA [APRIL 26, 2005], the Supreme (1) Action to contest forfeiture of
Court held that the BIR is deemed to be compliant chattel
with the requirement that collection be made within (b) Resale of real estate taken for
the 5 years from time of assessment since if the taxes
informant won, the CTA would have ordered the (c) When property to be sold or
erring parties to pay the tax. At the very least, the destroyed
filing by the informer of the case would have
(d) Disposition of funds recovered in
suspended the running of the period because the
BIR is prohibited from making collection because legal proceedings or obtained
there was a pending case. from forfeiture
(vi) Further distraint or levy
Q: Is the government barred by (vii) Suspension of business operation
prescription from claiming deficiency (viii) Statutory offenses and penalties
taxes against an estate?

b) Judicial Remedies predicated on a tax lien is superior to the claim of a

(i) Civil and criminal actions private litigant predicted on a judgment. The tax lien
(a) Suit to recover tax based on attaches not only from the service of the warrant of
false and fraudulent returns distraint of personal property but from the time the
tax had become due and payable. In both cases, the
---------------------------------------------------------------
distraint was made long before the writ of execution
was issued to implement the levy on execution.
---------------------------------------------------------------
Q: What are the remedies of the government (ii) Compromise and Abatement
for the collection of taxes? (a) Authority of the Commissioner
to compromise and abate taxes
1. Administrative Remedies (b) Compromise
(c) Abatement
a. Tax lien
b. Distraint of personal property, or levy of real ---------------------------------------------------------------
property or garnishment of bank deposits
c. Sale of property Read Section 204, Tax Code
d. Forfeiture
e. Compromise and abatement ---------------------------------------------------------------
f. Penalties and fines; (b) Compromise
g. Suspension of business operations ---------------------------------------------------------------
2. Judicial Remedies
Q: What is a compromise?
a. Civil action
b. Criminal action A compromise is an agreement whereby the parties,
by making reciprocal concessions, avoid litigation or
put an end to one already commenced (see ART.
---------------------------------------------------------------
2208, CIVIL CODE)
(i) Tax lien
---------------------------------------------------------------
Q: Who may compromise tax liability?
Read Section 219, Tax Code The CIR is the only official vested with the power
and discretion to compromise civil and criminal
Q: What is a tax lien? cases arising from violations of the Tax Code. He
cannot be compelled to exercise such discretion.
It is a legal claim or charge on property, real or However, the Regional Evaluation Board may enter
personal, established by law as security in default of into a compromise on:
the payment of tax (HSBC v. Rafferty [39 Phil.
105]) a. Assessment issued by the Regional Officers
involving basic deficiency taxes of P500,000
Q: The CIR served a warrant of distraint over or less; and
four barges owned by ABC Company to b. Minor criminal violations, discovered by
satisfy various deficiency taxes. Later, the regional and district (See Section 7(c), Tax
Code)
same four barges were levied upon
execution to satisfy a judgment for unpaid
Q: Can a compromise be made after final
wages and other benefits of the employees
judgment?
of ABC Company. Which claim is superior?
No. In Rovero v. Amparo [May 5, 1952], the
The claim of the government is superior. As held in
Supreme Court stressed that a compromise is
CIR v. NLRC [November 9, 1994] reiterating the
resorted to, to avoid litigation or to end a suit already
doctrine laid down in REPUBLIC V. ENRIQUEZ
instituted. There can no longer be a compromise at
[OCTOBER 21, 1988], the claim of the government

a stage of judicial proceedings where a final be handled by the

judgment has already been rendered because there Regional Evaluation
is nothing to compromise as the Government has Board or the National
definitely and finally won the litigation. Evaluation Board on a
case-to-case basis
5. Cases which become
final and executory
Q: What are the grounds for the compromise after final judgment of
of payment of internal revenue taxes? a court where
compromise is
1. Doubtful validity of the assessment requested on the
2. Financial incapacity ground of financial
incapacity of the
Note: Refer to RR 30-2002 [December 16, 2002] for the taxpayer
instances where the tax can be compromised under these
two grounds.
(See Section 2, RR No. 30-2002)
Q: What tax cases may or may not be the
subject of a compromise? Q: What are the minimum amounts for
compromise settlements?
Subject to compromise Not subject to
compromise 1. For cases of financial incapacity, the
minimum compromise rate is 10% of the
1. Delinquent accounts 1. Withholding tax cases basis assessed tax.
2. Cases under unless the applicant- 2. For other cases (including doubtful validity),
administrative protest taxpayer invokes the minimum compromise rate is 40% of the
after issuance of the provisions of law that basic assessed tax.
FAN to the taxpayer cast doubt on the
which are still taxpayers obligation Q: Can the compromise offer of a taxpayer
pending in the RO, to withhold be lower than the prescribed rates?
RDO, Legal Service, 2. Criminal tax fraud
Large Taxpayer cases confirmed as Yes, but the approval by the Evaluation Board which
Service, Collection such by the CIR or his is composed of the CIR and the 4 Deputy
Service, Enforcement duly-authorized Commissioners is required.
Service and other representative
officers of the 3. Delinquent accounts Note: The Evaluation Board must also approve the
National Office with duly approved compromise if the basic tax involved exceeds P1 million.
3. Civil tax cases being schedule of
disputed before the installment payments Q: Can a void assessment serve as basis for
courts 4. Cases where the final a compromise?
4. Collection cases filed reports of
in courts reinvestigation or
No. As held in CIR V. REYES [JANUARY 27, 2006], the
5. Criminal violations reconsideration have
Supreme Court reiterated that an assessment that
other than those been issued resulting
fails to inform the taxpayer of the law and the facts
already filed in court to reduction in the
on which it is made is void. As a corollary, a void
or those involving original assessment
assessment cannot in turn be used as basis for
criminal tax fraud and the taxpayer is
perfection of a tax compromise.
agreeable to such
decision by signing
the required Q: Can criminal violations of the Tax Code
agreement form for be compromised?
the purpose. On the
other hand, other Yes, except:
protested cases shall a. those already filed in court and
b. those involving fraud.

(a) Remedy of enforcement of

--------------------------------------------------------------- forfeitures
(a) Abatement (2) Action to contest forfeiture of
--------------------------------------------------------------- chattel
(b) Resale of real estate taken for
Q: What is abatement? taxes
(c) When property to be sold or
An abatement is a diminution or decrease in the destroyed
amount of tax imposed such that to abate is to nullify (d) Disposition of funds recovered in
or reduce in value or amount.
legal proceedings or obtained
from forfeiture
Q: How is it different from a compromise?
(xi) Further distraint or levy
A compromise is marked by mutual concessions, ---------------------------------------------------------------
whereas in abatement or cancellation, no mutual
concessions between the taxpayer and the CIR are Q: What are the requisites for a valid
made (see PEOPLE V. SANDIGANBAYAN [AUGUST 16, distraint and levy?
2005].
1. The taxpayer must be delinquent
Q: What are the grounds for abatement? 2. There must be a subsequent demand
for its payment
1. If the assessment is excessive or erroneous 3. The taxpayer must fail to pay the
2. If the administration costs involved do not delinquent tax at the time required
justify the collection of the amount due
4. The period within which to collect the tax
Note: Refer to RR 13-2001 [September 27, 2001] for the
has not yet prescribed
instances where the tax can be compromised under these
two grounds. Note that RR 13-2001 was amended by RR Read Section 206, Tax Code
4-2012 [March 28, 2012]. Previously, one of the instances
is when there is late payment of the tax under meritorious
circumstances. One day late filing and remittance due to
Q: In what instances can the CIR place
failure to beat bank cut-off time fall under this instance in under constructive distraint26 the property of
RR 13-2001. RR 4-2012 deleted the same. a taxpayer?
--------------------------------------------------------------- 1. Delinquent taxpayer

(iii) Distraint of personal property 2. Taxpayer is retiring from any business
including garnishment subject to tax
(b)Summary remedy of distraint of 3. Taxpayer is intending to leave the
Philippines
personal property
4. Taxpayer is intending to remove his property
(1) Purchase by the government at therefrom
sale upon distraint 5. Taxpayer is intending to hide or conceal his
(2) Report of sale to the BIR property
(3) Constructive distraint to 6. Taxpayer is intending to perform any act
protect the interest of the tending to obstruct the proceedings for
government collecting the tax due or which may be due
(ix) Summary remedy of levy on real from him
property
(1) Advertisement and sale
(2) Redemption of property sold
(3) Final deed of purchaser 26
In a constructive distraint, the taxpayer or any person having
(x) Forfeiture to government for want possession or control of the property will sign a receipt covering
the property distrained and obligate himself to preserve the same
of bidder intact and unaltered and not to dispute the same without authority
from the CIR.

Read 207 to 217, Tax Code Note: The next steps will depend if the Bid is less than
amount of tax/ FMV of goods distrained.
Note: After reading the codal (that is, if you read it), I am
sure youre thinking: WTF is this shit? Do not worry. Let us
simplify the discussion of Distraint and Levy. First, let us
go through some definitions. Distraint is the seizure by Bid less than amount Bid equal or more than
the government of personal property, tangible, or of tax/FMV of goods amount of tax/FMV of
intangible, to enforce the payment of taxes, to be followed distrained goods distrained
by its public sale, if the taxes are not voluntary paid.
Garnishment is the taking of personal properties usually
cash or sums of money owned by the delinquent taxpayer 7. Commissioner may 7. Officer sells the
which is in the possession of a third party. A levy refers to purchase property for goods to the highest
the seizure of real properties and interest in or rights to the National bidder for cash or
such properties for the satisfaction of taxes due from the Government (Section with the
delinquent taxpayer. Magagamit niyo yang definitions na 212, Tax Code) Commissioners
yan later sa local taxes and sa RPT (Oo, may distraint and 8. Property may be approval, through
levy rin dun). Now, lets discuss the whole procedure from resold and the net commodity/ stock
Section 207 to Section 217 of the Tax Code.
proceeds shall be exchanges. (Section
remitted to the 209, Tax Code)
Q: Outline the procedure for distraint of National Treasury as 8. Excess of proceeds
personal property internal revenue. over the entire
(Section 212, Tax claim, shall be
Note: Take note of the following - RCO - Revenue Code) returned to the
Collection Officer, RDO - Revenue District officer, RRD - owner. No charge
Revenue Regional Director, and LGU- Local Government shall be imposed for
Unit
the services of the
officer (Section 209,
1. Person owing any delinquent tax to fails to pay
Tax Code)
w/in the time required
9. Within 2 days after
the sale, officer shall
Note: The authority who will do the distraint of personal
property will depend on whether the delinquent tax is more
report to the
than Php 1 million. Commissioner.
(Section 211, Tax
More than Php 1 Php 1 million or less Code)
million 10. Within 5 days after
sale, distraining
2. Commissioner 2. RDO seizes officer shall enter
seizes sufficient sufficient personal return of
personal property to property to satisfy proceedings in the
satisfy the tax, the tax, charges & records of RCO,
charge & expenses expenses of seizure RDO and RRD
of seizure (Section (Sec. 207 (A), Tax (Section 213, Tax
207 (A), Tax Code) Code) Code)
Note: If the personal property of the taxpayer is not

3. Distraining Officer accounts for the goods
sufficient to satisfy his tax delinquency, the CIR or his
distrained (Section 208, Tax Code) authorized representative shall, within 30 days after the
4. RDO posts notice in at least 2 public places in execution of the distraint, proceed with the levy on
the municipality/city where the distraint is made. taxpayers real property. (Section 209(B), Tax Code)
One place of posting must be at the mayors
office. Time of sale shall not be less than 20
days after the notice (Section 209, Tax Code)
5. Goods shall be restored to owner, if charges
are paid (Section 210, Tax Code)
6. Officer conducts public auction

Q: Outline the procedure for levy on real redeem said property the foreclosed asset of
property. by paying full amount natural persons and the
of the taxes and period within which to pay
charges (Section 215, CGT or CWT and DST on
1. Real property may be levied on before, the foreclosure of Real
simultaneously, or after the distraint of personal Tax Code) Estate Mortgage shall be
property (Section 207 (B), Tax Code) 10. The Commissioner reckoned from the date of
2. Internal revenue officer, designated by the may, after 20 days registration of the sale in
Commissioner, shall prepare a certificate with the notice, sell property the Office of the Register of
force of a nationwide legal execution (Section at public auction or at Deeds
207 B, Tax Code) private sale with
approval of the For juridical persons in an
3. Levy shall be affected by writing upon said extrajudicial foreclosure,
certificate a description of the property. Notice of Secretary of Finance.
Proceeds shall be Section 47 of the General
the levy shall be served upon the Register of Banking Law provides that
Deeds of LGU where the property is located and deposited with the its right of redemption shall
upon the owner (Section 207 B, Tax Code) National Treasury be until, but not after the
4. Within 10 days after receipt of the warrant, (Section 216, Tax registration of the certificate
levying officer shall report to the Commissioner Code) of sale with the Register of
who shall have the authority to lift the warrant of Deeds, which in no case
levy (Section 207 B, Tax Code) shall be more than 3
months after foreclosure,
5. Within 20 days after levy, officer shall post notice whichever is earlier. (RMC
at the main entrance of the municipal/city hall & No. 55-2011 [November
in public place in the barrio/district where the real 10, 2011])
estate lies for at least 30 days by and publish it
once a week for 3 weeks. Owner may prevent The right of redemption
sale by paying all charges (Section 213, Tax shall be reckoned from the
Code) approval of the executive
6. Sale shall be held at the main entrance of the judge [CIR v. UPCB
municipal/city hall, or on the premises of the [October 23, 2009])
levied property. (Section 213, Tax Code)
9. Within 1 year from
Note: The next steps will depend if there is a bidder or not sale, the owner may
OR the highest bid is sufficient or not. redeem, by paying
to the RDO the
No bidder or highest There is a bidder or amount of the taxes,
penalties, and
bid insufficient highest bid sufficient
interest thereon
from the date of
7. Officer conducting the 7. Excess of proceeds delinquency to the
sale shall forfeit the of the sale over date of sale, and
property to the claim and cost of 15% per annum
Government (Section sale shall be turned interest on purchase
215, Tax Code) over to the owner price from the date
8. Within 2 days, he (Section 213, Tax of purchase to the
shall make a return of Code) date of redemption.
the forfeiture. 8. Within 5 days after (Section 214, Tax
Register of Deeds, the sale, levying Code)
upon registration of officer shall enter 10. Owner shall not be
forfeiture shall return of the deprived of the
transfer title to the proceedings upon possession and
Government without the records of the shall be entitled to
court order. (Section RCO, RDO and the fruits until 1 year
215, Tax Code) RRD (Section 213, expires (Section
9. Within 1 year from Tax Code) 214, Tax Code)
forfeiture, the
taxpayer, may Note: The 1-year period on

Note: Levy and distraint may be repeated until the full 2. By filing an answer to the petition for
amount due, and all expenses are collected. (Section 217, review filed by the taxpayer with the
Tax Code)
CTA
---------------------------------------------------------------
Q: Which court has exclusive original
(xii) Suspension of business operation
jurisdiction in tax collection cases involving
---------------------------------------------------------------
final and executory assessments for taxes,
Read Section 115, Tax Code fees, charges and penalties?
1. The CTA if the principal amount of taxes and

Q: When may the CIR suspend the business
fees, exclusive of charge and penalties is
operation of a VAT-registered person? Php 1 million and above.
2. The proper MTC or RTC if the principal
The CIR or his authorized representative may amount of taxes and fees, exclusive of
suspend the business operation and temporarily charge and penalties, is less than Php 1
close the business of a VAT-registered person for million.
understatement of taxable sales or receipts by 30%
or more of his correct taxable sales or receipts for
Q: Assuming that the principal amount of
the taxable quarter
taxes and fees is less than Php 1 million,
Note: The duration of the suspension of business can the lower court acquire jurisdiction over
operation is for a period of not less than 5 days and shall a a tax collection case while there is a
be lifted only upon compliance of whatever requirements pending case in the CTA disputing the
imposed by the CIR in the collection order. assessment?
--------------------------------------------------------------- No. As held in YABES V. FLOJO [JULY 20, 1982], the
(iv) Statutory offenses and penalties Supreme Court held that the lower court can acquire
--------------------------------------------------------------- jurisdiction over a claim for collection of deficiency
taxes only after the assessment made by the CIR
Note: I already discussed civil penalties or surcharges and has become final and unappealable, not where there
interests in Assessment. As to statutory offenses, I will is still a pending CTA case.
include them in the discussion of criminal action.
Q: When an assessment has become final
--------------------------------------------------------------- for failure to protest, can the taxpayer still
b) Judicial Remedies raise the issue of prescription?
(i) Civil and criminal actions
(b) Suit to recover tax based on Yes. As held in CIR V. HAMBRECHT & QUIST
false and fraudulent returns PHILIPPINES [NOVEMBER 17, 2010], the Supreme
--------------------------------------------------------------- Court held that the fact that an assessment has
become final for failure of the taxpayer to file a
Read Section 220-221, Tax Code protest within the time allowed only means that the
validity or the correctness of the assessment may no
longer be questioned on appeal. However, the
Civil Actions validity of the assessment itself is a separate and
distinct issue from the issue of whether the right of
Q: What are the two ways by which the civil the CIR to collect the validly assessed tax has
tax liability of a taxpayer is enforced by the prescribed.
government through civil actions?
Q: Is a decision on a request for
1. By filing a civil case for the collection of reinvestigation a condition precedent to the
a sum of money with the proper regular filing of an action of taxes already
court assessed?

No. In REPUBLIC V. LIM TIAN TENG SONGS & CO Q: Define willful in the context of the third
[M ARCH 31, 1966], the Supreme Court ruled that a element of a violation of the Tax Code for
decision on a request for reinvestigation is not a failure to make or file the return?
condition precedent to the filing of an action of taxes
already assessed. Nowhere in the Tax Code is the In PEOPLE V. KINTANAR [CTA CRIM. CASE NO. 006,
CIR required to rule first on a taxpayers request for DECEMBER 3, 2010, affirmed by the Supreme Court
reconsideration before he can go to court for the in a minute resolution [G.R. 196340] dated
purpose of collecting the tax assessed. February 2012], the Supreme Court defined willful
in this light: willful in the tax crimes statutes means
The requirement to rule on disputed assessments voluntary, intentional violation of a known legal duty,
before bringing action for collection is applicable and bad faith or bad purpose need not be shown.
only on where the assessment was actually Further, the Supreme Court stated that an act or
disputed, adducing reasons in support thereto. In omission is "willfully" done if done voluntarily and
this case, the taxpayer did not actually contest the intentionally and with specific intent to do something
assessment by stating the basis thereof. (see the law forbids, or with specific intent to fail to do
DAYRIT V. CRUZ [SEPTEMBER 26, 1988]) something the law requires to be done; that is, with
bad purpose to either disobey or disregard the law.
Criminal Actions A willful act may be described as one done
intentionally, knowingly and purposely, without
Q: Name the most common crimes justifiable excuse.
punishable under the Tax Code?
As held in PEOPLE OF THE PHILIPPINES VS. JUDY ANNE
Read Section 254-255, Tax Code SANTOS Y LUMAGUI [CTA CRIM. CASE NO. O-012,
JANUARY 16, 2012], the element of wilful failure to
supply correct and accurate information must be fully
established as a positive act or stale of mind. It
1. Attempt to evade or defeat tax (Section cannot be presumed nor attributed to mere
254) inadvertent or negligent acts. Negligence, whether
2. Failure to File return, supply correct and slight or gross, is not equivalent to the fraud with
accurate information, pay tax, withhold intent to evade the tax contemplated by the law.
and remit tax, and refund excess taxes Fraud must amount to intentional wrongdoing with
withheld on consumption (Section 255) the sole object of avoiding the tax.
Note: As to other statutory offenses, refer to Sections 253 Q: What are the elements of a violation of
to 282. Section 255 in relation to Sections 253(d)
and 256 of the Tax Code for failure of a
Q: What are the elements of a violation of
corporation to make or file a return (holding
Section 255 of the Tax Code for failure to
the corporate officers criminally liable)?
make or file a return?
1. The corporate taxpayer is required to pay
1. The accused is a person required to make tax and it failed to pay such tax at the time
or file a return required by law;
2. The accused failed to make or file the return 2. The accused is the president, general
at the time required by law manager, branch manager, treasurer,
3. The failure to make or file the return was officer-in-charge, or employee responsible
willful for the violation of the corporate taxpayer;
and
(see PEOPLE V. KINTANAR [CTA CRIM. CASE NO. 006,
DECEMBER 3, 2010]; PEOPLE OF THE PHILIPPINES VS. JUDY
3. The accused willfully fails to pay the
ANNE SANTOS Y LUMAGUI [CTA CRIM. CASE NO. O-012, corporate taxes. (PEOPLE OF THE PHILIPPINES
JANUARY 16, 2012]) VS.JOSEPH TYPINGCO [CTA CRIM. CASE NO.
0-114, M AY 16, 2012]

Q: Which court has exclusive original assessment is not necessary before a criminal
jurisdiction in criminal tax cases? charge can be filed and such criminal charge need
only be supported by a prima facie showing of failure
27
1. The CTA if the principal amount of taxes and to file a required return.
fees, exclusive of charge and penalties is
Php 1 million and above. This was likewise reiterated in Adamson v. CA
2. The proper MTC or RTC if the principal [May 21, 2009] where the Court held that there is no
amount of taxes and fees, exclusive of need for precise computation and formal
charge and penalties, is less than Php 1 assessment in order for criminal complaints can be
million. filed against the taxpayer. An assessment is not
necessary for a criminal prosecution for willful
Q: Does the acquittal of the taxpayer from attempt to defeat and evade the income tax.
the criminal action affect his liability to pay
Note: However, for criminal prosecution to proceed before
the tax? assessment, there must be a prima facie showing of a
willfull attempt to evade taxes (CIR v. Fortune Tobacco
No. In REPUBLIC V. PATANAO [JULY 21, 1967], the [June 4, 1996])
Supreme Court held that since the taxpayers civil
liability is not included in the criminal action, his Q: Is the filing of the criminal action an
acquittal in the criminal proceeding does not implied assessment?
necessarily entail exoneration from his liability to pay
taxes. His legal duty to pay taxes cannot be affected No. The filing of a criminal action is not an implied
by his attempt to evade taxes. Said obligation is not assessment. An assessment contains not only a
a consequence of the criminal act charged nor is it a computation of tax liabilities but also a demand for
mere civil liability arising from a crime that could be payment within the prescribed period. An affidavit,
wiped out by judicial declaration of non-existence of which was executed by revenue officers stating the
the criminal acts charged. tax liabilities of a taxpayer and attached to the
criminal complaint for tax evasion cannot be deemed
Q: Should the filing of a criminal complaint an assessment that can be questioned before the
be preceded by assessment? CTA (CIR v. Pascor Realty [June 29, 1999])
No. In case of a false or fraudulent return, Q: What is the effect of satisfaction of the
proceedings in court may be commenced without an
civil liability to the criminal liability in tax
assessment since under the Tax Code, civil and
criminal aspects may be pursued cases?
In UNGAB V. CUSI [M AY 30, 1980]the Supreme Court The subsequent satisfaction of civil liability by
held that while there can be no civil action to enforce payment or prescription does not extinguish the
collection before the assessment procedures taxpayers criminal liability.
provided in the Tax Code have been followed, there
is no requirement for the precise computation and Q: Can subsidiary imprisonment be
assessment of the tax before there can be a criminal imposed on the tax which the taxpayer is
prosecution under the Tax Code. sentences to pay?
This was clarified further in CIR V. PASCOR REALTY
It depends. Subsidiary imprisonment cannot be
AND DEVELOPMENT CORP. [JUNE 29, 1999], the
imposed in case of insolvency on the part of the
taxpayer argued that a tax assessment should
taxpayer but it may be imposed in the case of failure
precede a criminal indictment. The Supreme Court
to pay the fine imposed (see Section 280, Tax
disagreed. The Court noted that Section 222 of the
Code)
Tax Code specifically states that in cases where a
false or fraudulent return is submitted or in cases of
failure to file return, proceedings in court may be
commenced without an assessment. Further,
27
Section 205 provides that the civil and criminal The Court also stressed that a criminal complaint is instituted
aspects may be pursued simultaneously. An not to demand payment, but to penalize the taxpayer for violation
of the Tax Code.

Read Section 281, Tax Code already pending or previously

investigated
Q: What is the prescriptive period for
violations of the Tax Code? Q: Who are disqualified from availing of the
informers reward?
All violations of any provision of the Tax Code shall
prescribe after 5 years. 1. A BIR official or employee or any other
incumbent public official or employee;
2. Relative within the sixth (6th) civil degree of
Q: When does the prescriptive period
consanguinity of a BIR official or employee,
begin? or other public official or employee; and
3. Though already retired or otherwise
Prescription shall begin to run from: separated from service, BIR officials or
employees or other public officials who
1. The day of the commission of the violation acquired the information in the course of the
2. If the same is not known, from the discovery performance of their duties during their
and the institution of judicial proceedings for incumbency. (see RR 16-2010 [NOVEMBER
its investigation and punishment. 25, 2010])
Note: In LIM, SR. V. CA [OCTOBER 18, 1990], the Supreme Note: Now, lets discuss another remedy of the taxpayer
Court adopted the view of the Solicitor General to the Refunds.
effect that, in addition to the fact of discovery, there must ---------------------------------------------------------------
be a judicial proceeding for the investigation and
punishment of the tax offense before the five-year limiting
period begins. Also, b) Refund
(i) Grounds and Requisites for refund
Q: In what instances is the prescriptive (ii) Requirements for refund as laid down
period interrupted? by cases
(a) Necessity of written claim for
1. When proceedings are instituted against the refund
guilty persons (and shall run again if the (b) Claim containing a categorical
proceedings are dismissed for reasons not demand for reimbursement
constituting jeopardy) (c) Filing of administrative claim for
2. When the offender is absent from the refund and the suit/proceeding
Philippines before the CTA within 2 years
from date of payment regardless
Read Section 282, Tax Code of any supervening cause
(iii) Legal basis of tax refunds
Q: What is the reward given to persons (iv) Statutory basis for tax refund under
instrumental to the discovery of violations the Tax Code
of the Tax Code? (a) Scope of claims for refund
(b) Necessity of proof for claim or
A sum equivalent to 10% of the revenues, refund
surcharges, or fees recovered and/or fine or penalty
(c) Nature of erroneously paid
imposed and collected or P1 million, whichever is
lower. tax/illegally assessed collected
(d) Tax refund vis--vis Tax Credit
Entitlement to (e) Essential requisites for claim of
Informers Reward refund
The offender offered to Yes (v) Who may claim/apply for tax
compromise refund/tax credit
No revenue, surcharges or fees No
were actually recovered
(a) Taxpayer/withholding agents of
The information refers to case No non-resident foreign corporations

(vi) Prescriptive period for recovery of tax from date of payment regardless
erroneously or illegally collected of any supervening cause
(vii) Other consideration affecting tax ---------------------------------------------------------------
refunds
--------------------------------------------------------------- Q: What are the requirements for a claim of
a tax refund or a tax credit?
1. There is a tax collected erroneously or illegally,
Note: Before we even begin, note that the rules in Section or a penalty collected without authority, or a sum
229 both statutory and jurisprudential does NOT apply to excessively or wrongfully collected (see Section
the refund or tax credit of excess and unutilized input tax 229, Tax Code)
(VAT). Section 229 applies to the recovery of erroneously
or illegally collected internal revenue taxes. On the other 2. There must be a written claim for refund filed by
hand, the refund or tax credit of excess and unutilized the taxpayer to the CIR (see Vda. De Aguinaldo
input tax is governed by Section 112(C). So kung sinabi
recovery of input tax (sa VAT), apply Section 112(C).
v. CIR [February 26, 1965])
Kung recovery of erroneous or illegally internal revenue
tax (mostly in income taxes), apply Section Exceptions (no written claim required)
229.Remember that. Keep this mind in our discussion of
Refund here. Ill first discuss Refund in Section 229 by a. When on the face of the return upon which
following the order in the syllabus and then later we will payment was made, such payment appears
discuss the procedure for claim of refund in Section 229 clearly to have been erroneously paid, the
and Ill compare it with Section 112(C). Hanggang ngayon CIR may refund or credit the tax even
kung titingnan niyo ang mga kaso involving refunds,
without a written claim (Section 229, Tax
marami pa rin nagkakamali diyan. Who is to blame? Well,
ang kaso ng Aichi na we discussed under VAT.
Code)
Malalaman natin mamaya bakit.
b. A return filed showing an overpayment shall
--------------------------------------------------------------- be considered as a written claim for credit or
(i) Grounds and Requisites for refund refund. (Sec. 204(C), Tax Code)
---------------------------------------------------------------
3. The claim must be a categorical demand for
reimbursement (see Bernejo v. CIR [July 25,
Q: What are the grounds for refund or credit 1950])
of internal revenue taxes?
4. The claim for refund must be filed within 2 years
1. The tax was illegally collected There is no law from the date of the payment of the tax
that authorizes the collection of the tax) regardless of any supervening cause (Section
2. The tax was excessively collected There is a 229, Tax Code)
law that authorizes the collection but the tax
collected was more than what the law allows 5. The taxpayer must show proof of payment of the
3. The tax was paid through a mistaken belief that tax (See CIR v. Li Yao [December 27, 1963])
the taxpayer should pay the tax This is a case
of solutio indebiti Note: Payment under protest is not required in order to
--------------------------------------------------------------- obtain a refund of erroneously or illegally collected internal
(ii) Requirements for refund as laid down revenue taxes. (Section 229, Tax Code)
by cases As to (3): The idea is first to afford the CIR an opportunity
(a) Necessity of written claim for to correct the action of subordinate officers and second to
refund notify the Government that such taxes have been
(b) Claim containing a categorical questioned and the notice should then be borne in mind in
estimating the revenue available for expenditure (see
demand for reimbursement Bermejo v. CIR [July 25, 1950])
(c) Filing of administrative claim for
refund and the suit/proceeding As to (5), before recovery is allowed, it must be
before the CTA within 2 years established that there was actual collection and receipt by
the government of the tax sought to be recovered and this

required factual proof (CIR v. Li Yao [December 27,

1963]) (4) For actions for refund of corporate income tax, the two-
year prescriptive period is counted from the time of actual
See PHILAM Properties Corporation vs. filing of the Final Adjustment Return or Annual Income Tax
Commissioner of Internal Revenue [CTA Case No. Return not on the date when the taxes were paid on
7912, January 12, 2012] where the CTA held that failure quarterly basis. (see CIR V. CA [JANUARY 21, 1999]). It is at
to prove that the income, related to the excess creditable this point that it can already be determined whether there
withholding being claimed as refund, was reported in the has been an overpayment of the taxpayer. (see CIR V.
income tax return would result in the denial of the claim. PHILAMLIFE [MAY 29, 1995]).
SEE ALSO PHILIPPINE BANK OF COMMUNICATIONS VS. See PRHC Property Managers. Inc. vs. Commissioner
COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 7763, of Internal Revenue [CTA Case No. 8071, January 6,
JANUARY 20, 2012]; PHILAM INSURANCE AGENCY AND CALL 2012] where the CTA held that the reckoning of the 2-year
CENTER SERVICES, INC. VS. COMMISSIONER OF INTERNAL prescriptive period for the filing of a claim for refund of
REVENUE [CTA EB NO. 792, JANUARY 20, 2012]; HAVI FOOD excess creditable withholding tax or quarterly income tax
SERVICES PHILS., INC. VS. CIR, CTA EB NO. 800 (CTA CASE starts from the date of filing of the annual income tax
NO. 7735), JUNE 28, 2012 return
In a claim for refund of excess income tax, failure to See also MCKINSEY & CO., (PHILS.) VS. COMMISSIONER OF
present the original annual income tax return is fatal to the INTERNAL REVENUE, CTA CASE NO. 8078, JULY 30, 2012
claim. Maunsell Philippines, Inc. vs. CIR, C.T.A. EB No.
860, October 23, 2012 The period to file a claim for refund of excess creditable
withholding taxes by a tax-exempt entity is not reckoned
--------------------------------------------------------------- from the filing of the final adjustment return, but from the
time the taxes were erroneously withheld LISP-1
(c) Filing of administrative claim for LOCATORS ASSOCIATION INCORPORATED VS. COMMISSIONER
refund and the suit/proceeding OF INTERNAL REVENUE, CTA CASE NO. 7905, NOVEMBER 29,
before the CTA within 2 years 2012
from date of payment regardless
of any supervening cause (5) In case the taxpayer merely made a deposit, the 2-year
period is counted from the conversion of the deposit to
--------------------------------------------------------------- payment (Union Garment v. Collector [CTA Case No.
416, November 17, 1965]).
Q: What is the prescriptive period for
recovery of erroneously or illegally collected (6) For VAT, the two year prescriptive period is counted
internal revenue taxes? from the time of filing of the quarterly VAT return, i.e.
within 25 days after the close of each taxable quarter (CIR
v. Mirant [September 12, 2008]
The claim for refund must be filed within 2 years
from the date of payment of the tax regardless of (7) In case of dissolution of a corporation, the 2-year
any supervening cause (Section 229, Tax Code) prescriptive period for refund begins thirty (30) days after
the approval by SEC of its plan for dissolution MINDANAO I
Note: (1) Note Section 56 of the Tax Code which provides GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL
that payment is made at the time the return is filed. But REVENUE, CTA CASE NO. 8250, NOVEMBER 9, 2012
when the final adjusted return was filed earlier than the
time the return could still be filed, the 2-year period is Q: Is a RMC which extends the 2 year period
counted from the date the return was filed (CIR v. CA to file a claim for refund to 10 years valid?
[January 21, 1999])
(2) In case of payments through the withholding tax No, the RMC cannot go beyond what is provided in
system, the tax liability is deemed paid when he same falls the law and the State cannot be put into estoppel
due at the end of the tax year (Gibbs v. CIR [November (see PBCOM V. CIR [JANUARY 28, 1999])
29, 1965])
Q: What is the judicial remedy with respect
(3) If the tax is paid in installments, the two year
prescriptive period is counted from the time of the
to a refund or recovery of tax erroneously or
payment of the last installment. As held in CIR v. PALANCA illegally collected?
[OCTOBER 29, 1966], where the tax account was paid by
installment, then the computation of the 2 year prescriptive The remedy is the filing of a suit or proceeding with
period should be from the date of last installment. the CTA:

absolutely exempt from income tax regardless of the

1. Within 30 days from receipt of the denial by nature of tax, the taxpayers claim was barred by
the CIR of the application for refund prescription since the filing of the supplemental
2. Before the expiration of the 2 years petition (and not an original action) was not granted
prescriptive period. and therefore it did not have any judicial effect to
toll the running of the 2 year period. It was only
Note: The 30-day period to appeal to the CTA should be when a subsequent petition for review was filed did
within the 2-year prescriptive period the prescriptive period toll. Further, this is not a case
where the 2-year period can be considered non-
Q: What must the taxpayer do in case of a jurisdictional since there are no exceptional or
situation where the CIR is taking time to supervening circumstances to speak of.
decide the claim and the period of 2 years is
about to end? Q: May the 2-year prescriptive period be
suspended?
If the the 2 year period is about to lapse, the
taxpayer may already appeal to the CTA even if the Even if the 2 year prescriptive period, if applicable,
CIR has not yet made any decision on the claim for had already lapsed, the same may be suspended for
refund. In GIBBS V. COLLECTOR OF INTERNAL reasons of equity and other special circumstances.
REVENUE [FEBRUARY 29, 1960], the Supreme Court (see CIR V. PHILAMLIFE [MAY 29, 1995]; CIR v. PNB
noted that if the CIR takes time in deciding the claim [OCTOBER 25, 2005])
and the period of two years is about to end, the suit
or proceeding must be started in the CTA before the The two-year prescriptive period under Section 229
end of the 2 year period without awaiting the of the NIRC may be suspended for reasons of equity
decision of the CIR. and other special circumstances. COMMISSIONER OF
INTERNAL REVENUE VS. M ANILA ELECTRIC COMPANY,
In CIR V. SWEENEY [AUGUST 21, 1959], the Supreme INC., CTA EB NO. 773, NOVEMBER 13, 2012
Court stated that taxpayers need not wait for the
action of the CIR on the request for refund before
Q: Name some reasons of equity and other
taking the matter to Court.
special circumstances that jurisprudence
Note: (1) The implication of this is that a simultaneous has considered to extend the 2 year
filing of the application with the BIR for refund/credit and prescriptive period.
the institution of the suit with the CTA is allowed.
1. When the taxpayer made advance income
(2) The rule is different in the refund or tax credit of excess tax payment heeding former President
or unutilized input taxes for VAT. Sa recovery of excess or
unutilized input taxes, premature if you file the judicial
Corazon Aquinos call and was made to
claim within the 2 year prescriptive period. Dito sa refund believe that its request for tax credit will be
of erroneously or illegally collected tax, hindi premature acted upon and favourably considering that
un! In fact, kapag hindi ka nagfile within, fatal un sa claim its carry over was unutilized since the
mo. We will discuss this later. company suffered losses for the next 4
years (see PNB V. CA [OCTOBER 25, 2005])
Q: Will the filing of a supplemental petition 2. When the taxpayer and the CIR agreed to
be sufficient to toll the prescriptive period wait for the result of another case having the
for the claim for refund? same issue (see PANAY ELECTRIC CO. V. CIR
[M AY 28, 1958])
It depends. If it was granted, it would toll the 3. When the CIR initially agreed to grant the
prescriptive period. Otherwise, it would not have the refund and later denied the same
effect of tolling the prescriptive period.
Q: If the availment of the tax credit/refund is
In FAR EAST BANK AND TRUST COMPANY V. CIR [M AY due for reasons other than the erroneous or
2, 2006], the Supreme Court held that the claim for wrongful collection of taxes, what
refund has been barred by prescription since the prescriptive period shall apply?
supplemental petition was not admitted. While
retirement funds/employment trusts are still

As held in CIR v. PNB [OCTOBER 25, 2005] citing ---------------------------------------------------------------

CIR V. PHILAMLIFE [MAY 29, 1995], availment of a tax (a) Scope of claims for refund
credit due for reasons other than the erroneous or (b) Necessity of proof for claim or
wrongful collection of taxes may have a different refund
prescriptive period. Absent any specific provision in
---------------------------------------------------------------
the Tax Code or special laws, the period would be
10 years under Article 1144 of the Civil Code.
Note: For scope of claims for refund, refer to the grounds
as discussed earlier. Also make reference to Section
--------------------------------------------------------------- 204(c) as to internal revenue stamps.As to necessity of
(iii) Legal basis of tax refunds proof, refer to the discussion on requirements for refund.
---------------------------------------------------------------
---------------------------------------------------------------
Q: What is the legal basis of tax refunds? (c) Nature of erroneously paid
tax/illegally assessed collected
Tax refunds are founded on the legal principle which ---------------------------------------------------------------
underlies quasi-contracts abhorring a persons
unjust enrichment at the expense of another. The Q: What is the nature of a claim for tax
pertinent laws governing this principle are found in refund?
Art. 2142 and Art. 2154 of the NCC, to wit:
A claim for tax refund is in the nature of a claim for
1. Certain lawful, voluntary and unilateral acts
exemption and should be construed strictissimi juris
give rise to the juridical relation of quasi-
against the taxpayer. (see CIR V. TOKYO SHIPPING
contract to the end that no one shall be
[M AY 26, 1995])
unjustly enriched or benefited at the
expense of another (Art. 2142)
2. If something is received when there is no Q: Is a tax refund automatically granted?
right to demand it, and it was unduly
delivered through mistake, the obligation to No. As held in UNITED AIRLINES V. CIR [SEPTEMBER
return it arises. (Art. 2154) 29, 2010], the grant of a refund is founded on the
assumption that the tax return is valid, that is, the
--------------------------------------------------------------- facts stated therein are true and correct. Before
(iv) Statutory basis for tax refund under granting the refund, the CIR must determine the
proper assessment and the tax due. In this case, the
the Tax Code
CIR found that the tax return was not valid and, thus,
(a) Scope of claims for refund it was justified in denying the claim after determining
(b) Necessity of proof for claim or the proper assessment and the tax due.
refund
(c) Nature of erroneously paid
tax/illegally assessed collected Q: Who has the burden of proof for a claim
(d) Tax refund vis--vis Tax Credit of refunds?
(e) Essential requisites for claim of
refund Burden of proof for claim of refund rests upon the
claimant since it is strictly construed against him and
---------------------------------------------------------------
the failure to discharge said burden is fatal to his
claim (CIR v. S.C. Johnson and Son [June 25,
Q: What is the statutory basis for a tax 1999])
refund under the Tax Code?
Q: ABC Corp filed its annual income tax
See Section 204(c) and Section 229. return for 2001 showing net loss. Hence, it
argues that the tax withheld on its income
Read Section 204(c) and 229, Tax Code was not utilized against income.
Accordingly, ABC Corp filed a claim for
refund and presented its income tax return
showing the incurred losses. The CIR

argued that ABC must prove its reported PSPC then utilized the said TCCs for its
losses to be entitled to the refund. Is the CIR excise taxes and were then issued TDM (Tax
correct? Debit Memo) and ATAPs (Authority to
Accept Payment) by the BIR. However, the
No. In CIR V. ASIAN TRANSMISSION BIR assessed PSPC for delinquent excise
CORPORATION [JANUARY 26, 2011], the taxes alleging that PSPC is not a qualified
Supreme Court ruled that while it is indeed true transferee of the TCCs. CA ruled that the
that the taxpayer bears the burden to establish PSPC was not entitled to the benefit of the
the losses, the taxpayer has fulfilled this duty TCCs and thus upheld the assessment. Was
when it presented its income tax return showing the use of PSPC of the TCCs valid?
he incurred losses.
Yes. As held in PILIPINAS SHELL V. CIR [DECEMBER
--------------------------------------------------------------- 21, 2007], there is no suspensive condition for the
(d) Tax refund vis--vis Tax Credit validity of TCCs as they are effective immediately
--------------------------------------------------------------- and only computational errors are allowed as basis
to invalidate TCCs. Also, even if the source is
Note: We already discussed this in Income Taxes but defective, it does not affect PSPCs right as it acted
nonetheless let us review. in good faith and the agencies approved of the use
of TCCs.
Q: Discuss the difference between tax
refund and tax credit? In CIR V. PETRON [M ARCH 21, 2012], the Supreme
Court had occasion to reiterate that TCCs are valid
and effective from their issuance and are not subject
A tax refund requires a physical return of the sum
to post-audit as a suspensive condition for their
erroneously paid by the taxpayer while a tax credit
validity.
involves the application of the reimbursable amount
against any sum that may be due and collectible
Note: However, by virtue of RR 14-2011 [JULY 29, 2011],
from the taxpayer. all Tax Credit Certificates (TCCs) issued by the BIR are no
longer transferable or assignable to any person.
Note: Ano ba ang practical implications ng difference ng
tax refund and tax credit? Isipin niyo na lang bumili ka ng
damit sa department store tapos may sira pala. Kapag yun ---------------------------------------------------------------
talaga yung gusto mong shirt, you ask for a refund. (e) Essential requisites for claim of
Babalik sa iyo yung pera tapos puwede mo itong gamitin refund
para bumili ng libro or whatever. Pero may isa ka pang ---------------------------------------------------------------
gustong shirt dun sa store na un pero mas mahal ng konti,
ipa-credit mo. Bayaran mo nalang yung kulang. Thats
Note: I already discussed this under the requirements for
how simple it is.
a claim for refund or tax credit.
Q: May a taxpayer ask for both a tax refund
and a tax credit?
---------------------------------------------------------------
(v) Who may claim/apply for tax
No. As held in PHILAM ASSET M ANAGEMENT V. CIR
[DECEMBER 14, 2005], a taxpayer may apply for refund/tax credit
either a tax refund or tax credit, but not both. The (a) Taxpayer/withholding agents of
choice of one precludes the other. non-resident foreign corporations
---------------------------------------------------------------
Note: If you avail of the tax credit, you get what is
called a Tax Credit Certificate (TCC). There is no Q: Who is the proper party to claim a tax
suspensive condition for its validity. Remember that. credit/refund?
Q: PSPC acquired some TCCs (tax Credit The proper party to seek a refund is the statutory
Certificates) through the One Stop Shop taxpayer, who is the person on whom the tax is
Inter-Agency Tax Credit and Duty Drawback imposed by law and who paid the same, even if that
Center from other BOI-registered entities.

person shifted the tax to another (see SILKAIR and the amount of tax withheld. (BANCO
SINGAPORE V. CIR [NOVEMBER 14, 2008]) FILIPINO V. CA [M ARCH 27, 2007]
Q: May a withholding agent file a claim for See also ORIX AUTO LEASING PHILIPPINES CORPORATION VS.
tax refund? NOVEMBER 28, 2012; PHILIPPINE BANK OF COMMUNICATIONS
VS. CIR, CTA CASE NO. 7915, JUNE 6, 2012; MANILA NORTH
Generally, the person entitled to claim a tax refund is TOLLWAYS CORPORATION VS. CIR, C.T.A. EB NO. 812,
the taxpayer. However, if the taxpayer does not file OCTOBER 11, 2012) WINEBRENNER & IIGO INSURANCE
the claim, the withholding agent may file the same. BROKERS, INC. VS. COMMISSIONER OF INTERNAL REVENUE,
In CIR V. SMART COMMUNICATIONS [AUGUST 25, CTA CASE NO. 8277, DECEMBER 19, 2012
2010], it was submitted that rule allowing the
withholding agent to file the claim is applicable only Note: In the third requisite, the taxpayer need not prove
when the withholding agent and the taxpayer are the fact of remittance to the BIR of the taxes withheld by
the various payors (withholding agents). CIR V. MIRANT
related parties. The Supreme Court disagreed and [JUNE 15, 2011]
stated that such relationship is not required. A
withholding agent has a legal right to file a claim for In a claim for refund of its excess income tax payment or
refund. First, he is considered a taxpayer under the creditable withholding taxes paid, claimant has the burden
Tax Code as he is personally liable for the of proof to establish the factual basis of his or her claim for
withholding tax as well as for deficiency tax credit or refund. Presentation of forgotten evidence is
assessments, surcharges, and penalties, should the disallowed. MIRANT NAVOTAS II CORPORATION VS. CIR, CTA
amount withheld be finally found to be less than the EB NO. 754 (CTA CASE NO. 7618), JUNE 5, 2012
amount that should have been withheld. Second, as
an agent of the taxpayer, his authority to file the
income tax return and remit the tax withheld to the
UNITED INTERNAL PICTURES V. CIR, G.R.
government includes the authority to file a claim for
refund and to bring an action for recovery of such 168331, OCTOBER 11, 2012
claim.
DOCTRINE: Failed to reconcile the discrepancy
between income payments per income tax return and
Q: Is the withholding agent who filed the the certificate of creditable tax withheld will result in
claim for tax refund obliged to remit the the denial of a claim for refund.
same to the taxpayer?
FACTS: For the same case mentioned in the preceding
number, the Court also denied the claim pertaining to the
Yes. In CIR V. SMART COMMUNICATIONS [AUGUST 25, year 1999. As found by the Court, the certificate of tax
2010], the Supreme Court ruled that while the withheld would reveal that the taxpayer earned
withholding agent has the right to recover the taxes P146,355,699.80. On the contrary, its annual income tax
erroneously or illegally collected, he nevertheless return reflects a gross income from film rentals in the
has the obligation to remit the same to the principal amount of P145,381,568.00. However, despite the
taxpayer under the principle of unjust enrichment. P974,131.80 difference, both the certificate of taxes
withheld and income tax return filed by the taxpayer for
taxable year 1999 indicate the same amount of
Q: What are the requisites for claim for tax P7,317,785.00 as creditable tax withheld. Also, taxpayer
credit or refund of a creditable withholding failed to present sufficient proof to allow the Court to trace
tax? the discrepancy between the certificate or taxes withheld
and the income tax return.
1. Claim must be filed within the two-year
HELD: The Court agreed with the position of the Office of
prescriptive period from date of payment of
the Solicitor General that the amount of income payments
the tax in the income tax return must correspond and tally to the
2. It must be shown on the return that the amount indicated in the certificate of withholding, since
income received was declared as part of there is no possible and efficacious way by which the BIR
gross income can verify the precise identity of the income payments as
3. The fact of withholding must be established reflected in the income tax return. Therefore, taxpayers
by a copy of a statement duly issued by the claim for tax refund for taxable year 1999 must be denied,
payor to the payee showing the amount paid since it failed to prove that the income payments subjected
to withholding tax were declared as part of the gross
income of the taxpayer.

Motion for the judicial claim is

--------------------------------------------------------------- Reconsideration or premature. The
(vi) Prescriptive period for recovery of tax New Trial to CTA Motion for
erroneously or illegally collected Division within 15 Reconsideration or
days from receipt of New Trial to CTA
---------------------------------------------------------------
decision. Division within 15
days from receipt of
Note: I have already discussed the 2-year prescriptive
period as well.
5. Appeal to CTA En decision.
Banc within 15
Now, lets compare the procedure for claiming a tax refund
days from receipt of 11. Appeal to CTA En
under Section 229 and that of the refund of excess or resolution. Banc within 15
unutilized input taxes under Section 112(c). days from receipt of
6. Appeal to the SC resolution. Motion for
Q: Outline the steps for tax refund/credit of within 15 days from Reconsideration to
receipt of resolution the CTA En Banc
erroneously or illegally collected internal
under Rule 45 within 15 days from
revenue tax under Section 229 and compare receipt of decision
it with the recovery of excess or unutilized
input tax under Section 112(C) 12. Appeal to the SC
within 15 days from
Section 229 Section 112(c) receipt of resolution
Recovery of erroneously Recovery of excess or under Rule 45
or illegally collected unutilized input tax
internal revenue tax
Note: (1) Majority of authorities including Atty. Montero is
1. Payment period 7. Filing and Payment of the view that with regard to refund of erroneously or
begins on the date of illegally collected tax, the CIR must act within a period of
payment of tax or 8. Administrative 120 days. That period, however, is found in Section
penalties regardless claim within 2 112(A) which applies to refunds of erroneously or illegally
of any supervening years counted collected tax. Further, the 180 day period provided in
Section 228 applies to a protest. What should we follow?
cause from the close of the 120 or 180? Well, it doesnt matter. In the refund of
taxable quarter when erroneously or illegally collected tax, as long as you file
2. Administrative the relevant sales your claim for refund within the 2-year period, youre fine.
claim within 2 years were made In fact, you may simultaneously file a claim for refund and
from payment filed a file a suit with the CTA. This brings me to my second
with the CIR 9. Submission of point.
additional and
(2) As held in the case of CIR V. AICHI FORGING COMPANY OF ASIA
3. Submission of relevant support [OCTOBER 6, 2010], non-observance of the 120-day period is fatal
additional and documents within to the judicial claim. Thus, you cannot simultaneously file your
relevant support 60 days from filing of claim for refund of excess or unutilized input tax and file a suit
documents within claim with the CTA. The 2 year prescriptive period applies only to the
administrative claim meaning that you should file your claim with
60 days from filing of the CIR within 2 years. As to the judicial claim, you wait for the
claim 10. Appeal to CTA 120 days to lapse.
Division within 30
4. Appeal to CTA days from receipt of ---------------------------------------------------------------
Division within 30 notice of denial or (vii) Other consideration affecting tax
days from receipt of from lapse of 120
refunds
notice of denial or days of inaction
from inaction of the counted from ---------------------------------------------------------------
CIR counted from submission of Note: Lets discuss here the Irrevocability Rule under
submission of documents. The Section 76. That is found in Title II (Income Tax). Its not
documents. Appeal appeal should NOT included in the portion of the syllabus on Income Tax. I will
should be made be made within the discuss it here because it relates to tax credit or tax
within the 2 years 2-year prescriptive refund.
prescriptive period. period. Otherwise,

Read Section 76, Tax Code payment. It opted to carry-over this excess as tax credit to
the succeeding taxable year. This was applied to the 1999
taxable year leaving again an excess income tax payment.
Q: What are the options available to the
The taxpayer then applied for a refund for this amount.
corporation when the sum of the quarterly
tax payments made during the taxable year HELD: The Supreme Court cited Section 76 of the Tax
is more than the total tax due on the entire Code, which provides that once the option to carry-over
taxable income of that year? and apply the excess quarterly income tax against income
tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered
The corporation shall either: irrevocable for that taxable period and no application for
cash refund or issuance of a TCC shall be allowed
1. Pay the balance of tax still due therefore. Having chosen to carry-over the excess
2. Carry-over the excess credit quarterly income tax, the taxpayer here cannot thereafter
3. Be credited or refunded with the excess choose to apply for a cash refund or for the issuance of a
amount paid TCC for the amount representing such overpayment. The
taxpayers claim for refund should be denied as is option
to carry over has precluded it from claiming the refund of
Q: What is the irrevocability rule? the excess income tax payment.
Once the option to carry-over the excess and apply

the excess quarterly income tax against income tax
Q: Does the irrevocability rule apply to the
due for the taxable quarters of the succeeding
taxable years has been made, such option shall be claim of refund or issuance of TCC?
considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax No. The irrevocability rule in Section 76 of the Tax
credit certificate shall be allowed. (see Section 76, Code applies only to the option to carry-over the
Tax Code and SYSTRA PHILIPPINES V. CIR excess income tax payment, and not to the claim for
[SEPTEMBER 21, 2007]) refund or issuance of a TCC. Nowhere in Section 76
was it stated that the option to claim refund or TCC,
In ASIAWORLD PROPERTIES V. CIR [JULY 29, 2010], once chosen, is irrevocable. UNITED COCONUT
the Supreme Court opined that once the taxpayer PLANTERS BANK VS. COMMISSIONER OF INTERNAL
opts to carry-over the excess income tax against the REVENUE, CTA EB CASE NO. 725, AUGUST 23, 2012;
taxes due for the succeeding taxable years (tax STABLEWOOD PHILIPPINES, INC. VS. CIR, CTA EB 751
credit), such option is irrevocable for the whole (CTA 7705)
amount of the excess income tax, thus, prohibiting
the taxpayer from applying for a refund. The Q: If the corporate taxpayer fails to signify
unutilized tax credits will remain in the taxpayers his intention in the Final Adjustment Return,
account and will be carried over and applied against is it barred from making a valid request for
the taxpayers income tax liabilities in the refund should it choose this option later on?
succeeding taxable years until fully utilized.
No. As held in PHILAM ASSET M ANAGEMENT V. CIR
See also BELLE CORPORATION V. CIR [JANUARY 14, 2011]; [DECEMBER 14, 2005], failure to indicate a choice will
CIR V. PL MANAGEMENT PHIL. [APRIL 4, 2011]; CIR V. not bar a valid request for a refund, should this
PHILAMGEN [SEPTEMBER 29, 2010]; CIR V. MCGEORGE FOOD option be chosen by the taxpayer later on.
[OCTOBER 20, 2010]; CIR VS. RHOMBUS ENERGY,
INCORPORATED, C.T.A. EB NO. 803, OCTOBER 11, 2012
Q: What is the implication when a
corporation fills out the portion Prior
UNITED INTERNATIONAL PICTURES AB V. CIR Years Excess Credits in the Final
[OCTOBER 11, 2012] Adjustment Return?
DOCTRINE: Carry-over of excess income tax payments As held in PHILAM ASSET M ANAGEMENT V. CIR
will result in the denial of a claim for refund of excess [DECEMBER 14, 2005], the fact that the corporation
income tax payment. filled out the portion prior years excess credits in
the Final Adjustment Return means that it
FACTS: The taxpayer filed its annual income tax return for categorically availed itself of the carry-over option. If
the taxable year 1998 showing an excess income tax

an application for tax refund has been or will be filed,

that portion should necessarily be blank.
Q: Is there an exception to the irrevocability

rule?
Yes. In STABLEWOOD PHILIPPINES, INC. VS. CIR, CTA

EB NO. 794, OCTOBER 08, 2012, the CTA held that If
the corporation permanently ceases its operations
before full utilization of the tax credits it opted to
carryover, it may be allowed to claim the refund of
the remaining tax credits as an exception to the
irrevocability rule under Section 76 of the NIRC of
1997, as amended. However, the dissolving
corporation must prove that the termination of its
operations is permanent in nature and that it is
cleared from any tax or other government liabilities
before a tax refund may be granted. Therefore, a
corporation contemplating dissolution must first
secure a tax clearance certificate from the
Commissioner of Internal Revenue (CIR), which
certificate shall be submitted to the Securities and
Exchange Commission (SEC) for the issuance of the
Certificate of Dissolution.

---------------------------------------------------------------
F. ORGANIZATION AND FUNCTIONS OF Q: Differentiate the power of the CIR to
THE BUREAU OF INTERNAL REVENUE interpret tax laws and the power to decide
--------------------------------------------------------------- tax cases.
Q: What are the powers and duties of the The power to interpret tax laws is under the
BIR? exclusive and original jurisdiction of the CIR, subject
to the review by the Secretary of Finance
The powers and duties of the BIR shall comprehend:
On the other hand, the power to decide tax cases,
1. The assessment and collection of all while vested also in the CIR, is subject to the
national internal revenue taxes, fees and exclusive appellate jurisdiction of the CTA.
charges
2. The enforcement of all forfeitures, penalties Q: Can the Secretary of Finance motu
and fines connected therewith proprio review a ruling of the CIR?
3. Including the execution of judgments in all
cases decided in its favor by the CTA and Yes. DOF ORDER NO. 007-02 [M AY 7, 2002] provides
the ordinary courts that the Secretary of Finance may, of his own
4. The Bureau shall give effect to and accord, review a ruling issued by the CIR.
administer the supervisory and police
powers conferred to it by this Code or other Note: The power to obtain information and to summon,
laws (see Section 2, Tax Code) examine and take testimony of persons AND the power to
make assessment and prescribe additional requirements
Q: Describe briefly the structure of the BIR? for tax administration and enforcement have already been
discussed this under Tax Remedies
The BIR is under the supervision and control of the
To delegate power
Department of Finance (DOF). It is headed by the
Commissioner of Internal Revenue and assisted by
6 Deputy Commissioners. Each region of the country
has a Revenue Regional Director. The country is
also divided into Internal Revenue districts headed
Q: What powers of the CIR are non-
by Revenue District Officers. delegable?
1. To recommend the promulgation of rules

Q: What are the powers of the CIR?
and regulations
2. Issuance of first impression rulings
1. To interpret tax laws and to decide cases 3. Compromise or abatement if the amount is
(Section 4, Tax Code) over P500,000
2. To obtain information and to summon, 4. Assign officers in charge of excisable
examine and take testimony of persons articles
(Section 5, Tax Code)
3. To make assessment and prescribe
Q: A is the assistant commissioner of the
additional requirements for tax
administration and enforcement (Section 6, BIR. Upon inquiry by ABC and XYZ
Tax Code) company on the applicable excise tax rates,
4. To delegate power (Section 7, Tax Code) A signed a letter informing ABC and XYZ of
5. To ensure the provision and distribution of the conduct of the survey, the results
forms, receipts, certificates, and appliances thereof and the applicable excise tax rates.
and acknowledgment of payment of taxes ABC and XYZ contend that that A acted
(Section 8, Tax Code) without authority and that it should be the
CIR who signed such issuance. Are ABC
To interpret tax laws and decide cases and XYZ correct?

No. Under Section 7 of the NIRC, the CIR is b) Specific provisions to be contained in
authorized to delegate to his subordinates the rules and regulations
powers vested in him except, among others, the c) Non-retroactivity of rulings
power to issue rulings of first impression. Here, the ---------------------------------------------------------------
subject matter of the letter does not involve the
exercise of the power to rule on novel issues. It
merely implemented the revenue regulations then in ---------------------------------------------------------------
force (see PARAYNO VS. LA SUERTE CIGAR AND a) Authority of Secretary of Finance to
CIGARETTE FACTORY [JUNE 11, 2009]) promulgate rules and regulations
---------------------------------------------------------------
Q: May the CIR delegate the power to
approve the filing of tax collection cases? Read Section 244, Tax Code
Yes. The CIR may validly delegate to subordinates Q: Who promulgates revenue rules and
the power to approve the filing of tax collection regulations?
cases in court. In REPUBLIC VS. HIZON [DECEMBER 13,
1999], the Supreme Court upheld the delegation of
The Secretary of Finance, upon recommendation of
that power to the Chief of Legal Division of Region
the CIR, shall promulgate all needful rules and
IV, the act having been likewise verified by the
regulations for the enforcement of tax laws.
Regional Director.
---------------------------------------------------------------
To ensure the provision and distribution of b) Specific provisions to be contained in
forms, receipts, certificates, and appliances rules and regulations
and acknowledgment of payment of taxes
---------------------------------------------------------------
Q: Give some notable powers and duties of
Q: Enumerate and define the tax-related
a Revenue Regional Director?
administrative issuances
1. Implement tax laws in the regional area
Revenue are issuances signed by the
2. Administer and enforce tax laws including
Regulations (RRs) Secretary of Finance, upon
assessment and collection of all internal
recommendation of the
revenue taxes
Commissioner of Internal
3. Issue Letters of Authority (LOA) for the
Revenue, the specify,
examination of taxpayers in the region (see
prescribe or define rules and
SECTION 11, TAX CODE)
regulations for the effective
enforcement of the provisions
Q: What is the authority given to a Revenue of the National Internal
Officer? Revenue Code (NIRC) and
related statutes.
The Revenue Officer, pursuant to a LOA, may Revenue are issuances that provide
examine taxpayers within the jurisdiction of the Memorandum directives or instructions;
district to collect the correct amount of tax or to Orders (RMOs) prescribe guideline; and
recommend the assessment of any deficiency tax. outline processes, operations,
(see SECTION 13, TAX CODE) activites, workflows, methods
and procedures necessary in
--------------------------------------------------------------- the implementation of stated
1. Rule-making authority of the Secretary of policies, goals, objectives,
Finance plans and programs of the
a) Authority of Secretary of Finance to Bureau in all areas of
promulgate rules and regulations operations, except auditing.
Revenue are rulings, opinions and

Memorandum interpretations of the

Rulings (RMRs) Commissioner of Internal Q: Explain the rule on non-retroactivity of
Revenue with respect to the rulings
provisions of the Tax Code
and other tax laws, as applied
to a specific set of facts, with
or without established
precedents, and which the General Rule: Revenue Regulations, Rulings,
Commissioner may issue from Circulars and other administrative issuances have
time to time for the purpose of no retroactive application
providing taxpayers guidance
on the tax consequences in Exception: If prejudicial to the taxpayer, they shall
specific situations. BIR have retroactive application
Rulings, therefore, cannot
contravene duly issued Exception to the Exception: Even if prejudicial to
RMRs; otherwise, the Rulings the taxpayer, they shall have retroactive effect in the
are null and void ab initio. following cases
Revenue are issuances that publish
Memorandum pertinent and applicable 1. The taxpayer deliberately misstates or omits
Circular (RMCs) portions, as well as material facts
amplifications, of laws, rules, 2. The facts subsequently gathered are
regulations and precedents different from the facts on which the ruling
issued by the BIR and other was based
agencies/offices. 3. The taxpayer acted in bad faith
Revenue Bulletins refer to periodic issuances,
(RB) notices and official Q: If a ruling was subsequently found by the
announcements of the CIR to be null and void, does the non-
Commissioner of Internal retroactivity principle still apply?
Revenue that consolidate the
Bureau of Internal Revenues No. The non-retroactivity principle does not apply
positions of the Tax Code, when the ruling involved is null and void for being
relevant tax laws and other contrary to law.
issuances for the guidance of
the public. In BIR RULING NO. 370-2011 [OCTOBER 7, 2011], the
BIR Rulings are official position of the CIR affirmed its position that the Poverty Alleviation
Bureau to Queries raised by and Eradication Certificates (PEAce) Bonds are not
taxpayers and other tax-exempt and subject to a 20% FWT. Previously,
stakeholders relative to 2001 BIR Rulings have considered such instruments
clarification and interpretation as tax-exempt. The CIR concluded that no right has
of tax laws. been vested by virtue of the 2001 Rulings as they
BIR ITAD Rulings are issued by the BIR were null and void for being contrary to law.
International Tax Affairs
Division to rule on certain Q: What is the effect of RR 5-2012 [April 5,
issues relating to 2012] on rulings issued prior to January 1,
interpretations of international 1998?
tax treaty provision under
which certain taxpayers or RR 5-2012 [APRIL 5, 2012] provides that all rulings
transactions can avail of tax issued prior to January 1, 1998 will no longer have
exemptions or preferential tax any binding effect. They can no longer be invoked
rates. as basis for any current business transaction/s or as
a basis for securing legal tax opinions and rulings.
---------------------------------------------------------------
c) Non-retroactivity of rulings RMC 22-2012 [M AY 7, 2012] clarified that BIR
--------------------------------------------------------------- Rulings prior to January 1, 1998 remains valid:

1. To the taxpayer who was issued the ruling

2. Covering the specific transaction which is
subject of the ruling
Q: May a BIR ruling be invoked by a

taxpayer other than the one who requested
the same?
No. In CIR v. Filinvest Development Corp [July

19, 2011], the Supreme Court ruled that in keeping
with the caveat attendant in every BIR ruling to the
effect that it is valid only if the facts claimed by the
taxpayer are correct, a BIR ruling could be invoked
only by the taxpayer who sought the same. If the
taxpayer is not the one who, in the first instance,
sought the ruling from the BIR, he cannot invoke the
principle of non-retroactivity of BIR rulings.
---------------------------------------------------------------
2. Power of the Commissioner to suspend
the business operation of a taxpayer
---------------------------------------------------------------
Note: I already discussed this under Tax Remedies.

---------------------------------------------------------- granted by a direct mandate of the

III. LOCAL GOVERNMENT CODE Constitution
b. Limited although directly expressed by the
---------------------------------------------------------- Constitution, the power is subject to
limitations and guidelines as the legislature
---------------------------------------------------------- may deem necessary to impose
A. LOCAL GOVERNMENT TAXATION c. Legislative in nature the power to impose
---------------------------------------------------------- taxes is vested solely in he legislative body
of each respective LGU
--------------------------------------------------------------- d. Territorial the same can only be exercised
1. Fundamental Principles within the territorial jurisdiction of a LGU
---------------------------------------------------------------
Q: What is the source of the local taxing
Read Section 130, LGC power of the government?
Q: What are the fundamental principles of Article X.

local government taxation? Section 5. Each local government unit shall have the
power to create its own sources of revenues and to levy
a. Uniformity taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with
b. Taxes, fees, charges and other impositions
the basic policy of local autonomy. Such taxes, fees, and
shall be equitable and based on ability to charges shall accrue exclusively to the local governments.
pay for public purposes not unjust,
excessive oppressive or confiscatory, no
contrary to law, public policy, national It is granted by the Constitution under Section 5,
economic policy, or in restraint of trade Article X of the 1987 Constitution. It is not inherent in
c. The levy and collection shall not be left to the Local Government.
any private person
d. Inures solely to the local government unit In MERALCO V. PROVINCE OF LAGUNA [M AY 5,
levying the tax 1999], the Supreme Court explained that prior to the
e. The progressivity principle must be 1987 Constitution; the taxing power of LGUs was
observed. exercised under limited statutory authority. Under
the present Constitution, the taxing power of LGUs
--------------------------------------------------------------- is deemed to exist, subject only to specific
2. Nature and Source of taxing power exceptions that the law may prescribe. Otherwise
a) Grant of local taxing power under the stated, the taxing power of LGUs is a direct grant of
local government code the Constitution, and is not a delegated power of
b) Authority to prescribe penalties for tax Congress.
violations
Note: A law which deprives LGUs of their power to tax
c) Authority to grant tax exemptions would be unconstitutional.
d) Withdrawal of exemptions
e) Authority to adjust local tax rates Q: What is the legal basis of the grant of
f) Residual taxing power of local local taxing power under the LGC?
governments
g) Authority to issue local tax ordinances The legal basis is found in Section 129 of the LGC,
--------------------------------------------------------------- to wit:
Q: What is the nature of the local taxing Read Section 129, LGC
power?
a. Direct the power of the LGU to impose

taxes although not an inherent power is

Q: Who has the authority to prescribe Q: May the government grant tax exemption
penalties for local tax violations? to taxpayers whose previous exemption has
been withdrawn?
The Sanggunian of a LGU is authorized to prescribe
fines or other penalties for violation of tax Yes. Withdrawal of a tax exemption does not prohibit
ordinances. (see Section 516, LGC) future grants of tax exemption (PLDT v. City of
Davao [August 22, 2001])
Note: The fines or other penalties shall in no case shall be
less than P1,000 or more than P5,000 nor shall the Q: Who has the authority to adjust local tax
imprisonment be less than 1 month nor more than 6
months. The Sangguniang Barangay may prescribe a fine rates?
of not less than P100 nor more than P1,000
The Local Government Units have the authority to
Q: Who may grant local tax exemptions? adjust local tax rates. However, it should not be
more than once every 5 years and in no case shall
The LGU may, through ordinance duly approved, such adjustment exceed 10% of the rates fixed
grant tax exemptions, incentives or reliefs under under the Code.
such terms and conditions, as they may deem
necessary. Read Section 192, LGC
Read Section 192, LGC Q: What is the residual taxing power of

LGUs?
Q: What is the effect of Section 193
(Withdrawal of Tax Exemption Privileges) of LGUs may exercise the power to levy taxes, fees or
the LGC? charges on any base or subject, provided that the
taxes, fees, and charges are
Read Section 193, LGC a. Not specifically enumerated in the LGC
b. Not taxed under the provisions of the NIRC
Under Section 193, all existing tax exemption
c. Not taxes under other applicable laws
privileges granted to or presently enjoyed by all
persons whether natural or juridical including
GOCCs (except local water districts, cooperatives Read Section 186, LGC
registered under RA 6938, non-stock and non-profit
hospitals and educational institutions) were Q: Who has the authority to issue local tax
withdrawn upon effectivity of the LGC. ordinances?
In MERALCO V. PROVINCE OF LAGUNA [M AY 5, 1999], The power to impose a tax, fee, or charge or to
the Supreme Court noted that indicative of the generate revenue shall be exercised by the
legislative intent to carry out the Constitutional Sanggunian of the LGU concerned through an
mandate of vesting broad tax powers to LGUs, the appropriate ordinance (see Section 132, LGC)
LGC has effectively withdrawn tax exemptions and
incentives theretofore enjoyed by certain entities. Read Section 132, LGC
(see also NAPOCOR V. CITY OF CABANATUAN [APRIL
9, 2003]. ---------------------------------------------------------------
Q: What entities are still exempt from local 3. Local taxing authority
taxes? a) Power to create revenues exercised
through Local Government Units
b) Procedure for approval and effectivity of
a. Local Water Districts
b. Cooperatives duly registered under RA 6938
tax ordinances
c. Non-stock and non-profit hospitals ---------------------------------------------------------------
d. Educational institutions Note: As discussed above, each LGU has the power to
create its own source of revenue (see Section 129, LGC)

To be sure, public hearings are conducted by local

Q: What is the significance of a local tax legislative bodies to allow interested parties to
ordinance? ventilate their views on a proposed law or ordinance.
These views, however, are not binding on the
What determines tax liability is the tax ordinance. legislative body and it is not compelled by law to
The LGC is simply the enabling law for the local adopt the same.
legislative body. In YAMANE V. BA LEPANTO
CONDOMINIUM CORP [OCTOBER 25, 2005], at issue Q: Can a public hearing conducted after the
was whether the City Government of Makati can passage of a tax ordinance cure the defect
hold condominium corporations liable to pay in its enactment (for failure to hold one prior
business taxes. The Supreme Court noted that the to the enactment)?
City Treasurer did not make any reference to any
provision of the Makati City Revenue Code which No. As held in ONGSUCO V. M ALONES [OCTOBER 27,
would serve as legal authority for the collection of 2009], the Supreme Court held that a public hearing
business taxes from condominiums in the city. The conducted after the passage of a tax ordinance does
Supreme Court pointed out that in issuing a notice of not cure the defect in its enactment. The LGC
assessment, reference to the local tax ordinance is requires that public hearings be held prior to the
vital because the power of LGUs to impose local enactment by the LGU of the ordinance levying
taxes is exercised through the appropriate ordinance taxes, fees, and charges.
enacted by the Sanggunian and not by the LGC.
Q: What is the effect of non-compliance with
Q: What are the requisites of a valid local
the publication/posting requirements of tax
tax ordinance?
ordinances laid down in Section 188 of the
1. It must not contravene the Constitution or LGC?
any statute
2. It must not be unfair or oppressive Failure to follow the procedure in enactment of tax
3. It must not be partial or discriminatory ordinances renders the same null and void. The
4. It must not prohibit but may regulate trade publication requirement is mandatory.
5. It must be general and consistent with public
policy Q: Can an ordinance with has been declared
6. It must not be unreasonable (Magtajas v. void for failure to publish for 3 weeks be
Pryce Properties [234 SCRA 225]) remedied by passing another ordinance with
purports to amend the ordinance that has
Q: What must be complied with under the been declared null and void?
provisions of the LGC for a valid local tax
ordinance? No. The new ordinance is still void since it cannot
cure something which had never existed in the first
1. Public hearing is required with quorum, place as the same was void ab initio (see COCA-
voting and approval and/or veto COLA BOTTLERS V. CITY OF M ANILA [JUNE 27, 2006]).
requirements complied with
2. Publication of ordinance within 10 days from Q: Is publication/posting of an ordinance
approval for 3 consecutive days in an
fixing the assessment levels for different
newspaper of general circulation and/or
posting in at least 2 conspicuous and classes of real property in an LGU
publicly accessible places necessary?
Q: What is the nature of the public hearings Yes. In FIGUERRES V. CA [M ARCH 25, 1999], the
under Section 187 of the LGC? Supreme Court held that the publication/posting
requirement under Section 188 of the LGC must be
complied with in case of an ordinance imposing real
In HAGONOY M ARKET VENDOR ASSOCIATION V.
property taxes, as well as an ordinance fixing the
MUNICIPALITY OF HAGONOY, BULACAN [FEBRUARY 2,
assessment levels for different classes of real
2002], the discussed the nature of the public
hearings on proposed tax ordinances in this light:

property. The latter is in the nature of a tax e) Common revenue raising powers
ordinance. (i) Service fee charges
(ii) Public utility charges
Note: I will discuss the procedure in questioning the
constitutionality or legality of a tax ordinance under
(iii) Toll fees or charges
remedies. f) Community Tax
---------------------------------------------------------------
--------------------------------------------------------------- Read Sections 134-144, 146-149 and 151-

4. Scope of taxing power 164, LGC.
---------------------------------------------------------------
Q: What is the taxing power of the following
Q: What is the scope of the taxing power of LGUs: (a) province; (b) Municipalities; (c)
LGUs? Cities; and (d) Barangays?
The taxing power of LGU is limited only through the Province

guidelines expressly provided for by the legislature.
Beyond these limitations, the LGU is given a wide
array or latitude to impose taxes not pre-empted by Expressly provided in the Code:
the NIRC?
1. Local Transfer Tax (Section 135, LGC)
Q: What is the Principle of Pre-emption or 2. Business Tax on Printing and Publication
(Section 136 LGC)
Exclusionary Doctrine?
3. Local Franchise Tax (Section 137, LGC)
4. Tax on Sand, Gravel and Other Quarry
When the national government elects to tax a
Resources (Section 138, LGC)
particular area, it is impliedly withholding from the
5. Professional Tax (Section 139, LGC)
LGU the delegated power to tax the same field.
6. Amusement Tax (Section 140, LGC)
7. Tax on Route Delivery Truck or Vans
--------------------------------------------------------------- (Section 141, LGC)
5. Specific taxing power of LGUs
a) Taxing powers of provinces Municipalities
(i) Tax on transfer of real property
ownership
A municipality may levy on those taxes, fees and
(ii) Tax on business of printing and
charges not otherwise levied by provinces (see
publication Section 142, LGC)
(iii) Franchise tax
(iv) Tax on sand, gravel and other quarry Expressly provided in the Code:
services
(v) Professional ax 1. Local Business Tax (Section 143, LGC)
(vi) Amusement tax 2. Fees on business and occupation (Section
(vii) Tax on delivery truck/van 146, LGC)
b) Taxing power of cities 3. Fees on sealing and licensing of weights
c) Taxing power of municipalities and measures (Section 148, LGC)
4. Fishery Rentals, Fees and charges (Section
(i) Tax on various types of businesses
149, LGC)
(ii) Ceiling on business tax impossible on
municipalities within Metro Manila Cities
(iii) Tax on retirement of business
(iv) Rules on payment of business tax They may levy taxes which the province and
(v) Fees and charges for regulation and municipality may impose. The tax rates, fees, and
charges which the city may levy may exceed the
licensing maximum rates allowed for the province or
(vi) Situs of tax collected municipality by not more than 50% except the rates
d) Taxing powers of barangays

of professional and amusement taxes (see Section Q: May the tax be imposed on extractions
151, LGC) from private lands?
Barangays No. The tax may be imposed only to those extracted
1. Taxes on stores with fixed business from public lands or public waters within its territorial
establishments (gross receipts of P50,000 or jurisdiction. Private lands are excluded. (Province of
less for cities, P30,000 for municipalities) Bulacan v. CA [November 27, 1998])
2. Service fees for use of barangay-owned
properties and services rendered Q: ABC Mining was issued a mining lease
3. Barangay clearance contract which granted it the right to extract
4. Other fees and charges for (a) commercial and use for its purposes all mineral deposits
breeding of fighting cocks, cockpits and within the boundary lines of its mining claim
cockfighting; (b) on places of recreation with in Benguet. Later, the Provincial Treasurer
admission fees; and (c) billboards, demanded payment of sand and gravel tax
signboards and outdoor advertisements
for the quarry materials that ABC extracted.
Common only to Cities and Municipalities
ABC countered that the sand and gravel tax
applied only to commercial extractions. Is
1. Community tax ABC correct?
Common to all LGUs No. In LEPANTO CONSOLIDATED MINING COMPANY V.
1. Service fees and charges for services AMBANLOC [JUNE 29, 2010], the Supreme Court
rendered found that under the Revised Benguet Revenue
2. Public utility charges Code, only gratuitous permits were exempt from the
3. Toll fees or charges sand and gravel tax, and Lepantos permit was not a
gratuitous permit. Hence, Lepanto was liable to pay
the provincial sand and gravel tax.
Note: Take note of the following.
Professional Tax
Local Transfer Tax
Q: What is the situs of professional tax?
Q: What are not covered by the local
Professional tax is payable in the province where the
transfer tax of real property?
taxpayer practices his profession or where the
principal office is located in case he practices his
The sale, transfer or other disposition of real
profession in several places.
property pursuant to the Agrarian Reform Program
shall be exempt from local transfer tax.
Note: (1) The taxpayer has the option. Such person who
has paid the corresponding professional tax shall be
Business Tax on Printing and Publication entitled to practice his profession in any part of the
Philippines without being subjected to any national or local
Q: What is not covered by the business tax tax, license or fee for the practice of such profession (see
Section 139, LGC)
on printing and publication?
(2) Professional tax may be imposed by a province or city
The receipts from the printing and/or publishing of but not by a municipality or barangay
books or other reading materials prescribed by the
DepEd as school texts or references shall be (3) Professionals exclusively employed in government
exempt from the business tax. shall be exempt from payment
Tax on Sand, Gravel and Other Quarry

Resources

Amusement Tax customers outside the city. Id the imposition

valid?
Q: Is the amusement tax on admission
tickets to PBA games a national or local Yes. As held in PHILIPPINE M ATCH CO. V. CITY OF
tax? CEBU [JANUARY 18, 1978], the city can validly tax the
sales of matches to customers outside of the city as
It is a national tax. In PBA v CA [AUGUST 8, 2000], long as the orders were booked and paid for in the
the Supreme Court held that it was the National companys branch office in the city. Those matches
Government which could collect amusement taxes can be regarded as sold in the city because the
from the PBA. While Section 13 of the Local Tax matches were delivered to the carrier in Cebu City.
Code mentions other places of amusement, Generally, delivery to the carrier is delivery to the
professional basketball games are definitely not buyer. A different interpretation would defeat the tax
within its scope under the principle of ejusdem ordinance and encourage tax evasion.
generis.
Q: ABC Bottlers Inc. maintained a bottling
Q: Are gross receipts derived from plant in Pavia, Iloilo but sold softdrinks in
admission tickets in showing motion Iloilo City by means of a fleet of delivery
pictures, films or movies also subject to trucks called rolling stores which went
VAT? directly to customers. Iloilo City passed an
ordinance imposing a municipal license tax
No. The Supreme Court in CIR v. SM PRIME on distributors/sellers in the area. Is ABC
HOLDINGS [FEBRUARY 26, 2010] held that although liable under the tax ordinance?
the enumeration of services subject to VAT under
Section 108 of the 1997 Tax Code is not exhaustive. Yes. In ILOILO BOTTLERS INC. V. CITY OF ILOILO
Among those included in the enumeration is the [AUGUST 19, 1988], the Supreme Court found that
lease of motion picture films, films, tapes and the bottling company was engaged in the business
discs. This, however, is not the same as the of selling/distributing softdrinks in Iloilo City through
showing or exhibition of motion pictures or films. its rolling stores where sales transactions with
Hence, since the showing or exhibition of motion customers were entered into and sales were
pictures or films is not in the enumeration, such is perfected and consummated by route salesmen,
not a VAT-taxable transaction. The intent of the Hence, the company was subject to municipal
legislature is not to impose VAT on persons already license tax.
covered by the amusement tax.
Local Business Tax
Tax on Route Delivery Truck or Vans
Q: Who are covered by the local business
Note: See discussion on situs of local business tax.
tax?
Q: How are the sales of route trucks and
1. Manufacturers, assemblers and producers
vans taxed? 2. Wholesalers, dealers and distributors
3. Exporters, manufacturers of essential
If the sale is made in a place with a branch office: commodities
the sale is reported in the LGU where the branch 4. Retailers (if both wholesale and retail, then
office is located. pay both taxes)
5. Contractors
If the sale is made in a place without a branch office: 6. Banks and other financial institutions
28
the sale is reported in the LGU where the sales are

withdrawn.
28
DOF LOCAL FINANCE CIRCULAR 01-93 provides for the
Q: The City of Cebu imposed a gross sales guidelines governing the power of municipalities and provinces to
tax on sales of matches stored by Philippine impose a business tax on banks and other banking institutions.
Match Co. in Cebu City but delivered to DOF LOCAL FINANCE CIRCULAR 2-93 provides for the guidelines
for insurance companies. DOF LOCAL FINANCE CIRCULAR 3-93
provides for guidelines for financing companies.

7. Peddlers the said case, the Supreme Court differentiated

8. Other business not specified gross receipts and gross revenue. Gross receipts
include money or its equivalent actually or
Note: Those already subject to tax under (1) to (7) can no constructively received in consideration of services
longer be subject to tax under (8) otherwise it will be rendered or articles sold, exchanged, or leased,
deemed as double taxation. (see City of Manila v. Coco- whether actual or constructive whereas gross
Cola Bottlers [August 4, 2009]) revenue covers money or its equivalent actually or
constructively received, including the value of
A corporation with no business operation, and is merely an services rendered or articles sold, exchanged or
investor in another corporation, is not liable for local
business tax. ORLEYTE COMPANY (PHILIPPINE BRANCH) VS.
leased, the payment of which is yet to be received.
CITY OF MAKATI AND DULCE P. CRUZ, IN HER CAPACITY AS
TREASURER OF MAKATI, CTA AC NO. 80, NOVEMBER 14, Q: What is the ceiling on business tax
2012 imposed on municipalities within Metro
Manila?
The operator of the North Expressway falls within the
classification of a contractor subject to local business tax
based on its gross receipts. MANILA NORTH TOLLWAYS The municipalities in Metro Manila may levy taxes at
CORPORATION VS. THE MUNICIPALITY OF GUIGUINTO BULACAN, rates which shall not exceed by 50% the maximum
CTA AC NO. 82, DECEMBER 03, 2012 rate prescribed in Section 143, LGC (see Section
144, LGC)
Q: What are the conditions before a
business may be subject to local business Q: What are the conditions before business
tax? may be considered officially retired?
Before a business may be subject to local business A business subject to tax shall, upon termination
tax, the business must not be subject to VAT or thereof, submit a sworn statement of its gross sales
percentage tax under the NIRC or if the business is or receipts for the current year. If he ax paid during
subject to excise, VAT or percentage tax under the the year be less than the tax due on said gross sales
NIRC, the tax rate shall not exceed 2% of gross or receipts of the current year, the difference shall
sales/ receipts of the preceding calendar year. be paid before the business is considered officially
retired (see Section 145, LGC)
Q: Can an LGU tax a condominium Q: Are the local tax payments paid for the
corporation? privilege of carrying on business in the year
paid or for having engaged in business the
No. As held by the Supreme Court in Y AMANE V. BA
LEPANTO CONDOMINIUM CORP [OCTOBER 25, 2005], previous year?
condominium corporations are not businesses as
the same is defined under the LGC which is a It is paid for the privilege of carrying on business in
commercial activity regularly engaged with a view to the year paid. In MOBIL PHILIPPINES V. THE CITY
profit. Even if a condominium corporation can levy TREASURER OF M AKATI [JULY 14, 2005], for the year
fees, these are used merely to finance the expenses 1998, Mobil paid a total of P2,262,122.48 to the City
of the condominium and nothing more. Treasurer of Makati as business taxes for the year
1998. The amount of tax as computed based on
Q: What is the tax base of the local business Mobils gross sales for 1998 is only P1,331,638.84.
Since the amount paid is more than the amount
tax?
computed based on Mobils actual gross sales for
1998, Mobile upon its retirement is not liable for
The local business tax is imposed on gross receipts.
additional taxes to the City of Makati. The Supreme
In ERICSSON TELECOMMUNICATIONS V. CITY OF PASIG
Court found that the City Treasurer erroneously
[NOVEMBER 22, 2007], Ericsson was assessed for
reated the assessment and collection of tax as if it
deficiency local business tax but countered that the
were an income tax by rendering an additional
assessment was erroneous for having been based
on is gross revenue rather than just its gross
receipts. The Supreme Court ruled that the local
business tax must be imposed on gross receipts. In

assessment of P1,331,638.84 for the revenue If there is branch/sales office in the municipality or
29
generated for the year 1998. city where the sale or transaction is made, the tax
shall accrue and shall be paid where such branch or
Q: What are the rules on payment of sales outlet is located.
business tax?
If there is no branch/sales office in the city or
a. The business taxes shall be payable for every municipality where the sale or transaction is made,
separate and distinct establishment or place the sale shall be recorded in the principal office and
where business subject to tax is conducted and the taxes shall accrue and shall be paid to such city
one line of business does not become exempt or municipality (where the principal office is located)
by being conducted with some other business
for which such tax has been paid With Recorded at Allocation
b. In cases where a person conducts or operates branch/sales
office
2 or more of the businesses subject to local
Yes Branch/sales None
business tax: office
No Principal office None
i. If both businesses are subject to the same
rate the tax shall be computed on the Note: An office may be considered a sales office (1) if the
combined total gross sales or receipts office only accepts orders but does not issue sales
ii. If both businesses are subject to different invoice; (2) if the office does not accept orders but issues
rates the gross sales or receipts of each sales invoices or (3) if the office accepts orders and issues
business shall be separately reported for sales invoices (see BLGF Opinion dated January 15,
the purpose of computing the tax due from 2007)
each business. (see Section 146, LGC)
Section 150(b)
Fees on business and occupation
The following sales allocation shall apply to
manufacturers with factories, plants and plantations,
Q: May a municipality impose a professional
etc.:
tax?
If the plantation and factory are located in the same
No. The municipality may impose and collect such place
reasonable fees and charges on business and
occupation and on the practice of any profession or 1. 30% of all sales recorded in the principal
calling except professional tax which is reserved to office shall be taxable by the city or
the province. (see Section 147, LGC) municipality where principal office is located
2. 70% shall be taxable by the city or
Q: What is the situs of local business taxes municipality where
as stated in Section 150 of the LGC?
If the plantation and factory are not located in the
Section 150(a) same place, the 70% above shall be divided as
follows
1. 60% to the city or municipality where the

factory is located
29
Another example: A corporation whose gross sales was 10 2. 40% to the city or municipality where the
million in 2008 and 20 million in 2009, the local business tax plantation is located
payable in January 2009 is based on 10 million (gross receipts for
2008) but the same is payment for the right to do business in Plantation & Allocation to Allocation to
2009. Thus, on the year of retirement, the company will only be factory in same principal factory, etc
liable if the actual local business tax on the basis of current year
location
sales is more than the local business tax paid based on previous
years sales. To continue the example, if the sales of the company Yes 30% 70%
are also P10 million as of the date of retirement in 2010, this No 30% The 70% above
means that the payment made in January 2010 based on the shall be divided:
2009 gross receipts is sufficient to cover the local business tax
due upon retirement.

1. Factory 60% located but where no transactions are made, may

2. Plantation only collect Mayors permit fee and other regulatory
40% fees.
If two or more
factories, etc = Q: Taxpayer has its principal office and also
70% is prorated a branch in the City of Makati. At the same
time, it has branches in the cities of
Note: Section 150(b) is only resorted to if there is no Paranaque and Cebu. The City Treasurer of
branch or sales office. In addition, the allocation shall be Makati assessed the taxpayer for deficiency
applied irrespective of whether or not the sales are made
in the locality where the factory, plant or plantation is
local business tax for sales of the
located. Paranaque branch allegedly not declared in
the City of Paranaque. The City of Makati
Q: ABC is engaged in manufacturing maintained that it had the authority to
household products. It secured the services assess business taxes on revenues not
of an independent contractor XYZ to provide properly taxed in Paranaque City and Cebu
local physical distribution facilities within City. Is the City Treasurer of Makati correct?
the specified places in the Philippines. XYZ
has a warehouse in Tacloban City and No. For purposes of collection of local taxes,
makes deliveries to ABCs customers businesses maintaining or operating branch or
outside the city. Under the contract, ABC sales outlet elsewhere shall record the sale in
can also make deliveries of its products in the branch or sales outlet making the sale or
other places of the country from its own transaction, and the tax thereon shall accrue
warehouse in Makati. What is the situs of and shall be paid to the municipality where such
taxation of the sales made by ABC and branch or sales outlet is located. Thus, the
XYZ? revenues of the branches outside Makati should
not be part of the tax base for the determination
As held in BUREAU OF LOCAL GOVERNMENT OPINION of the local business tax to be paid in the City of
DATED M ARCH 7, 1994, the products taken from the Makati. In other words, Revenues of branches or
warehouse of PBE in Tacloban City and delivered to sales outlet elsewhere should not be part of the tax
CPI's customers outside the city should be recorded base for the determination of the local business tax
and the tax thereon paid in Tacloban City where said to be paid in the City where the principal office is
warehouse is situated. As to the deliveries or sales located. (CITY OF M AKATI AND THE OFFICE OF THE
made by CPI of products taken from its warehouse CITY TREASURER OF MAKATI CITY VS. NIPPON
in Makati to places where it does not have any EXPRESS PHILIPPINES CORPORATION [CTA AC CASE
branch, sales office, or another warehouse, the NO. 76 DATED FEBRUARY 17, 2012])
same should be recorded in Makati where its
principal office is located and the taxes due thereon ---------------------------------------------------------------
should likewise be paid to said municipality. 6. Common limitations on the taxing power
of LGUs
Q: MI is a corporation engaged in trading ---------------------------------------------------------------
books. It holds an office in Pasig where all
transactions are made. However, MI also Read Section 133, LGC
maintains a warehouse in Mandaluying
which serves as its storage area and no Q: What are the limitations on the taxing
transactions are made therein. What is the power of LGUs?
situs of taxation of the sale of MIs books?
As provided in SECTION 133, LGUs cannot impose
As held in BUREAU OF LOCAL GOVERNMENT OPINION the following:
DATED M ARCH 29, 1993, Mi should be liable for gross
sales tax to the then Municipality of Pasig. On the a. Income tax (except on bank and financial
other hand, Mandaluyong, where the warehouse is entities)

b. DST No. As held in PROVINCE OF BULACAN V. CA

c. Estate and Donors taxes [NOVEMBER 27, 1998], generally, the LGU can
d. Customs Duties impose such tax even if not in LGC since Section
e. Taxes on goods passing through the LGU 186 of the Code is sweeping. However, the province
f. Taxes on agricultural and aquatic products cannot levy on minerals from private lands because
sold by marginal farmers and fisherman it is an excise tax on an article already covered by
30
g. Taxes on BOI-registered enterprises the Tax Code.
h. Excise taxes on articles under the Tax Code
and taxes on petroleum products Q: Petron maintains a depot or bulk plant at
i. Percentage tax and VAT the Navotas Fishport Complex where it
j. Taxes on gross receipts of transportation engages in the selling of diesel fuels to
contractors vessels used in commercial fishing. Navotas
k. Taxes on premium paid by way of
City levied business taxes on its sale of
reinsurance
l. Taxes on registration of motor vehicles petroleum products. Can the LGU levy the
m. Taxes on Philippine products actually business tax on the sale of petroleum?
exported
n. Taxes on Countryside and Barangay No, the LGU cannot impose any local tax on
Business Enterprises and cooperatives petroleum products. As held in PETRON CORP. V.
o. Taxes and fees on the National Government TIANGCO [APRIL 16, 2008], the prohibition with
respect to petroleum products extends not only to
As provided in SECTION 186, LGUs cannot impose excise taxes but all taxes, fees, and charges.
taxes that are specifically enumerated or taxed Section 133(h) provides for two possible bases for
under the provisions of the Tax Code. exemption: (1) excise tax on articles enumerated
under the Tax Code; and (2) taxes, fees, and
charges on petroleum products. In the latter, the
Section 133(e)
exemption refers not only to direct or excise taxes to
be levied by the LGUs on petroleum products but on
Q: Is a municipal ordinance imposing fees all types of taxes on petroleum products including
on goods (corn) that pass through a business taxes.
municipalitys territory valid?
Section 133(j)
No. As held in PALMA DEVELOPMENT CORP V.
ZAMBOANGA DEL SUR [OCTOBER 16, 2003], LGUs,
Q: What is the rationale for the exemption of
through their Sanggunian, may impose taxes for the
use of any public road such as a service fee common carriers from local taxes?
imposed on vehicles using municipal roads to a
wharf. However, Section 133(e) prohibits the As held in FIRST PHILIPPINE INDUSTRIAL CORP V. CA
imposition in the guise of wharfage, of fees as well [DECEMBER 29, 1998], the legislative intent in
as other taxes or charges in any form whatsoever on excluding from the taxing power of the LGU the
goods or merchandise. In this case, the LGU cannot imposition of business tax against common carriers
tax the goods even in the guise of police is to prevent a duplication of the so-called common
surveillance fees. carriers tax.
Section 133(h)
Q: The Province of Bulacan passed an

ordinance imposing tax on minerals
extracted from public lands but went on to
collect tax on minerals extracted from
private lands. Since the LGC only provides
for tax on public lands, is the action of the 30
This applies the Preemption or Exclusionary Rule wherein the
Province of Bulacan valid? national government elects to tax a particular area, impliedly
withholding from the LGU the delegated power to tax the same
field.

Section 186 General Rule: Within the first 20 days of January or

of each subsequent quarter, as the case may be
Q: Are broadcasting and telecommunication
companies liable to pay local transfer Exception: For justifiable reason or cause, the
Sanggunian may extend the time for payment
taxes?
without surcharge or penalties but only for a period
not exceeding 6 months. (See Section 167, LGC)
No. As held in both SMART COMMUNICATIONS V. THE
CITY OF DAVAO [SEPTEMBER 16, 2008] and QUEZON
CITY V. ABS-CBN BROADCASTING CORPORATION Q: What penalties are imposable on failure
[OCTOBER 6, 2008], these franchise holders are now to pay local taxes?
31
subject to VAT.
The penalty of 25% surcharge and 2% interest per
--------------------------------------------------------------- month not to exceed 36 months (or a maximum of
7. Collection of business tax 72%) may be imposed. (see Section 168, LGC)
a) Tax period and manner of payment
b) Accrual of tax Q: What are the requisites for a valid
c) Time of payment examination of books?
d) Penalties on unpaid taxes, fees or
a. In order to ascertain, assess, and collect the
charges correct amount of the tax, fee, or charge
e) Authority of treasurer in collection and b. During regular business hours
inspection of books c. Only once every tax period
--------------------------------------------------------------- d. Shall be certified to by the examining official
e. Such certificate shall be made of record in
Read Section 165 to 171, LGC the books of accounts of the taxpayer
examined.
Q: What is the tax period for local taxes
---------------------------------------------------------------
The tax period of all local taxes, fees and charges 8. Taxpayers Remedies
shall be the calendar year. Such taxes, fees, and a) Periods of assessment and collection of
charges may be paid in quarterly instalments (see local taxes, fees or charges
Section 165, LGC) b) Protest of assessment
c) Claim for refund of tax credit for
Note: Local taxes may be paid on an annual basis at the
option of the taxpayer. In contrast, real property taxes erroneously or illegally collected tax, fee or
must be paid annually. charge
---------------------------------------------------------------
Q: When do local taxes accrue?
Note: The bar syllabus covers only tax remedies available
General Rule: On January 1 to the taxpayer when the assessment has been made.
Allow me to discuss the remedies available prior to the
st assessment which is provided for in the LGC and the
Exception: New taxes which will accrue on the 1 Rules of Court.
day of the next quarter following effectivity of the
ordinance. Q: What are the remedies available to the
taxpayer prior to assessment?
Q: When are local taxes paid?
a. To question the constitutionality or legality of
tax ordinances or revenue measures on
appeal (see Section 187, LGC)
31
The Supreme Court ruled in both cases that the in lieu of all (Administrative)
taxes clause in their franchises applies only to national internal b. Petition for declaratory relief as and when
revenue taxes and not to local taxes. As such, they would have
been liable to pay local transfer taxes. However, with the advent applicable (Judicial)
of the VAT law, such franchise holders are instead liable to pay
VAT.

Q: Outline the process on how an appeal Star Daily published Ordinance No. 9503-2005 on 1 to 3
involving questions of constitutionality or February 2005. Ordinance No. 9503-2005 thus took effect
on 19 February 2005. CEPALCO filed its petition for
legality of tax ordinances. declaratory relief before the Regional Trial Court on 30
September 2005, clearly beyond the 30-day period
1. Appeal to the Secretary of Justice within 30 provided in Section 187. CEPALCO did not file anything
days from effectivity before the Secretary of Justice. Thus, the Court found that
2. The Secretary of Justice has 60 days to CEPALCO ignored the mandatory nature of the statutory
decide but an appeal does not suspend the periods.
effectivity of the ordinance
3. Within 30 days from the Secretary of Q: Is payment under protest required before
Justices decision or after 60 days inaction, a party may appeal to the Secretary of
an appeal may be filed with the RTC. Justice?
Q: Is compliance with the 30-60-30 day No. As held in JARDINE DAVIS INSURANCE V. ALIPOSA
period rule mandatory? [FEBRUARY 27, 2003], prior payment under protest is
not required when the taxpayer is questioning the
Yes. In REYES V. CA [DECEMBER 10, 1999], the very authority and power of the assessor to impose
Secretary of Justice dismissed an appeal assailing the assessment and of the treasurer to collect the
the constitutionality of the tax ordinances of the tax (as opposed to questioning the increase or
Municipality of San Juan on the ground that it was decrease in the tax to be paid).
filed out of time. The Supreme Court ruled that
compliance with the three separated periods is Q: What authority is given to the Secretary
mandatory. The failure of the petitioners in the case of Justice with respect to review of tax
to appeal to the Secretary within 30 days from the ordinances?
date of effectivity is fatal to their cause.
The Secretary of Justice can declare an ordinance
void for not having followed the requirements of the
Cagayan Electric Power and Light Co. v. law but he cannot replace it with his own law or he
City of Cagayan de Oro, G.R. 191761, cannot say that is is unwise. In DRILON V. LIM
November 14, 2012 [AUGUST 4, 1994], then Secretary of Justice Drilon
set aside the Manila Revenue Code on two grounds,
DOCTRINE: Failure to appeal to the Secretary of Justice namely the inclusion of certain ultra vires provisions
within the statutory period of 30 days from the effectivity of and its non-compliance with the prescribed
the ordinance is fatal to ones cause. procedure in its enactment. In ruling that the act of
then Secretary Drilon was proper, the Supreme
FACTS: On January 10, 2005, the Sangguniang
Panlungsod of Cagayan de Oro (City Council) passed Court noted that when the Secretary alters or
Ordinance No. 9503-2005 imposing a tax on the lease modifies or sets aside a tax ordinance, he is not
orrental of electric and/ortelecommunication posts, poles allowed to substitute his own judgment for the
or towers by pole owners to other pole users at ten judgment of the LGU that enacted the measure. In
percent(10%) of the annual rental income derived from the said case, Secretary Drilon only exercised
such lease or rental. The City Council, in aletter dated 15 supervision and not control.
March 2005, informed Cagayan Electric Power and Light
Company, Inc. (CEPALCO), through its President and
Chief Operation Manager, Ms. Consuelo G. Tion, of the
Q: X, a taxpayer who believes that an
passage of the subject ordinance. On September 30, ordinance passed by the City Council of
2005, appellant CEPALCO, purportedly on pure question Pasay is unconstitutional for being
of law, filed a petition for declaratory relief assailing the discriminatory against him wants to know
validity of Ordinance No. 9503-2005 before the Regional
from you, his tax lawyer, whether or not he
Trial Court.
could file an appeal. In the affirmative, he
HELD: The Court ruled that CEPALCO failed to exhaust asks you where such appeal should be
administrative remedies. Section 5 of said ordinance made: The Secretary of Finance, the
provided that the Ordinance shall take effect after 15 days Secretary of Justice or the CTA or the
following its publication in a local newspaper of general
circulation for at least three (3) consecutive issues. Gold

regular courts. What would your advice be within 10 years from discovery of fraud or intent to
to your client? evade
The appeal should be made with the Secretary of Q: What is the rule on collection?
Justice. Any question on the constitutionality or
legality of a tax ordinance may be raised on appeal Collection must be within 5 years from assessment.
with the Secretary of Justice within 30 days from the
effectivity thereof (Hagonoy Market Vendor Assoc. Q: May regular court issue an injunction to
v. Municipality of Hagonoy [376 SCRA 376]) restrain LGUs from collecting taxes?
Q: Olongapo City enacted an ordinance Yes. In ANGELES CITY V. ANGELES ELECTRIC
fixing monthly rental fees for the different CORPORATION [JUNE 29, 2010], the Supreme Court
stalls in the new public market. A held that the LGC does not specifically prohibit an
questioned the validity of the said ordinance injunction enjoining the collection of local taxes (as
by filing an appeal with the Secretary of compared to the Tax Code which has an express
Justice. The Secretary deferred rendering a prohibition). Nevertheless, the Court noted that
decision on the appeal and advised A to file injunctions enjoining the collection of local taxes are
frowned upon and should therefore be exercised
his appeal with the RTC. Is the act of the
with extreme caution.
Secretary proper?
Q: What are the grounds for the suspension
No. As held in CITY OF OLONGAPO V. STALLHOLDERS
OF EAST B AJAC-B AJAC PUBLIC M ARKET [OCTOBER
of the running of the prescriptive?
19, 2000], the act of the Secretary of Justice was
tantamount to an abdication of his jurisdiction over a. The treasurer is legally prevented from the
the appeal of the ordinance. The Secretary may not assessment or collection of the tax
abdicate his authority to review tax ordinances. b. The taxpayer requests for reinvestigation
and executes a waiver in writing before the
Q: When may an action for declaratory relief expiration of the period within which to
assess or collect; and
be filed?
c. The taxpayer is out of the country or
otherwise cannot be located
When there is such an obscurity, declaratory relief
would be applicable. This remedy is open to
determine any question of construction or validity of Q: What are the remedies available to the
a tax law and/or the declaration of taxpayers taxpayer after assessment?
liabilities thereunder (Valley Trading v. CFI [March
4, 1989]) a. Protest of assessment (Section 195, LGC)
b. Claim for refund (Section 196, LGC)
---------------------------------------------------------------
a) Periods of assessment and collection of ---------------------------------------------------------------
local taxes, fees or charges b) Protest of assessment
--------------------------------------------------------------- ---------------------------------------------------------------
Read 194, LGC Read Section 195, LGC
Q: What are the rules on assessments? Q: Outline the procedure in contesting a

local tax assessment.
General Rule: An assessment must be made within
5 years from the date they become due. 1. Assessment notice issued by local treasurer
2. File written protest with the local treasurer
Exception: If there is fraud or intent to evade within 30 days from date of payment
payment of the tax, the assessment may be made 3. The Treasurer has to decide within 60 days

4. An appeal to the RTC is then available upon

denial or 60-day inaction by the treasurer Q: What is the rule on refunds?
5. The RTC decision is appealable to the CTA
En Banc The taxpayer must file a written claim within 2 years
6. Appeal to the SC within 15 days from receipt from the date of payment of tax or from the date
of resolution. when the taxpayer is entitled to refund.
Note: (1) Unlike in RPT, no protest under payment is ---------------------------------------------------------------

required.
9. Civil Remedies by the LGU for collection
(2) Review by RTC over denial of protest by the local
of revenues
treasurer falls within the courts original jurisdiction. a) Local governments lien for delinquent
NATIONAL TRANSMISSION CORPORATION VS. MUNICIPAL taxes, fees or charges
TREASURER OF LABRADOR, PANGASINAN, REPRESENTED BY b) Civil Remedies, in general
EDUALINO CASIPIT IN HIS CAPACITY AS MUNICIPAL TREASURER, (i) Administrative action
CTA AC NO. 67, JUNE 25, 2012
(ii) Judicial action
In local tax assessments, the CTA En Banc does not have ---------------------------------------------------------------
jurisdiction over cases decided by the Regional Trial Court
in the exercise of its original jurisdiction. NATIONAL POWER Read Section 172-185, LGC
CORPORATION VS. THE CITY GOVERNMENT OF TUGUEGARAO,
CTA EB CASE NO. 696 (RTC CIVIL CASE NO. 7240), JUNE 5, Q: What is the nature of a local
2012
governments lien?
(3) What is the venue of your appeal of the denial of the
protest by the local treasurer? In NATIONAL TRANSMISSION Local taxes, fees, charges and other revenues
CORPORATION VS. THE MUNICIPALITY OF MAGALLANES, constitute a lien, superior to all liens, charges, or
AGUSAN DEL NORTE [C.T.A. AC NO. 68, JANUARY 5, 2012], encumbrances in favour of any person, enforceable
the CTA held that the local Governments assessment for by any appropriate administrative or judicial action
business taxes and other regulatory fees is civil in nature (see Section 173, LGC)
and basically a personal action. For purposes of instituting
personal actions in court, the place where the taxpayers Note: The lien may only be extinguished upon full
principal office is located may also be considered as the payment of the delinquent local taxes, fees, and charges,
proper venue. including related surcharges and interest (see Section
173, LGC)
(4) The failure of the taxpayer to file and perfect its appeal
with the regional trial court within the prescribed period
deprives the Court of the jurisdiction to entertain and
Q: What are the civil remedies available to
determine the correctness of the assessment made by the the LGU for collection of revenues?
city treasurer. ACESITE (PHILIPPINES) HOTEL CORPORATION
VS. LIBERTY TOLEDO, IN HER CAPACITY AS CITY TREASURER OF a. Administrative action
THE CITY OF MANILA AND THE CITY OF MANILA [CTA, MAY 24, i. Distraint of personal property
2012]. ii. Levy upon real property
iii. Compromise
Taxpayer has 60 days from the date of receipt of the b. Judicial action
assessment to file a protest; failing which, the assessment
shall become final and executor SPC REALTY Note: Either of these remedies or both may be pursued
CORPORATION VS. MUNICIPAL TREASURER OF CAINTA, CTA concurrently or simultaneously at the discretion of the LGU
AC NO. 77, NOVEMBER 15, 2012 concerned (see Section 174, LGC)
--------------------------------------------------------------- Q: How is the administrative remedy of

c) Claim for refund of tax credit for distraint or levy exercised?
erroneously or illegally collected tax, fee or
charge By administrative action thru distraint of goods,
--------------------------------------------------------------- chattels, or effects, and other personal property or
whatever character, including stocks and other
Read Section 196, LGC securities, debts, credits, bank accounts and interest

in and rights to personal property, and by levy upon (Section 175, LGC)
real property and interest in or rights to real property.
(see Section 174, LGC)
Note: If the proceeds of the sale are insufficient other
Note: (1) The remedies of distraint and levy may be property may be distrained until the full amount due,
repeated if necessary until the full amount due including all including all expenses, is collected. (Section 175, LGC)
expenses is collected (see Section 184, LGC)
Q: Outline the procedure for distraint of real
(2) For properties exempt from distraint or levy, see property
Section 185, LGC
1. Warrant of Levy issued by the Local Treasurer
Q: Outline the procedure for distraint of (LT), which has the force of legal execution in the
personal property LGU concerned. (Section 176, LGC)
2. Warrant is mailed to or served upon the
1. Tax constitutes a lien superior to all liens and
delinquent owner (Section 176, LGC)
may only be extinguished upon payment of the
tax and the related charges. (Section 173, LGC)
3. Written notice of the levy and the warrant is
mailed/served upon the assessor and the
2. Time for payment of Local taxes expires
Registrar of Deeds of the LGU (Section 176,
3. Local Treasurer (LT), upon written notice, seizes
LGC)
sufficient personal property to satisfy the tax, and
other charges (Section 175, LGC) 4. 30 days from service of warrant, LT shall
4. LT issues a certificate which serves as warrant advertise sale of the property by:
for the distraint of personal property, (Section a. posting notice at main entrance of LGU
175, LGC) hall/building and in a conspicuous place in the
5. Officer executing the distraint accounts for the barangay where property is located and
goods, distrained (Section 175, LGC) b. by publication once a week for 3 weeks
6. Officer posts notice in office of the chief executive (Section 178, LGC)
of the LGU where the property is distrained and
Note: In cases of levy for unpaid local taxes publication is
in at least 2 other public places specifying the
once a week for 3 weeks
time & place of sale, and distrained goods. The
time of sale shall not be less than twenty (20)
5. Before the date of sale, the owner may stay the
days after the notice. (Section 175, LGC)
proceedings by paying the delinquent tax,
7. Before the sale, the goods or effects distrained
interest and the expenses of sale. (Section 178,
shall be restored to the owner if all charges are
LGC)
paid (Section 175, LGC)
6. Sale is held:
Note: The next steps in the procedure will vary depending a. at the main entrance of the LGU building, or
on whether the property distrained is disposed of within b. on the property to be sold, or
120 days from distraint. c. at any other place specified in the notice
(Section 178, LGC)
If disposed If not disposed Note: The next steps in the procedure will vary depending
on whether, on one hand, there is a bidder and on the
8. Officer sells the 8. It shall be other, there is no bidder or the highest bid is insufficient to
goods at public considered as sold cover the taxes and other charges.
auction to the highest to the LGU for the
bidder for cash. w/in amount of the If there is a bidder If there is no bidder OR
5 days, the local assessment made the highest bid is
treasurer shall report by the Committee insufficient to cover
sale to the local chief on Appraisal and to the taxes and other
executive concerned the extent of the charges
(Section 175, LGC) same amount, the
9. Excess of proceeds tax delinquencies 7. Bidder pays and 30 7. LT shall purchase
over charges shall be shall be cancelled. days after the sale, the property in
returned to the owner (Section 175, LGC) the LT shall report the behalf of the LGU
of the property sold. sale to the (Section 181, LGC)

sanggunian (Section and other charges but for RPT, the LGU may purchase
178, LGC) Note: in cases of levy for for only one reason there is no bidder! Its that simple.
8. LT shall deliver to unpaid local taxes, LT may So memorize the procedure and just take note of these
purchaser certificate purchase if there is no two distinctions between levying for local taxes and
bidder or if the highest bid levying for RPT.
of sale
is insufficient (Section 181,
9. Proceeds of sale in LGC)
excess of delinquent Q: How is the remedy of judicial action
tax, interest & exercised?
8. Registrar of Deeds
expenses of sale shall transfer the
remitted to the owner The LGU concerned may institute an ordinary civil
title of the forfeited action with the regular courts for the collection of
(Section 178, LGC) property to the LGU
10. Within 1 year from delinquent taxes within 5 years from the date the
without need of a taxes, fees or charges become due (see Section
sale, owner may court order (Section
redeem upon 138 in relation to Section 194, LGC)
181, LGC)
payment of the 1. 9. Within 1 year from
delinquent tax, 2. forfeiture, the owner,
interest due, 3. may redeem the
expenses of sale property by paying
(from date of to the local treasurer
delinquency to date the full amount of
of sale) and 4. addl the tax and the
interest of 2% per related interest and
month on the the costs of sale
purchase price from otherwise the
date of sale to date of ownership shall be
redemption. vested on the local
Delinquent owner government unit
retains possession concerned. (Section
and right to the fruits 181, LGC)
(Section 179, LGC) 10. Sanggunian
11. LT returns to the concerned may, by
purchaser/bidder the ordinance sell and
price paid plus dispose of the real
interest of 2% per property acquired
month (Section 179, under the preceding
LGC) section at public
12. If property is not auction. (Section
redeemed, the local 182, LGC)
treasurer shall
execute a deed of
conveyance to the
purchaser (Section
180, LGC)
Note: (1) In both cases, levy may be repeated until the full
amount due, including all expenses, is collected.
(2) This is important! To make our lives easier, I want you

to note that the procedure for levying real properties to
satisfy local taxes is.wait for it.the SAME as the levy
procedure for satisfying RPT. Wait hindi pa tapos! Its the
same EXCEPT for two things: (1) Publication is once a
week for 3 weeks for local taxes while it is once a week for
2 weeks for RPT and (2) for local taxes, the LGU may
purchase levied property for two reasons there is no
bidder OR the highest bid is insufficient to cover the taxes

---------------------------------------------------------- (7) Fertilizer actually used on a piece of land;

B. REAL PROPERTY TAXATION (8) Mines, quarries, and slag dumps, while the
matter thereof forms part of the bed, and waters
---------------------------------------------------------- either running or stagnant;
(9) Docks and structures which, though floating, are
Q: What are real property taxes? intended by their nature and object to remain at a
fixed place on a river, lake, or coast;
These are direct taxes imposed on the privilege to (10) Contracts for public works, and servitudes and
use real property such as land, building, machinery other real rights over immovable property.
and other improvements unless specifically
exempted. Note: Personal property may be classified as real property
for purposes of taxation.
Note: Before we can even talk about real property
taxation, I would have to state the obvious that this tax Q: Are the steel towers of an electric
only applies to, well, real property. In any problem company real property for the purpose of
involving real property taxation, you must first determine if
its real property or not. If its not real property, then its not RPT?
subject to real property taxation. Thus, Ill discuss what are
considered real properties for purposes of RPT. No. In BOARD OF ASSESSMENT APPEALS V.
MERALCO [JAN. 31 1964], the Supreme Court held
Q: What are considered real properties? that the steel towers of MERALCO do not constitute
real property or the purpose of the real property tax.
There is no definition provided for in the LGC. The steel towers were regarded as poles and under
Reference must be made to Article 415 of the Civil its franchise Meralco's poles are exempt from
Code, to wit. taxation. Moreover, the steel towers were not
attached to any land or building. They were
removable from their metal frames.
Article 415. The following are immovable property:
Q: Define machinery.
(1) Land, buildings, roads and constructions of all
kinds adhered to the soil; Machinery embraces machines, equipment,
(2) Trees, plants, and growing fruits, while they are mechanical contrivances, instruments, appliances or
attached to the land or form an integral part of an apparatus which may or may not be attached,
immovable; permanently or temporarily, to the real property. It
(3) Everything attached to an immovable in a fixed includes the physical facilities for production, the
manner, in such a way that it cannot be separated installations and appurtenant service facilities, those
therefrom without breaking the material or which are mobile, self-powered or self-propelled,
deterioration of the object; and those not permanently attached to the real
(4) Statues, reliefs, paintings or other objects for use property which are actually, directly, and exclusively
or ornamentation, placed in buildings or on lands by used to meet the needs of the particular industry,
the owner of the immovable in such a manner that it business or activity and which by their very nature
reveals the intention to attach them permanently to and purpose are designed for, or necessary to its
the tenements; manufacturing, mining, logging, commercial,
(5) Machinery, receptacles, instruments or industrial or agricultural purposes (see Section
implements intended by the owner of the tenement 199(o), LGC)
for an industry or works which may be carried on in
a building or on a piece of land, and which tend Q: What types of machinery are subject and
directly to meet the needs of the said industry or not subject to RPT?
works;
(6) Animal houses, pigeon-houses, beehives, fish 1. Machinery that is permanently attached to
ponds or breeding places of similar nature, in case land and buildings is subject to the real
their owner has placed them or preserves them with property tax, even though this is actually,
the intention to have them permanently attached to directly, and exclusively used for religious,
the land, and forming a permanent part of it; the charitable or educational purposes.
animals in these places are included;

2. Machinery that is not permanently attached finished products for sale nor to repair
to real estate is: machineries offered to the general public for
a. Subject to the real property tax if it is business or commercial purposes
an essential and principal element considered as realty subject to RPT?
of an industry, work or activity
without which such industry, work or
No. In MINDANAO BUS CO. V. CITY ASSESSOR &
activity, cannot function;
TREASURER [SEPT. 29, 1962], the Supreme Court
b. Not subject to the real property tax if
held that for equipment to be real property, they
it is not an essential and principal
must be essential and principal elements. In
element of an industry, work or
addition, the machinery should be essential to carry
activity.
on business in a building or piece of land and this is
3. Notwithstanding rules 1 and 2, machinery of
not the case here since it was proven that the
non-stock, non-profit educational institutions
equipment was not essential because it is used only
used actually, directly, and exclusively for
for repairs which could actually be done elsewhere.
educational purposes is not subject to real
property tax. (see DOF LOCAL FINANCE
CIRCULAR 001-2002 [APRIL 25, 2002]) Q: Are the gas station equipment and
machinery (tanks, pumps, etc) permanently
Q: Define improvement. affixed by Caltex to its gas station and
pavement, albeit on leased land, considered
Improvement is a valuable addition to the property or real property subject to real property taxes
an amelioration in its condition amounting to more even if lessor does not become the owner of
than a repair or replacement of parts. (see Section the said assets?
199(m), LGC)
Yes, because they are essential to the business of
Q: What are the requisites for taxability of the taxpayer. In CALTEX V. CBAA [M AY 31, 1982],
an improvement? the Supreme Court ruled that he said equipment and
machinery, as appurtenances to the gas station
1. It must enhance the value of the property building or shed owned by Caltex and which fixtures
2. It must be separately assessable are necessary to the operation of the gas station for
3. It can be treated independently from the without them the gas station would be useless and
main property. which have been attached or affixed permanently to
the gas station site are taxable improvements and
machinery. The case of DAVAO SAWMILL CO. V.
Q: The City Assessor of CDO assessed as CASTILLO [AUGUST 7, 1935] where at issue was
taxable the machinery of Asian College of whether the property was installed by the owner
Science and Technology (ACSAT), a non- does not apply since in that case the issue was on
stock, non-profit educational institution. execution of judgment against the lessee.
Upon the issuance of DOF LOCAL FINANCE
CIRCULAR 001-2002 [APRIL 25, 2002], the City Q: Are generator sets real property for
Assessor declared the machinery as tax purposes of RPT?
exempt effective the 2nd quarter of 2002.
ACSAT argues that the exemption should No. [see BLGF OPINION DATED NOVEMBER 28, 2011]
retroact to the year 1998. Is ACSAT correct?
Yes. In BLGF OPINION DATED DECEMBER 15, 2006],

it was held that the request for retroactive effectivity
in 1998 of exemption of the subject machinery
owned by ACSAT should be given due course
Q: Are equipment/machineries in cement or

wooden platform and which were never
used as industrial equipments to produce

Q: What is the taxability of the following real property tax. (see BLGF OPINION DATED
properties of a bank: (1) vault doors; (2) AUGUST 5, 2004]
safety deposit boxes; (3) surveillance
cameras; (4) generator sets; (5) water Q: MERALCO installed two oil storage tanks
pumps; (6) uninterrupted power supply on a lot in Batangas which it leased from
equipment; (8) exhaust fans; and (9) ceiling Caltex. They are used for storing fuel oil for
fans? MERALCOs power plants. Are the oil
storage tanks real property for purposes of
(1) Vault doors, (2) safety deposit box; and (3) RPT?
surveillance cameras should be assessed as
improvements for enhancing the utility of the bank. Yes. In MERALCO V. CBAA [M AY 31, 1982], the
(4) to (9) do not fall within the definition of machinery Supreme Court held that while the two storage tanks
subject to RPT. (see BLGF OPINION DATED M ARCH are not embedded in the land, they are to be
22, 2005] considered improvements on the land enhancing its
utility and rendering it useful to the oil industry. The
Q: What is the taxability of the following two tanks have been installed with some degree of
properties of a bank: (1) ATM Machine permanence as receptacles for the considerable
procash; (2) Cash vault door protect; (3) quantities oil needed by MERALCO for its
Security cash locker fortress; (4) Protect operations.
safe deposit boxes; (5) Security Devices; (6)
Magitek UPS; (7) Airconditioning units; (8) ---------------------------------------------------------------
Computers (CPU, printer, deskset, monitors, 1. Fundamental Principles
scanner/HP Flatbed, PC Server, modem, ---------------------------------------------------------------
etc.); (9) Phone Panasonic Wireless; (10)
Phone SNI Digital; and (11) Exhaust fans? Read Section 198, LGC
Items Nos. 2-5 should have been classified as Q: Enumerate the fundamental principles
improvement subject to real property tax as that shall guide real property taxation.
discussed above; while item Nos. 6-11 should be
classified as machinery of general purpose use thus 1. Real property shall be appraised at its
exempt from payment of real property tax. ATMs, current and fair market value
however, are correctly classified as machinery 2. Real property shall be classified for
subject to real property tax. (see BLGF OPINION assessment purposes on the basis of its
DATED FEBRUARY 17, 2005]
actual use
3. Real property shall be assessed on the
Q: What is the taxability of the following basis of a uniform classification within each
properties: (1) printing and developing LGU
machine owned by a photo center and (2) 4. The appraisal, assessment, levy and
equipment being utilized by water refilling collection of real property tax shall not be let
stations in purification process? to any private person
5. The appraisal and assessment of real
The printing and developing machine owned by the property shall be equitable.
photo center is a taxable real property considering
that the same falls within the definition of
"Machinery" without which, the work or activity of the
said photo center cannot function, and therefore, an
essential and principal element of the business of
photography. On the other hand, the equipment
being utilized by the water refilling stations thereat in
purification process also fall within the definition of
machinery and considered real property subject to

---------------------------------------------------------------
2. Nature of Real Property Tax 1. In the case of a province, at the rate not
--------------------------------------------------------------- exceeding 1% of the assessed value
2. In the case of a city or municipality within
Metro Manila, at the rate not exceeding 2%
Q: What is the nature of a real property of the assessed value
tax?
Note: The bar syllabus did not include special levies.
a. It is a direct tax Nonetheless, lets discuss the pertinent matters. I will not
b. Indivisible single obligation provide the codal anymore. Just refer to Section 235-245,
c. Ad valorem tax based on the assessed LGC.
value of the property
d. Local tax Q: What are the special levies under the
e. Imposed on the use and not on the LGC?
ownership of the property
f. Progressive in character depending to a 2. Additional Levy for the Special Education
certain extent on the use and value of the Fund (SEF) 1% on the assessed value of
property real property in addition to the basic RPT
(see Section 235, LGC)
Note: The ruling made by the Supreme Court in MERALCO 3. Special Levy on Idle Lands idle lands
SECURITIES INDUSTRIAL CORP. V. CBAA [MAY 31, 1982] to shall be taxed at a rate not exceeding 5% of
the effect that RPT is a national tax was made long before the assessed value in addition to the basic
real property taxation was made part of the LGC. RPT (see Section 236, LGC)
4. Special Levy by LGUs for lands benefited
--------------------------------------------------------------- by public works (special assessment)
3. Imposition of real property tax the special levy shall not exceed 60% of the
a) Power to levy real property tax actual cost of such project and
b) Exemption from real property tax improvements, including the costs of
acquiring land and other real property. (see
---------------------------------------------------------------
Section 240, LGC)
---------------------------------------------------------------
Q: When may idle lands be exempted from
a) Power to levy real property tax
tax?
---------------------------------------------------------------
a. Force majeure
Read Section 232 to 233, LGC b. Civil disturbance
c. Natural calamity
Q: Do all types of LGUs have the power to d. Any cause which physically or legally
impose real property taxes? prevents the owner of the property or person
having legal interest therein from improving,
No. Only provinces and cities as well as utilizing, or cultivating the same (see
municipalities within Metro Manila may impose Section 238, LGC)
RPTs. (see SECTION 200 AND 232, LGC)
Q: What are the conditions for the validity of
Municipalities outside Metro Manila and barangays a tax ordinance imposing special levy for
cannot impose RPT. public works?
Q: What are the rates of levy for purposes of 1. The ordinance shall describe the nature,
RPT? extent, and location of the project, state the
estimated cost, and specify the metes and
A province or city or municipality within Metro Manila bounds by monuments and lines (see
shall fix a uniform rate of basic property tax Section 241, LGC)
applicable to their respective localities:

2. It must state the number of annual

installments, not less than 5 years nor more No. In METRO M ANILA M ANILA INTERNATIONAL
than 10 years (see Section 241, LGC) AIRPORT AUTHORITY v. CA [JULY 20, 2006], the
3. Notice to the owners and public hearing (see Supreme Court, in resolving the issue on whether
Section 242, LGC) the lands and buildings owned by the Manila
International Airport Authority were subject to real
Note: If you want to contest a special levy, the property tax, ruled in the negative. The Supreme
interested person may appeal to the LBAA and then Court opined that since MIAA is not a GOCC but
to the CBAA following the same process as an instead as government instrumentality vested with
administrative protest (see Section 244, LGC). Ill corporate powers or a government corporate entity.
discuss the process later. As such, it is exempt from real property tax.
--------------------------------------------------------------- However, it must be noted that previously in M ACTAN

b) Exemption from real property tax CEBU INTERNATIONAL AIRPORT AUTHORITY V. M ARCOS
--------------------------------------------------------------- [SEPTEMBER 11, 1996], the Supreme Court ruled that
MCIAA is a GOCC and since the last paragraph of
Section 234 of the LCG unequivocally withdrew the
Read Section 234, LGC exemptions from payment of RPT granted to natural
or juridical including GOCCs, MCIAA is now liable
Q: What are the properties exempt from for RPT.
RPT?
Q: Is the Philippine Fisheries Development
a. Real property owned by the Republic or any Authority (PFDA) a GOCC and, hence, now
of its political subdivisions (except when liable for RPT?
beneficial use has been granted to a taxable
person) No. In PHILIPPINE FISHERIES DEVELOPMENT
b. Charitable institutions, churches, AUTHORITY V. CA [JULY 31, 2007], the Supreme
parsonages, or convents appurtenant Court ruled that the PFDA is not a GOCC but an
thereto, mosques, nonprofit or religious instrumentality of the national government which is
cemeteries and all lands, buildings or generally exempt from payment of RPT. However,
improvements actually, directly, and said exemption does not apply to the portions of the
exclusively used for religious, charitable or properties which the PFDA leased to private
educational purposes entities.
33
c. All machineries and equipment actually,
directly and exclusively used by local water
Q: Is the GSIS liable for RPT?
districts and GOCCs engaged in supply and
distribution of water and/or generation and
No. As held in GSIS V. CITY TREASURER OF THE CITY
transmission of electric power
OF M ANILA [DECEMBER 23, 2009], the Supreme Court
d. All real property owned by duly registered
stated that the ruling in METRO M ANILA M ANILA
cooperatives
INTERNATIONAL AIRPORT AUTHORITY v. CA [JULY 20,
e. Machinery and equipment used for pollution
2006] argues for the non-tax liability of the GSIS for
control and environmental protection
32 RPT. The Court ruled that GSIS is an instrumentality
(includes infrastructure)
of the government and, as such, is not a taxable
juridical person for purposes of RPT.
Section 234(a)
Q: Is the Philippine Reclamation Authority
Q: Is the Metro Manila International Airport (PRA) a GOCC and, as such, liable for RPT?
Authority (MMIA) a GOCC which will now be
considered liable for RPT under the LGC?
32 33
Note that under RA 7942 (Philippine Mining Act of 1995), Note that under Section 234 the exemption to the government
pollution control devices exempted from RPT include and its political subdivisions does not apply to properties whose
infrastructure. beneficial use has been granted to a taxable person

No. In PHILIPPINE RECLAMATION AUTHORITY V. CITY commercial purposes. Are these exempt
OF PARANAQUE [JULY 18, 2012], the Supreme Court from real property taxes?
ruled that PRA is not a GOCC. Much like the MIAA,
PPA, UP, PFDA, GSIS and BSP, it is considered a
government instrumentality exercising corporate No. In LUNG CENTER OF THE PHILIPPINES V. QUEZON
powers but which are not considered GOCCs as CITY [433 SCRA 119], the Supreme Court held that
they are neither a stock (for not having the authority the hospital was not exempt from real property tax
to distribute dividends), not a non-stock corporation on the portions of its property not actually, directly,
(for not having members) corporation. In addition, and exclusively used for charitable purposes. Thus,
the Constitution likewise provides that a GOCC is those leased out for commercial purposes are
created under two conditions: (a) established for a subject to real property tax. Those used by the
common good and (b) meets the test of economic hospital even if used for paying patients remain
viability. While test (a) is complied with, the PRA was exempt from real property taxes.
undoubtedly not created to engage in economic or
commercial activities as it is the only entity engaged Q: ABC Association is a non-stock, non-
in reclamation which was described as essentially a profit organization owned by XYZ Hospital
public service. Thus, PRA is not liable for RPT. in Cebu City. XYZ likewise owns the XYZ
Medical Arts Center. The City Assessor
Q: Is the Light Rail Transit Authority (LRTA) assessed the XYZ Medical Arts Center
a GOCC, and, as such, liable for RPT? Building with the assessment level of 35%
for commercial buildings (instead of the
Yes. Although not expressly stating that LRTA is a 10% special assessment imposed on XYZ
GOCC, the Supreme Court in LIGHT RAIL TRANSIT hospital and its buildings). Was the medical
AUTHORITY V. CBAA [OCTOBER 12, 2000] stated that
arts center built to house its doctors a
the LRTA is clothed with corporate status and
corporate powers in the furtherance of its proprietary separate commercial building?
objectives. It operates much like any private
corporation engaged in the mass transport industry. No. The Supreme Court in CITY ASSESSOR OF CEBU
As such, it is liable for RPT. CITY V. ASSOCIATION OF BENEVOLA DE CEBU INC.
[JUNE 8, 2007] ruled that the fact alone that doctors
Q: ABC Company owned two parcels of land holding clinics in the separate medical center are
consultants of the hospital and the ones who treat
in Pasig City. Portions of the properties are
the patients takes way the medical center from being
leased to different business establishments. categorized as commercial. The Supreme Court
Being part of ill-gotten wealth of the classified the medical arts center building as
Marcoses, the owner of ABC voluntarily special for the following reasons: (1) the medical
surrendered ABC Company to the Republic arts center was an integral part of the hospital; (2)
through the PCGG. Now, Pasig City seeks to the medical arts center facility was incidental to and
impose RPT on the properties of ABC. Are reasonably necessary for the operations of the
the properties of ABC liable for RPT? hospital; and (3)
charging rentals for the offices used by its accredited
It depends. In PASIG CITY V. REPUBLIC [AUGUST 24, physicians was a practical necessity and could not
2011], the Supreme Court held that the portions of be equated to a commercial venture.
the properties not leased to taxable entities are
exempt from RPT while the portions leased to Section 234(c)
taxable entities are subject to RPT.
Q: What are the requisites to claim
Section 234(b) exemption from RPT for machineries and
equipment used by LWDs and GOCCs?
Note: Remember our discussions in General Principles of
Taxation
1. The machineries and equipment are
actually, directly, and exclusively used by
Q: The Philippine Lung Center leased the LWDs and GOCCs
portions of its real property out for

2. The LWDs and GOCCs claiming exemption and/or actually uses the machineries and
must be engaged in the supply and equipment for generation and transmission
distribution of water and/or generation and of power. The CBAA affirmed. Are the
transmission of electric power. properties exempt from RPT?
Q: FELS entered into a lease contract with No. NAPOCORs basis for exemption which is
NAPOCOR over two engine power barges at Section 243(c) provides that the machinery and
Balayan Bay Batangas. The lease contract equipment used for generation and transmission of
stipulated that NAPOCOR shall be power must be actually, directly and exclusively
responsible for all taxes (including RPT on used by the GOCC. The machineries and equipment
the barges), fees and charges that FELS here are owned by BPPC, subject only to the
may be liable except income tax of FELS transfer of these properties to NAPOCOR after the
and its employees and construction permit lapse of the 15-year period agreed upon. BPPCs
use of the machineries and equipment are actual,
and environmental fees. FELS was assessed
direct and immediate while NAPOCORs is
for RPT and the LBAA upheld the contingent and, at this stage of the BOT Agreement,
assessment stating that while the barges not sufficient to support its claim for exemption (see
may be classified as personal property, they NAPOCOR V. CBAA [JANUARY 30, 2009]).
are considered real property for RPT
purposes because they are installed at a Similarly, in NAPOCOR V. PROVINCE OF QUEZON
specific location with a character of [JULY 15, 2009], at issue was whether NAPOCOR
permanency. Are the power barges subject as a GOCC can claim exemption under Section 234
to RPT? of the LGC for the taxes due from the Mirant
Pagbilao Corporation whose tax liabilities the
Yes. First, Article 415(9) of the Civil Code provides NAPOCOR has contractually assumed under the
that docks and structures which, though floating, BOT Agreement where Mirant would build and
are intended by their nature and object to remain at finance a power plant and transfer the same to
a fixed place on a river, lake or coast. Barges fall NAPOCOR after 25 years without compensation.
under this provision. Second, FELS cannot claim The Supreme Court ruled that NAPOCOR does not
exemption given that the requirement is that to be have the legal interest that the law requires to give it
exempt the machineries and equipment must be personality to protest the tax imposed by law on
actually, directly and exclusively used by GOCCs Mirant. Further, the machinery and equipment must
engaged in the generation of power. Since the actually, directly and exclusively be used by the
agreement between FELS and NAPOCOR is that GOCC. Here, NAPOCORs use is merely contingent
FELS will own and operate the barges and not
NAPOCOR. (see FELS ENERGY . PROVINCE OF Section 234(e)
BATANGAS [FEBRUARY 16, 2007]).
Q: ABC Mining operates a Siltation Dam and
Q: FPPC entered into a BOT Agreement with Decant System. The Provincial Assessor of
NAPOCOR for the construction of a Marinduque assessed the same for RPT. Is
powerplant. Under the agreement BPPC was the subject property exempt from RPT?
created to own, manage and operate the
powerplant. The BOT Agreement provided The answer would be yes in light of SECTION 91 OF
that after a period of time, the power plant RA 7942 IN RELATION TO SECTION 3(AM) which
shall be transferred to NAPOCOR without includes infrastructure in the definition of pollution
payment of any compensation and that control devices exempt from RPT.
NAPOCOR shall be responsible for payment
Nonetheless, it must be noted that in PROVINCIAL
of RPT. BPCC was assessed for RPT. ASSESSOR OF M ARINDUQUE V. CA [APRIL 30, 2009],
34
NAPOCOR filed a petition to declare the

properties exempt from RPT. The LBAA
ruled that the properties were not exempt as
this is only available to a GOCC which owns 34
The Supreme Court pointed out that the disputed assessment
notice took effect on 1 January 1995. The governing law was the

the Supreme Court ruled that the tax exemption of Q: Prior to the LGC, XYZ telecom was
machineries and equipment used for pollution exempted from paying RPT under its
control and environmental protection is based on original franchise. Years after the effectivity
usage, i.e., direct, immediate and actual application of the LGC, Congress passed a law
of the property itself to the exempting purpose. Here,
amending XYZs franchise and contained a
the Supreme Court found that the subject property
was not a machinery used for pollution control, but a reenactment of the tax provision in XYZs
structure adhering to the soil and intended for original franchise granting it RPT
pollution control. exemption. Is XYZ liable for RPT?
Note: It must be noted that, by virtue of Section 234 of No. As held in CITY GOVERNMENT OF QUEZON CITY V.
the LGC, any exemption from RPT previously granted or BAYAN TELECOMMUNICATIONS [M ARCH 6, 2006], the
presently enjoyed by all persons, whether natural or Supreme Court held that the RPT exemption
juridical, including all GOCCs were withdrawn upon the enjoyed by Bayantel under its original franchise, but
effectivity of the LGC. We have to note that Congress has subsequently withdrawn by force of Section 234 of
the power to exempt an entity again from RPT the LGC, has been restored by the new law which
notwithstanding the withdrawal made by the LGC.
amended its original franchise.
Q: ABC Telecom was granted a 25-year

---------------------------------------------------------------
franchise to install, operate and maintain
4. Appraisal and assessment of real
telecommunications system throughout the
property tax
Philippines under a law which states that
a) Rule on appraisal of real property at fair
The grantee shall be liable to pay the same
market value
taxes on its real estate, building, and
b) Declaration of real property
personal property exclusive of this
c) Listing of real property in assessment
franchise. As they were not being issued a
rolls
Mayors permit, ABC Telecom paid RPT
d) Preparation of schedules of fair market
under protest. ABC argued that the phrase
value
exclusive of this franchise means that
(i) Authority of assessor to take evidence
only the real properties not used in
(ii) Amendment of schedule of fair market
furtherance of its franchise are subject to
value
RPT. Is ABCs contention correct?
e) Classes of real property
No, the properties of ABC whether or not used in its f) Actual use of property as basis of
telecommunications business is subject to RPT. In assessment
DIGITAL TELECOMMUNICATIONS PHILIPPINES INC. V. g) Assessment of real property
CITY GOVERNMENT OF BATANGAS [DECEMBER 11, (i) Assessment levels
2008], the Supreme Court held that the phrase (ii) General Revisions of assessments
exclusive of this franchise qualifies the term and property classification
personal property. This means that the legislative (iii) Date of effectivity of assessment or
franchise, which is an intangible personal property, reassessment
shall not be subject to taxes. This is to put franchise (iv) Assessment of property subject to
grantees in parity with non-franchisees as the latter
back taxes
obviously do not have franchises which may
potentially be subject to RPT. There is nothing in the (v) Notification of new or revised
law which expressly or even impliedly exempts the assessment
company from RPTC. Finally, the company cannot h) Appraisal and assessment of machinery
rely on the BGLF opinion as they have no authority ---------------------------------------------------------------
to rule on claims for RPT exemption.
Note: In most of these items, I will simply provide the
codal provisions as they are self-explanatory. I will focus
on the important matters.
1991 LGC. All references to RA No. 7942, which came into effect
only on 14 April 1995, were all out of place.
---------------------------------------------------------------

a) Rule on appraisal of real property at fair (i) Authority of assessor to take evidence
market value (ii) Amendment of schedule of fair market
--------------------------------------------------------------- value
---------------------------------------------------------------
Read Section 201, LGC
Q: How is real property appraised?
Q: When is the schedule of FMVs prepared?
All real property, whether taxable or exempt, shall be
appraised at the current and FMV prevailing in the The schedule of FMVs shall be prepared before any
locality where the property is situated (see Section general revision of property assessment is made
201, LGC).
Note: FMV is the price at which a property may be sold by Q: Who prepares the schedule of FMVs?
a seller who is not compelled to sell and bought by a buyer
not compelled to buy. The provincial, city and the municipal assessors of
the municipalities within Metro Manila prepares the
--------------------------------------------------------------- schedule of FMV for the different classes of real
b) Declaration of real property property situated in their respective LGUs for
--------------------------------------------------------------- enactment by ordinance of the Sanggunian
concerned.
Read 202-204, LGC Note: (1) The schedule of FMV shall be published in a
newspaper of general circulation in the province, city or
Q: What is the purpose of a tax declaration? municipality concerned or the posting in the provincial
capitol or other places as required by the law.
A tax declaration only enables the assessor to
(2) The proposed FMVs of real property in a LGU as well
identify the property for purposes of determining the
as the ordinance containing the schedule must be
assessment levels. It does not bind the assessor published in full for 3 consecutive days in a newspaper of
when he makes the assessment. local circulation where available, within 10 days of its
approval and posted in at least 2 prominent places in the
Q: Are tax declarations conclusive evidence provincial capitol, city, municipal, or barangay hall for a
of ownership? minimum of 3 consecutive weeks (Figuerres v. CA
[March 25 ,1999])
As a rule, tax declarations are not conclusive

evidence of ownership. However, as held in Q: What are the different approaches in
TABUENA V. CA [M AY 6, 1991], the rule admits of an estimating the FMV of real property for RPT
exception: tax receipts and tax declarations become purposes?
strong evidence of ownership acquired by
prescription when accompanied by proof of actual 1. Sales Analysis Approach the sales price paid in
possession of the property. actual market transactions is considered by
taking into account valid sales data accumulated
--------------------------------------------------------------- from among the Register of Deeds, notaries
c) Listing of real property in assessment public, appraisers, brokers, dealers, bank
rolls officials, and various sources stated under the
--------------------------------------------------------------- LGC
2. Income Capitalization Approach the value of an
income-producing property is no more than the
Read Section 205, LGC return derived from it. An analysis of the income
produced is necessary in order to estimate the
--------------------------------------------------------------- sum which might be invested in the purchase of
d) Preparation of schedules of fair market the property
value

3. Reproduction cost approach the formal

approach used exclusively in appraising man- Agricultural Is land devoted principally to the
made improvements such as buildings and other Land planting of trees, raising of crops,
structures, based on such data as materials and livestock and poultry, dairying, salt
labor costs to reproduce a new replica of the making, inland fishing and similar
aquaculture activities and other
improvement (Allied Banking Corp v. Quezon agricultural activities and is not
City Government [October 11, 2005] citing classified as mineral, timber,
Local Assessment Regulations No. 1-92) residential, commercial or industrial
land
Note: An ordinance whereby the parcels of land sold, Commercial Is land devoted principally for the
ceded, transferred and conveyed for remuneratory Land object of profit and is not classified
consideration after the effectivity of this revision shall be as agricultural, industrial, mineral,
subject to real estate tax based on the actual amount timber or residential land
reflected in the deed of conveyance or the current Industrial Land Is land devoted principally to
approved zonal valuation of the BIR prevailing at the time industrial activity as capital
of sale, cession, transfer and conveyance, whichever is investment and is not classified as
higher, as evidenced by the certificate of payment of the agricultural, commercial, timber,
CGT issued therefore is invalid being contrary to public mineral or residential land
policy and for restraining trade (see Allied Banking Corp Mineral Lands Are lands in which minerals exist in
v. Quezon City Government [October 11, 2005]) sufficient quantity or grade to justify
the necessary expenditures to
--------------------------------------------------------------- extract and utilize such minerals
(i) Authority of assessor to take evidence
--------------------------------------------------------------- Q: What are the special classes of real
property under the LGC?
All lands, buildings, and other improvements
actually, directly and exclusively:
---------------------------------------------------------------
(ii) Amendment of schedule of fair market 1. Used for hospitals, cultural or scientific
value purposes
--------------------------------------------------------------- 2. Owned and used by local water districts
3. Owned and used by GOCCs rendering
Read Section 214, LGC essential public services in
a. Supply and distribution of water;
b. Generation and transmission of
--------------------------------------------------------------- electric power
e) Classes of real property
--------------------------------------------------------------- ---------------------------------------------------------------
f) Actual use of property as basis of
Read Section 215 to 216, LGC assessment
---------------------------------------------------------------
Q: What are the classes of real property for Read Section 217, LGC
assessment purposes?
Q: The real property of Mr. and Ms. X,
4. Residential situated in a commercial area in front of the
5. Agricultural
public market, was declared in their tax
6. Commercial
7. Industrial declaration as residential because it is used
8. Mineral as their family residence. However, when
9. Special the spouses left for the US to stay there
permanently with their children, the property
Residential Is land principally devoted to has been rented to a single proprietor
Land habitation engaged in sale of appliances and

agricultural products. The Provincial

assessor reclassified the property as Q: What is the procedure in computing real
commercial for tax purposes. Mr. and Ms. X property tax?
appealed to the LBAA and argued that the
tax declaration classifying their property as 1. Ascertain the assessment level of the
residential is binding. Is the contention of property
the spouses correct? 2. Multiply the market value by the applicable
assessment level of the property
No. The law focuses on the actual use of the 3. Find the tax rate which corresponds to the
property for classification, valuation and assessment class (use) of the property and multiply the
purposes regardless of ownership. Section 217 of assessed value by the applicable tax rates.
the LGC provides that real property shall be
classified, valued, and assessed on the basis of its Otherwise stated:
actual use regardless of where located, whoever
owns it, and whoever uses it.
---------------------------------------------------------------
g) Assessment of real property
(i) Assessment levels
(ii) General Revisions of assessments
---------------------------------------------------------------
and property classification
(ii) General Revisions of assessments
(iii) Date of effectivity of assessment or
and property classification
reassessment
---------------------------------------------------------------
(iv) Assessment of property subject to
back taxes
(v) Notification of new or revised Read Section 219, LFC
assessment
--------------------------------------------------------------- Q: What are the steps to be followed for the
mandatory conduct of general revision of
Q: Define assessment. real property assessments under Section
219 of the LGC?
Assessment is the act or process of determining the
value of a property or proportion thereof subject to 1. Preparation of the Schedule of FMVs
tax, including the discovery, listing, classification, 2. The enactment of Ordinances
and appraisal of properties. a. Levying an annual ad valorem tax
on real property and an additional
tax accruing to the SEF
Q: Define assessment level. b. Fixing the assessment levels to be
applied to the market values of the
It is the percentage applied to the FMV of the real property real properties
to determine the taxable value of the property . c. Providing necessary appropriation
to defray expenses incident to
Note: I will do away with the different values here. Ill general revision of real property
discuss instead how the assessed value is arrived at. So assessments
for the different percentages, please refer to Section 218 d. Adopting the Schedule of FMVs
of the LGC. prepared by the assessors (see
LOPEZ V. CA [FEBRUARY 19, 1999]
Q: Define assessed value
Note: This is not included in the Syllabus but just note that
It is the FMV of the real property multiplied by the the following are the instances where he assessor shall
assessment level. It is synonymous with taxable make a valuation of real property: (1) the real property is
declared and listed for taxation purposes for the first time;
value
(2) there is an ongoing general revision of property

classification and assessment; or (3) a request is made by (i) Issuance of notice of delinquency for
the person in whose name the property is declared. (see real property tax assessment
Section 220, LGC)
(ii) Local governments lien
--------------------------------------------------------------- (iii) Remedies in general
(iii) Date of effectivity of assessment or (iv) Resale of real estate taken for taxes,
reassessment fees, or charges
--------------------------------------------------------------- (v) Further levy until full payment of
amount due
Read Section 221, LGC ---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
(iv) Assessment of property subject to a) Date of accrual of real property tax and
special levies
back taxes
--------------------------------------------------------------- ---------------------------------------------------------------
Read Section 222, LGC Read Section 246, LGC
--------------------------------------------------------------- ---------------------------------------------------------------
(v) Notification of new or revised b) Collection of tax
assessment (i) Collecting authority
--------------------------------------------------------------- (ii) Duty of assessor to furnish local
treasurer with assessment rolls
Read Section 223, LGC (iii) Notice of time for collection of tax
---------------------------------------------------------------
---------------------------------------------------------------
h) Appraisal and assessment of machinery Read 247 to 249, LGC
--------------------------------------------------------------- ---------------------------------------------------------------
c) Periods within which to collect real
property tax
Read Section 224-225, LGC
---------------------------------------------------------------
---------------------------------------------------------------
Read 270, LGC
5. Collection of real property tax
a) Date of accrual of real property tax and
Q: What is the rule on assessment of RPT?
special levies
b) Collection of tax
General Rule: The assessment must be made
(i) Collecting authority within 5 years from the date they become due
(ii) Duty of assessor to furnish local
treasurer with assessment rolls Exception: If there is fraud or intent to evade taxes,
(iii) Notice of time for collection of tax assessment may be made within 10 years from
c) Periods within which to collect real discovery of fraud or intent to evade.
property tax
d) Special rules on payment Q: What is the rule on collection of RPT?
(i) Payment of real property tax in
installments Collection of RPT must be made within 5 years from
(ii) Interests on unpaid real property tax assessment
(iii) Condonation of real property tax
e) Remedies of LGUs for collection of real
property tax

Q: In what instances is the running of the ---------------------------------------------------------------

prescriptive period be suspended?
---------------------------------------------------------------
1. Treasurer is legally prevented from (i) Issuance of notice of delinquency for
assessing/ collecting real property tax assessment
2. Taxpayer requests for reinvestigation and
---------------------------------------------------------------
executes waiver
3. Taxpayer is out of the country or cannot be
located Read Section 254, LGC
--------------------------------------------------------------- In real estate taxation, the unpaid tax attaches to the

d) Special rules on payment property and is chargeable against the taxable
(i) Payment of real property tax in person who had actual or beneficial use and
installments possession of it regardless of whether or not he is
(ii) Interests on unpaid real property tax the owner. (NATIONAL GRID CORPORATION OF THE
PHILIPPINES VS. CENTRAL BOARD OF ASSESSMENT
(iii) Condonation of real property tax
APPEALS [CTA EB NO. 801, JANUARY 29, 2013])
---------------------------------------------------------------
---------------------------------------------------------------
Read Section 250, 255, 276-277 LGC
(ii) Local governments lien
---------------------------------------------------------------
Q: In what instances can there be a condonation
or reduction of RPT?
1. General failure of crops
2. Substantial decrease in the price of Q: What is the Local Governments Lien?
agricultural or agri-based products
3. Calamity The basic RPT constitutes as a lien on the property
4. When public interest so requires subject to tax, superior to all liens, charges or
encumbrances in favor of any person, irrespective of
Note: (1) In the case of (1) to (3), the condonation is done the owner or possessor thereof, enforceable by
by the Sanggunian concerned by ordinance and upon administrative or judicial action and may only be
recommendation of the Local Disaster Coordinating
Council. In the case of (4), only the President may
extinguished by payment of the tax and related
exercise this power. interests and expenses.
(2) In EXECUTIVE ORDER 27 [FEBRUARY 28, 2011], the In TESTATE ESTATE OF CONCORDIA LIM V. CITY OF
President under the power given to him by Section 227 of M ANILA [FEBRUARY 21, 1990], the Supreme Court
the LGC reduced the RPT payable in Quezon by held that unpaid real estate taxes attaches to the
independent power producers under BOT contracts with property and is chargeable against the taxable
GOCCs and condoned the penalties and surcharges of person who had actual or beneficial use and
such RPT payables. possession of it, regardless of whether or not he is
the owner.
---------------------------------------------------------------
e) Remedies of LGUs for collection of real ---------------------------------------------------------------
property tax (iii) Remedies in general
(i) Issuance of notice of delinquency for (iv) Resale of real estate taken for taxes,
real property tax assessment fees, or charges
(ii) Local governments lien (v) Further levy until full payment of
(iii) Remedies in general amount due
(iv) Resale of real estate taken for taxes, ---------------------------------------------------------------
fees, or charges
(v) Further levy until full payment of Read Section 256 to 269, LGC
amount due

Q: What are the remedies available to the d. by publication once a week for 2 weeks
LGU for the collection of RPT? (Section 260, LGC)
1. Administrative action thru levy of real Note: In cases of levy for unpaid local taxes publication is
once a week for 3 weeks
property
a. Distraint of personal property
b. Lien on property subject to tax 7. Before the date of sale, the owner may stay the
c. Levy on real property tax proceedings by paying the delinquent tax,
2. Judicial action interest and the expenses of sale.
8. Sale is held:
Note: The above remedies are concurrent and a. at the main entrance of the LGU building, or
simultaneous b. on the property to be sold, or
c. at any other place specified in the notice
Q: When is there levy on real property?
Note: The next steps in the procedure will vary depending
After the expiration of the time required to pay the on whether there is a bidder or not.
tax levied, the real property subject to tax may be
levied upon. If there is a bidder If there is no bidder
Note: (1) The remedies of and levy may be repeated if 9. Bidder pays and 9. LT shall purchase
necessary until the full amount due including all expenses 30 days after the the property in
is collected (see Section 265, LGC) sale, the LT shall behalf of the LGU
report the sale to (Section 263, LGC)
(2) Notice and publication for sale, as well as the legal the sanggunian
requirements for a tax delinquency sale are mandatory 10. LT shall deliver Note: in cases of levy for
and failure to comply can invalidate the sale. (De Knecht to purchaser unpaid local taxes, LT may
v. CA; De Knecht v. Sayo [290 SCRA 223]) certificate of sale purchase if there is no
11. Proceeds of sale bidder or if the highest bid
Q: Outline the procedure for levy on real is insufficient (Section 181,
in excess of LGC)
property delinquent tax,
interest & 10. Registrar of Deeds
Note: Owner means owner or administrator of real expenses of sale
property or any person having legal interest thereto. shall transfer the
remitted to the title of the forfeited
owner (Section property to the LGU
1. Tax constitutes a lien on the property superior to 260, LGC) without need of a
all liens and may only be extinguished upon 12. Within 1 year court order (Section
payment of the tax and charges. (Section 257, from sale, owner 263, LGC)
LGC) may redeem 11. Within 1 year from
2. Time for payment of real property taxes expires upon payment of forfeiture, the owner,
(Section 258, LGC) the 1. delinquent may redeem the
3. Warrant of Levy issued by the Local Treasurer tax, 2. interest property by paying
(LT), which has the force of legal execution in the due, 3. to the local treasurer
LGU concerned. (Section 258, LGC) expenses of sale the full amount of
4. Warrant is mailed to or served upon the (from date of the tax and the
delinquent owner (Section 258, LGC) delinquency to related interest and
5. Written notice of the levy and the warrant is date of sale) and the costs of sale
mailed/served upon the assessor and the additional otherwise the
Registrar of Deeds of the LGU (Section 258, interest of 2% ownership shall be
LGC) per month on vested on the local
6. 30 days from service of warrant, LT shall the purchase government unit
advertise sale of the property by: price from date concerned. (Section
c. posting notice at main entrance of LGU of sale to date of 263, LGC)
hall/building and in a conspicuous place in the redemption. 12. Sanggunian
barangay where property is located and Delinquent concerned may, by

owner retains ordinance sell and general law. Thus, the period shall be counted from
possession and dispose of the real the date of annotation of the sale.
right to the fruits property acquired
(Section 261, under the preceding Q: Discuss the remedy of civil action for
LGC) section at public collection of real property tax.
13. LT returns to the auction. (Sectiton
purchaser/bidder 264, LGC)
the price paid The civil action for the collection of real property tax
plus interest of shall be filed by the local treasurer in any court of
2% per month competent jurisdiction within 5 or 10 years wherein
(Section 261, real property taxes may be collected. (see Section
LGC) 266, LGC)
14. If property is not
redeemed, the ---------------------------------------------------------------
local treasurer 6. Refund or credit of real property tax
shall execute a a) Payment under protest
deed of b) Repayment of excessive collections
conveyance to ---------------------------------------------------------------
the purchaser
(Section 262, Note: I will discuss payment under protest and refund
LGC) under Taxpayers Remedies.
Note: (1) In both cases, levy may be repeated until the full
amount due, including all expenses, is collected. (Section
---------------------------------------------------------------
265, LGC) 7. Taxpayers remedies
a) Contesting an assessment of value of real
(2) Again recall what I said in the levying procedure for property
local taxes. The procedure for levying real properties to (i) Appeal to the Local Board of
satisfy local taxes is the SAME as the levy procedure for
satisfying RPT EXCEPT for two things: (1) Publication is Assessment Appeals
once a week for 3 weeks for local taxes while it is once a (ii) Appeal to the Central Board of
week for 2 weeks for RPT and (2) for local taxes, the LGU Assessment Appeals
may purchase levied property for two reasons there is no (iii) Effect of payment of tax
bidder OR the highest bid is insufficient to cover the taxes
and other charges but for RPT, the LGU may purchase
b) Payment of real property tax under
for only one reason there is no bidder! Its that simple. protest
So memorize the procedure and just take note of these (i) File protest with local treasurer
two distinctions between levying for local taxes and (ii) Appeal to the Local Board of
levying for RPT. Assessment Appeals
(iv) Appeal to the CTA
Q: What is the redemption period for tax (v) Appeal to the Supreme Court
delinquent properties sold at public --------------------------------------------------------------
auction?
Note: This outline creates the impression that contesting
Under the LGC, the redemption period is within 1 an assessment and payment under protest are two
year from the date of sale. different remedies of the taxpayer. That is wrong! Theyre
part of the same process. The distinction should instead
However, in CITY M AYOR OF QUEZON CITY V. RCBC be made on whether the taxpayer is questioning the
[AUGUST 3, 2010], the Supreme Court ruled that validity of the tax ordinance (in such case, the assessment
while the LGC provides that the one year period would be illegal or void) or is disputing the correctness,
reasonableness or excessiveness of the assessment.
begins from the date of sale on which date the
delinquent tax is and other fees are paid, the local If the taxpayer is questioning the validity of the tax
tax ordinance of Quezon City provides that the ordinance, the taxpayer may either question the legality of
period is reckoned from the date of annotation of the a tax ordinance before the DOJ Secretary under Section
sale. To reconcile the two conflicting laws, the Court 187 of the LGC or question the constitutionality of the
applied the rule that a special law prevails over a

ordinance before the Regular Courts. In this case,

payment under protest is not required. 1. Pay the tax under protest and annotation of
paid under protest in receipt
If the taxpayer is questioning the correctness,
reasonableness or excessiveness of the assessment, the
2. File written protest with local treasurer within
taxpayer will resort to administrative remedies. In this 30 days from payment of the tax
case, payment under protest is required. 3. Treasurer to decide within 60 days from
receipt of the protest
Lets now discuss the administrative remedies. 4. From treasurers decision or inaction, appeal
to the LBAA within 60 days
Read Section 226 to 231, LGC 5. LBAA to decide within 120 days
6. Appeal LBAA decision to CBAA within 30
Q: Who may contest the assessment of real days from receipt of adverse decision
property? 7. CBAA appealable to CTA en banc within 30
days from receipt of the adverse decision of
In order for a taxpayer to have legal standing to the CBAA
contest an assessment to the LBAA, he must be a 8. Appeal to SC within 15 days from receipt of
person having legal interest in the property. adverse decision of CTA
In NAPOCOR V. PROVINCE OF QUEZON [JULY 15, Note: (1) In (4), if the treasurers decision is in favor of the
2009], the Supreme Court stated that legal interest taxpayer, he may now apply for a tax refund or tax credit.
is defined as interest in property or a claim
cognizable at law, equivalent to that of a legal owner Q: What is the effect of an appeal on
who has legal title to the property. A review of the assessments?
provisions of the 1991 LGC on real property taxation
shows that the phrase person having legal interest An appeal on assessments of real property shall, in
in the property has been repeatedly adopted and no case, suspend the collection of the corresponding
used to define an entity: realty taxes on the property involved as assessed by
the provincial or city assessor, without prejudice to
1. in whose name the real property shall be subsequent adjustment depending upon the final
listed, valued, and assessed; outcome of the appeal. (see Section 231, LGC)
2. who may be summoned by the local
assessor to gather information on which to Q: Can the RTC issue an injunction against
base the market value of the real property; the collection of RPT if there is a pending
3. who may protest the tax assessment before appeal with the LBAA?
the LBAA and may appeal the latters
decision to the CBAA; Yes. In TALENTO V. ESCALADA, JR. [JUNE 27, 2008],
4. who may be liable for the idle land tax, as the Supreme Court held that as a general rule,
well as who may be exempt from the same; appeal shall not suspend the collection of RPT.
5. who shall be notified of any proposed However, an exception to the rule is where the
ordinance imposing a special levy, as well taxpayer has shown a clear and unmistakable right
as who may object the proposed ordinance; to refuse or hold in abeyance the payment of RPT.
6. who may pay the real property tax; In this case, the taxpayer showed that the
7. who is entitled to be notified of the warrant assessments covered more than 10 years, the
of levy and against whom it may be assessment included items which should properly be
enforced; excluded, and the subject assessment should take
8. who may stay the public auction upon effect on January 1 the following year. Further, the
payment of the delinquent tax, penalties and filing of a bond was deemed to have been in
surcharge; and compliance with Section 11 of RA 9282.
9. who may redeem the property after it was
sold at the public auction for delinquent Payment under Protest
taxes.
Q: Enumerate the process in contesting a
RPT assessment.

Q: Is payment a pre-requisite to protest an Yes. By claiming an exemption from realty taxation,

assessment for RPT? NAPOCOR is simply raising the question of the
correctness of the assessment. As such real
Yes. SECTION 252 OF THE LGC provides that no property taxes must be paid prior to the making of
protest shall be entertained unless the taxpayer first the protest. On the other hand, if the taxpayer is
pays the tax. questioning the authority of the local assessor to
assess RPT, it is not necessary to pay the RPT prior
Q: When is payment under protest not to the protest. A claim for tax exemption, whether full
required? or partial, does not question the authority of the local
assessor to assess RPT (NAPOCOR v. Province of
Quezon [January 25, 2010])
Prior payment under protest is applicable only if the
issue is anchored on the correctness,
reasonableness or excessiveness of assessment, Refund or Credit of RPT
hence, considered a question of fact
Prior payment under protest is not required when the
taxpayer is questioning the very authority and power Q: What is the rule on refunds of RPT?
of the assessor to impose the assessment and of
the treasurer to collect the tax as opposed to The taxpayer must file the written claim within 2
questioning the increase/decrease in the tax to be years from the date of payment of tax or from the
paid. (see JARDINE DAVIES INSURANCE BROKERS, INC. date when the taxpayer is entitled to reduction or
36
V. ALIPOSA [FEBRUARY 27, 2003]). adjustment.
Q: Can the taxpayer file a case directly to The provincial treasurer has 60 days to decide the
the RTC if it claims that it was questioning claim for tax refund or credit
the authority of the treasurer to assess and
not only the amount of the assessment? Q: What is the remedy available if the claim
for tax refund or credit is denied?
No. In OLIVARES V. JOEY M ARQUEZ [SEPTEMBER 22,
2004], it was found that the taxpayer raised issues Follow steps 4 to 8 in the procedure in contesting an
on prescription, double taxation, and tax exemption. RPT assessment.
In such case, the correctness of the assessment
must be dealt with and the treasurer has initial
jurisdiction and his decision is appealable to the
35
LBAA. Payment under protest is required.
Q: The Province of Quezon assessed Mirant for

unpaid real property taxes. NAPOCOR, which
entered a BOT with Mirant, protested the
assessment before the LBAA, claiming the
entitlement to tax exemption under Sec. 234 of
the LGC. The RPT assessed were not paid prior
to the protest. LBAA dismissed NAPOCORs
petition for failure to make a payment under
protest. Is NAPOCOR required o make a payment
under protest?
35
Unlike in JARDINE DAVIES INSURANCE BROKERS, INC. V. ALIPOSA
[FEBRUARY 27, 2003], the taxpayer in this case should make a
payment under protest as the issues included correctness of the
36
assessment. Supervening cause doctrine applies.

---------------------------------------------------------- ---------------------------------------------------------------
IV. TARIFF AND CUSTOMS CODE C. Purpose for imposition
---------------------------------------------------------- ---------------------------------------------------------------
--------------------------------------------------------------- Q: What is the purpose of imposing a tax on

A. Tariff and duties, defined imported articles?
---------------------------------------------------------------
They are imposed to:
Q: Define tariff.
1. Raise government revenues
2. Protect consumers and manufacturers, as well
Tariff is the list or schedule of articles on which a
as, Philippine products.
duty is imposed upon the importation into the
country with the rates at which they are severally
taxed. Derivatively, it is the system of imposing ---------------------------------------------------------------
duties or taxes on the importation of foreign D. Flexible tariff clause
merchandise. ---------------------------------------------------------------
Read Section 401, TCC
Q: Define customs duties.
Q: What is the flexible tariff clause?
Customs duties is the name given to taxes on the
importation and exportation of commodities, the tariff The flexible tariff clause is a provision in the TCC
or tax assessed upon merchandise imported from or which implements the constitutionally delegated
exported to, a foreign country. (Nestle v. CA [July power to the Congress to further delegate to the
6, 2001]) President of the Philippines, in the interest of
national economy, general welfare, and/or national
Note: Tariff and customs duties are used interchangeably. security upon recommendation of the NEDA:
--------------------------------------------------------------- a. Increase, reduce or remove existing

B. General Rule: all imported articles are protective rates of import duty, provided that
subject to duty the increase should not be higher than
1. Importation by government taxable 100% ad valorem
--------------------------------------------------------------- b. Establish import quota or to ban imports of
any commodity
c. To impose additional duty on all imports not
exceeding 10% ad volorem, whenever
necessary
Q: What is the rule on imported articles?
---------------------------------------------------------------
As a general rule, all imported articles shall be E. Requirements of importation
subject to duty even though previously exported
1. Beginning and ending of importation
from the Philippines.
2. Obligations of importer
a) Cargo manifest
b) Import entry
c) Declaration of correct weight or value
Q: What is the rule on government
d) Liability for payment of duties
importations?
e) Liquidation of duties
f) Keeping of records
All importations of the government for is own use or
that of its subordinate branches or instrumentalities, ---------------------------------------------------------------
or corporations, agencies or instrumentalities owned
or controlled by the government shall be subject to ---------------------------------------------------------------
duties. 1. Beginning and ending of importation
---------------------------------------------------------------

arrived within the limits of the port of entry. (see

Read Section 1201 to 1202, TCC SECTION 205, TCC)
Q: When does importation begin and when Q: When are imported articles deemed have
does it end? been withdrawn from the warehouse in
the PH for consumption?
Importation begins when the conveying vessel or
aircraft enters the jurisdiction of the Philippines with Imported articles shall be deemed "withdrawn" from
intention to unlade therein. the warehouse in the Philippines for consumption
when the specified form is properly filed and
Importation is deemed terminated upon payment of accepted, together with any related documents
the duties, taxes, and other charges due upon the required by any provisions of this Code and/or
agencies or secured to be paid at the port of entry regulations to be filed with such form at the time of
and he legal permit for withdrawal shall have been withdrawal, by the customs official designated to
granted. receive the withdrawal entry and any duties, taxes,
fees and/or other lawful charges required to be paid
Note: Why is important to know when importation begins at the time of withdrawal have been deposited with
and ends? The jurisdiction of the BoC to enforce the the customs official designated to receive such
provisions of the TCC including seizure and forfeiture also payment. (see SECTION 205, TCC)
begins from the beginning of imporation. Thus, the BoC
obtains jurisdiction over imported articles only after
importation has begun. On the other hand, the BoC loses Q: What is meant by entry in relation to
jurisdiction to enforce the TCC and to make seizures and the TCC?
forfeitures after importation is deemed terminated.
Entry has a three-fold meaning:
Q: When does the BoC acquire exclusive a. The documents filed at the customs house
jurisdiction over imported goods for the b. The submission and acceptance of the
purpose of enforcing customs laws? documents; and
c. Customs declaration forms or customs entry
From the moment imported goods are actually in the forms required to be accomplished by
possession or control of the Customs authorities, passengers of incoming vessels or
even if no warrant for seizure or detention had passenger planes as envisaged under
previously been issued by the Collector of Customs Section 2505 of the TCC. (Failure to Declare
in connection with the seizure and forfeiture Baggage) (Jardeleza v. People [February
proceedings. (see SUBIC BAY METROPOLITAN 6, 2006])
AUTHORITY V. RODRIGUEZ [APRIL 23, 2010])
Q: A flight attendant arrived from Singapore.
Read Section 205, TCC Upon her arrival she was asked whether she
has anything to declare. She answered
Q: When are imported articles deemed to none, and she submitted her Customs
have entered the PH for consumption? Baggage Declaration Form which she
accomplished and signed with nothing or
Imported articles shall be deemed "entered" in the written on the space for items to be
Philippines for consumption when the specified entry declared. When her bag was examined some
form is properly filed and accepted, together with pieces of jewelry were found concealed
any related documents required by the provisions of within the lining of the bag. She was then
this Code and/or regulations to be filed with such convicted of violating Section 3601 for
form at the time of entry, at the port or station by the unlawful importation. She now appeals
customs official designated to receive such entry claiming that the lower court erred in
papers and any duties, taxes, fees and/or other convicting her under Section 3601 when the
lawful charges required to be paid at the time of
facts alleged both in the information and
making such entry have been paid or secured to be
paid with the customs official designated to receive those shown by the prosecution constitute
such monies, provided that the article has previously the offense under Section 2505 Failure to

Declare Baggage of which she was

acquitted. Is she correct? Read Section 1204, TCC
No. Section 2505 does not define a crime. It merely e. Liquidation of duties
provides the administrative remedies which can be f. Keeping of records
resorted to by the BoC when seizing dutiable articles
found in the baggage of any person arriving in the Liquidation means the final computation or
Philippines which is not included in the ascertainment of the duties to be imposed on the
accomplished baggage declaration submitted to the imported articles. It is akin to an assessment of
customs authorities and he administrative penalties internal revenye taxes under the NIRC where the tax
that such person must pay for the release of such liability of the taxpayer is definitely determined.
goods if not imported contrary to law. Such (Pilipinas Shell v. CoC [June 18, 2009])
administrative penalties are independent of any
criminal liability for smuggling that may be imposed Read Section 1601 to 1604, TCC
under Section 3601. (Jardeleza v. People
[February 6, 2006]) ---------------------------------------------------------------
F. Importation in violation of TCC
--------------------------------------------------------------- 1. Smuggling
2. Obligations of importer 2. Other fraudulent practices
a) Cargo manifest ---------------------------------------------------------------
b) Import entry
c) Declaration of correct weight or value Q: Define smuggling.
d) Liability for payment of duties
e) Liquidation of duties Smuggling is an act of any person who shall
f) Keeping of records fraudulently import or bring into the Philippines or
--------------------------------------------------------------- assist in so doing, any article, contrary to law or shall
receive, conceal, buy or sell or in any manner
Q: What are the obligations of the importer? facilitate the transportation, concealment or sale of
such article after importation knowing the same to
a. Cargo Manifest have been imported contrary to law. It includes the
exportation of articles in a manner contrary to law.
A cargo manifest is the document used in shipping, (see Section 3519, TCC)
containing the list of the contents, value, origin,
carrier and destination of the goods to be shipped. Read Section 3601, TCC
Read Section 1105, TCC Q: How is smuggling committed?
b. Import Entry Smuggling is committed by any person who:
An import entry is a declaration to the BoC showing a. Fraudulently imports or brings into the
particulars of the imported articles that will enable country any article contrary to law
the customs authorities to determine the correct b. Assists in so doing any article contrary to
duties and internal revenue taxes due on the law
importation. It is also known as Marine Entry and c. Receives, conceals, buys, sells, or in any
Internal Revenue Declaration manner facilitates the transportation,
concealment, or sale of such goods after
Read Section 1301 to 1307, TCC importation knowing the same to have been
imported contrary to law (Rodriguez v. CA
c. Declaration of Correct Weight Value [September 18, 1995])
The commission of smuggling through the first type

Read Section 1402 and 2523, TCC transpired when the shipments of 3x40 container
vans were declared to contain Used Truck
d. Liability for payment of duties

Replacement Parts, when in truth and in fact, the 3. Conditionally-free importation

shipment contained fifteen units of Sportage and ---------------------------------------------------------------
Galloper. (PEOPLE OF THE PHILIPPINES VS. ROEL
PAQUIT SAYSON, CTA CRIM CASE NO. O-094, Q: What are the classes of importation
DECEMBER 12, 2012) under the TCC?
Note: Mere possession of alleged smuggled goods is
prima facie evidence of guilt of the smuggling unless the 1. Dutiable Importation (Section 100, TCC)
defendant could explain that his possession is lawful. 2. Prohibited Importations (Section 101 and
1207, TCC)
Q: Is payment a defense in smuggling? 3. Conditionally-Free Importations (Section
105, TCC)
No. The law expressly provides that payment of the 4. Drawbacks (Section 106, TCC)
tax due after apprehension shall not constitute a
valid defense in any prosecution under this section. Q: What are dutiable importations?
Q: What are the other fraudulent practices They refer to those imported articles subject to duty
against customs revenue aside from and not otherwise exempted by the TCC or other
unlawful importation? special laws.
Read Section 3602, TCC Read Section 100, TCC
1. Entry of imported articles or exported article Q: What are prohibited importations?

by means of any false or fraudulent
practices, invoice, declaration, affidavit, or They refer to those articles that are cannot be
other documents imported into the PH because they are contrary to
2. Entry of goods at less than their true weights policy, morals, laws, etc.
or measures or upon a classification as to
quality or value Examples include:
3. Payment of less than the amount due
4. Filing any false or fraudulent claim for the 1. Dynamite, gunpowder, ammunition and
payment of drawback or refund of duties explosives, other weapons (except when
upon the exportation of merchandise authorized by law)
5. Filing any affidavit, certificate or other 2. Written or printed articles advocating or
document ot secure to him or to others the inciting treason, rebellion, or insurrection
payment of any drawback, allowance or 3. Written or printed articles, etc of an obscene
refund of duties on the exportation of or immoral character
merchandise greater than that legally due 4. Articles, instruments, drugs and substances
thereon designed for unlawful abortion
5. Devices used in gambling or the distribution
Note: In PEOPLE OF THE PHILIPPINES VS. MARIVIC BRIONES, of money, cigarettes, or other articles when
DAVID BANGA, BENJAMIN VALIC, CTA CRIM CASE NO. 0- such distribution is dependent on chance
158, JULY 23, 2012, the CTA held that in the prosecution 6. Lottery and sweepstakes tickets (Except
for violation of Section 3602 of the Tariff and Customs of those authorized)
the Philippines, in relation to Article 172 of the Revised 7. Any article manufactured in gold, silver or
Penal Code, it must prove beyond reasonable doubt that other precious metals when there is no
the accused in conspiracy with the other accused, made
or attempted to make an entry of the alleged imported
indication of the actual fineness of quality
article through the filing of the said Import Entry at the 8. Adulterated or misbranded articles of food
Bureau of Customs and drugs
9. Marijuana, opium and other narcotics
--------------------------------------------------------------- 10. Opium pipes and parts thereof
G. Classification of goods 11. All other articles and parts prohibited by law
or rules and regulations
1. Taxable importation
2. Prohibited importation

Read Section 101, TCC Q: X and his wife Y, Filipino living in the
Philippines went on a 3-month pleasure trip
Q: What are conditionally-free importations? around the world during the months of
June, July, and August 2002. In the course
They refer to those articles which are allowed to be of their trip, they accumulated some
imported into the PH but subject to conditions. personal effects which were necessary,
appropriate and normally used in leisure
Examples include: trips as well as souvenirs in non-
commercial quantities. Are they returning
1. Articles for repair, re-conditioning to be re-
exported within 6 months (requires a bond) residents for purposes of Section 105 of
2. Personal effects for balikbayans excluding the TCC?
cars, and must not be commercial quantity
and no exceeding P2,000 (can be brought in No. The term returning residents refers to nationals
90 days after arrival) who have stayed in a foreign country for a period of
3. Articles to be donated to relief organizations at least 6 months (see Section 105(f), TCC). Due to
(must be certified by DSWD, DepEd) their limited duration of stay abroad, X and Y are not
4. Samples not for commercial sales, including considered as returning residents but they are
medicines (but must not be available in PH) merely considered as travelers or tourists who
5. Economical, technical, vocational, scientific, likewise enjoy the benefit of conditionally-free
philosophical, historical, cultural importation (see Section 105(g), TCC)
books/publications and bibles
Q: What are drawbacks?
They refer to refunds or tax credits of duties paid on
Q: Jacob after serving a 5-year tour of duty goods that are being exported or used in the
37
as military attach in Jakarta, Indonesia production of manufactured exports
returned to the Philippines bringing with
Examples include:
him his personal effects, including a
personal computer and a car. Would Jacob 1. Fuel used for propulsion of vessels engaged
be liable for taxes on these items? in trade with foreign countries or coastwise
trade
No. Jacob will be exempted provided he complies 2. Petroleum Oils or Oils obtained from
with the requirements under Section 105 of the TCC. bituminous minerals, crude eventually used
The requirements are: for generation of electric power and
manufacture of city gas
a. The car must have been ordered or 3. On certain articles made from imported
purchased prior to the receipt by the articles subject to certain conditions.
Philippine mission or consulate of the recall
order Q: What are freely importable commodities?
b. The car is registered in his name
c. The exemption shall apply only to the value Under Section 7(1) of Central Bank Circular no.
of the car 1389, freely importable commodities are those
d. The exemption shall apply to the aggregate importations which are neither regulated nor
value of his personal and household effects prohibited and may be effected without the prior
not exceeding 30% of the total amount approval of or clearance from any government
received by him as salary and allowances agency. UNIMEX MICRO-ELECTRONICS GMBH VS.
during his assignment but not to exceed 4
years
e. He must not have availed of the exemption
more oftener than once every four years 37
Section 106(e), TCC provides that Claims for refund or tax
(see last para. Section 105, TCC) credit eligible for such benefits shall be paid or granted by the
Bureau of Customs to claimants within sixty (60) days.

REPUBLIC OF THE PHILIPPINES, CTA CASE NO. 8412, b. Specific customs duties
NOVEMBER 14, 2012
Q: What are ad valorem customs duties?
---------------------------------------------------------------
H. Classification of duties These are customs duties that are computed on the
1. Ordinary/Regular duties basis of value (see Section 201, TCC)
a) Ad valorem; methods of valuation
(i) Transaction value Q: What are the methods of determining
(ii) Transaction value of identical dutiable values?
goods
(iii) Transaction value of similar goods Read Section 201-205, 1313 TCC
(iv) Deductive value
(v) Computed value The methods of determining the dutiable value are
(vi) Fallback value as follows (by order of preference):
b) Specific
1. Transaction value an ad valorem rate of
2. Special duties duty equivalent to the price actually paid or
a) Dumping duties payable for the goods when sold for export
b) Countervailing duties to the Philippines, as adjusted;
c) Marking duties
d) Retaliatory/discriminatory duties 2. Transaction value of identical goods
e)Safeguard duties the transaction value of identical goods sold
--------------------------------------------------------------- for export to the Philippines and exported at
or about the same time as the goods being
--------------------------------------------------------------- valued; identical goods shall mean goods
1. Ordinary/Regular duties which are the same in all respects, including
physical characteristics, quality and
a) Ad valorem; methods of valuation
reputation, discounting minor differences in
(i) Transaction value appearances;
(ii) Transaction value of identical
goods 3. Transaction value of similar goods the
(iii) Transaction value of similar goods transaction value of similar goods sold for
(iv) Deductive value export to the Philippines and exported at or
(v) Computed value about the same time as the goods being
(vi) Fallback value valued; similar goods shall mean goods
b) Specific which, although not alike in all respects,
--------------------------------------------------------------- have like characteristics and like component
materials which enable them to perform the
same functions and to be commercially
Q: What are ordinary or regular duties?
interchangeable;
These are axes that are imposed or assessed upon 38
4. Deductive value an amount based on
merchandise from or exported to a foreign country
the unit price at which the imported gods or
for the purpose of raising revenue. They may also
identical or similar imported goods are sold
be imposed to serve as protective barriers which
in the Philippines, in the same condition as
would prevent the entry of merchandise that would
when imported, in the greatest aggregate
compete with locally manufactured items. They are
quantity, at or about the time of importation
also referred to as tariff barriers
of the goods being valued, to persons not
related to the persons from whom they buy
Q: What are the kinds of ordinary or regular such goods, as adjusted;
duties?
Ordinary or regular court duties may be:

a. Ad valorem customs duties or 38
Methods four and five may be reversed.

5. Computed value the aggregate value of 2. Special duties

the cost or value of materials and fabrication a) Dumping duties
or other processing employed in producing b) Countervailing duties
the imported goods, amount for profit c) Marking duties
andNgeneral expenses, freight, insurance
d) Retaliatory/discriminatory duties
fees and other transportation expenses for
the importation of the goods, among others; e)Safeguard duties
and ---------------------------------------------------------------
6. Fallback value an amount determined by Q: What are special duties?

using other reasonable means and on the
basis of data available in the Philippines. These are additional import duties imposed on
specific kinds of imported articles under certain
Note: The transaction value is the primary method of conditions. It cannot be applied without the regular
determining dutiable value. If the transaction value of the customs duties. It can only be applied in the
imported article could not be determined using the above, presence of a special order from government
the alternative methods should be used one after the officers.
other.
Q: What are the kinds of special duties?
Q: Define transaction value
The following are special duties:
It is the price actually paid/payable when exported to
PH adjusted by adding the following: 1. Anti-Dumping (Section 301, TCC)
2. Countervailing (Section 302, TCC)
1. Commissions, cost of containers, packing 3. Marking (Section 303, TCC)
cost, cost of tools, engineering, artwork if 4. Discriminatory (section 304, TCC)
supplied free of charge, royalties 5. Safeguard Duties (RA 8800)
2. Value of subsequent resale accruing to the
seller Read Section 301, TCC
3. Cost of transport & loading/unloading
charges from port of exportation to port of Q: What is an anti-dumping duty?
entry in PH (costs within PH already
excluded)
It is a special duty imposed on the importation of a
4. Insurance.
product, commodity or article of commerce into the
Philippines at less than its normal value when
Q: When is transaction value (method one) destined for domestic consumption in the exporting
not used? country which is the difference between the export
39
price and the normal value of such product,
1. Buyer imposes restrictions on sale or use of commodity or article. (see Section 301(s)(1), TCC)
goods (except if imposed by law,
geographical limits, not affect value of Q: What are the requisites for the imposition
goods) of anti-dumping duty?
2. Sale is subject to some
condition/consideration which cannot be The requisites are the following:
valued
3. Part of subsequent resale accrues to seller a. Where the product, commodity or article of
and amount undeterminable commerce
4. Buyer and seller are related i. Is exported into the Philippines
a. business partners
b. holds 5% equity
c. common control 39
th Normal value for purposes of imposing the anti-dumping duty is
d. relatives up to 4 degree the comparable price at the date of sale of like product,
commodity or article in the ordinary course of trade when destined
--------------------------------------------------------------- for consumption in the country of export (see Section 301(s)(3),
TCC, as amended by RA 8752)

ii. At a price less than its normal value (2) The countervailing duty is equivalent to the bounty
iii. When destined for domestic consumption (cash award paid to an exporter), subsidy (fiscal
incentives, not in the form of cash award, to encourage
b. And such exportation manufacturers or exporters) or subvention (any assistance
other than bounty or subsidy).
i. Is causing or
ii. Is threatening to cause material injury to a (3) The imposing authority for the countervailing duties is
domestic industry the DTI Secretary in the case of non-agricultural product,
iii. Materially retards the establishment of a commodity, or article or the DA Secretary in the case of
domestic industry producing like product agricultural product, commodity or article.
(see Section 301(a), TCC, as amended by
RA 8752) Read Section 303, TCC
Note: (1) The imposing authority for the anti-dumping duty
is the DTI Secretary in the case of non-agricultural Q: What is a marking duty?
product, commodity, or article or the DA Secretary in the
case of agricultural product, commodity or article. A marking duty are the additional customs duties
imposed on foreign articles (or its containers if the
(2) Even when all the requirements for the imposition have article itself cannot be marked) not marked in any
been fulfilled, the decision on whether or not to impose a official language in the Philippines in a conspicuous
definitive anti-dumping duty remains the prerogative of the place as legibly, indelibly and permanently in such
Tariff Commission
manner as to indicate to an ultimate purchaser in the
(3) In the determination of whether to impose the anti- Philippines the name of the country of origin. (See
dumping duty, the Tariff Commission may consider among Section 303, TCC)
others, the effect of imposing an anti-dumping duty on the
welfare of the consumers and/or the general public, and Q: What are the exceptions to marking of
other related local industries articles?
(4) The amount of anti-dumping duty that may be imposed
1. The article is incapable of being marked
is the difference between the export price and the normal
value of such product, commodity, or article. 2. The article cannot be marked prior to importation
to the Philippines without injury
Read Section 302, TCC 3. The article cannot be marked prior to importation
to the Philippines except at an expense
economically prohibitive of its importation
4. The marking of the container of such article will
Q: What is a countervailing duty? reasonably indicate the origin of such article
5. The article is of a crude substance
It is a special duty imposed on the importation of a 6. Such article is for the use of the importer and not
product, commodity or article of commerce into the intended for sale in its imported or other form
Philippines when the same is granted directly or 7. Such article is to be processed in the Philippines
indirectly by the government in the country of origin by the importer or for his own account and not for
or exportation any kind or form of specific subsidy the purpose of concealing the origin of such
upon the production, manufacture or exportation of article
such product, commodity or article, and the 8. The ultimate purchaser by the Character of the
importation of such subsidized product, commodity article necessarily know the country of origin of
or article has caused or threatens to cause material such article
injury to a domestic industry or has materially 9. Such article was produced more than 20 years
retarded the growth or prevents the establishment of prior to its importation into the Philippines
a domestic industry as determined by the Tariff 10. Such article cannot be marked after importation
Commission. (see Section 302, TCC, as amended except at an expense economically prohibitive
by RA 8751) and the failure to mark the article before
importation was not due to any purpose of the
Note: (1) The countervailing duty shall be in addition to importer, producer, seller or shipper to avoid
any ordinary duties, taxes, and charges imposed by law
on such imported product or article
compliance.
Note: (1) Only the CoC may impose marking duties

2. Taxpayer
(2) The marking duty is equivalent to 5% ad valorem a) Protest
b) Abandonment
Read Section 304, TCC c) Abatement and Refund
---------------------------------------------------------------
Q: What is a discriminatory duty?
---------------------------------------------------------------
It is an additional customs duty imposed upon
1. Government
articles wholly or in part, the growth or product of, or
imported in a vessel of any foreign country a) Administrative/extrajudicial
whenever the President shall find as a fact that such (i) Search, seizure, forfeiture, arrest
country: b) Judicial
(i) Rules on appeal including jurisdiction
a. Directly or indirectly upon any Philippine product ---------------------------------------------------------------
unreasonable charge, exaction, regulation or
limitation which is not equally enforced upon like Q: What are the remedies of the
articles of other foreign countries government?
b. Discriminates in fact against the commerce of the
Philippines as o place the Philippines at a a. Administrative/Extrajudicial Remedies
disadvantage compared with the commerce of b. Judicial Remedies
any foreign country (See Section 304, TCC)
Q: When does the BoC normally avail itself
Note: It is the President who imposes the discriminatory
duties.
of the administrative remedy instead of the
judicial remedy and vice versa?
Q: What are safeguard measures?
a. Administrative Remedy when the goods to which
the tax lien attaches, regardless of ownership is
Safeguard measures are emergency measures
still in the custody or control of the government.
including tariffs to protect domestic industries and
In the case, however, of importations which are
producers from increased imports which inflict or
prohibited or undeclared, the remedy of seizure
could inflict serious injury on them.
and forfeiture may still be exercised even if the
Note: (1) The CTA is vested with jurisdiction to review
goods are no longer in its custody
decisions of the DTI Secretary imposing safeguard b. Judicial Remedy when the goods are properly
measures as provided under RA 8800, the Safeguard released and thus beyond the reach of a tax lien,
Measures Act (see Southern Cross Cement the government can seek payment of the tax
Corporation v. Philippine Cement Manufacturers Corp liability through judicial action since the tax
[July 8, 2004]) liability of the importer constitutes a personal debt
to the government, therefore, enforceable by
(2) The imposing authority for the safeguard measures is action.
the DTI Secretary in the case of non-agricultural product,
commodity, or article or the DA Secretary in the case of
agricultural product, commodity or article. ---------------------------------------------------------------
a) Administrative/extrajudicial
(3) The DTI Secretary cannot impose the safeguard (i) Search, seizure, forfeiture, arrest
measures if the Tariff Commission does not favorably ---------------------------------------------------------------
recommend its imposition.
Q: What are the extrajudicial (or
---------------------------------------------------------------
administrative remedies) available to the
I. Remedies
government?
1. Government
a) Administrative/extrajudicial 1. Enforcement of tax lien (Section 1204 and
(i) Search, seizure, forfeiture, arrest Section 1508, TCC)
b) Judicial 2. Seizure and forfeiture (Section 2201-2212,
(i) Rules on appeal including jurisdiction 2301-2317, 2530-2536, TCC)

Customs officers may seize any vessel, aircraft,

Read Section 1024, 1058, NCC cargo, article, animal or other movable property
when the same is subject to forfeiture or liable for
Q: What is a tax lien in relation to the TCC? any time as imposed under the TCC and related
rules and regulations. (see Section 2205, TCC)
The liability for duties, taxes, fees and other charges
Note: The BoC may conduct search and seizures even
of an importer constitutes a lien upon the articles without the benefit of a warrant issued by a judge upon
imported which may be enforced while such articles probable cause except if the search is to be conducted in
are in custody or subject to the control of the a dwelling.
government.
Q: When is a warrant of seizure issued by
The Collector shall hold the delivery of any article the CoC?
imported or consigned to an importer whenever such
importer has an outstanding and demandable The CoC upon probable cause that the articles are
account with the BoC. If subsequently authorized by imported or exported or are attempted to be
the Commissioner and upon notice, the Collector imported or exported, in violation of the TCC shall
may sell such importation or a portion thereof to issue a warrant of seizure.
cover the outstanding account of the importer.
Note: (1) If the search and seizure is to be conducted in a
--------------------------------------------------------------- dwelling place, then a search warrant should be issued by
(i) Search, seizure, forfeiture, arrest the regular courts and not the BoC.
---------------------------------------------------------------
(2) The rules on warrantless search and seizures also
Note: This how seizure and forfeiture works. First, the apply such as in search and seizures of motor vehicles
articles are seized by the customs authorities. A warrant of and vessels. In such cases, no warrants issued by the
BoC or regulars is required.
seizure is used for said purpose. In the case of a search in
a dwelling, a search warrant from the regular courts would
have to be procured. Second, the Collector upon making (3) If the smuggled goods are seized by virtue of a court
any seizure shall issue a Warrant of Detention. The warrant, they should be surrendered to the court that
articles may be released if a bond is filed except if there is issued the warrant not to the BoC because the goods are
prima facie evidence of fraud in their importation in which in custodia legis.
case the seized articles may not be released by a bond.
Then the forfeiture proceedings take place. The only issue (4) The payment of customs duties, taxes does not
is whether the seized goods should be forfeited. The case necessarily render as irregular and improper the issuance
can be compromised or be subject of a settlement. The of a warrant of seizure
Collector may either issue a Declaration of Forfeiture or
rule that the seized articles are not subject to forfeiture. Read Section 2530-2536, TCC
Thus, either the importer or the government can be
aggrieved by said decision. If the importer is aggrieved, he Q: What are the requisites for forfeiture of
may file an administrative protest to the CoC and if denied,
he can proceed to the CTA and so on. If the government is imported goods?
aggrieved, there is automatic review by the CoC and then
by the DOF Secretary. If said bodies decide in favor of the a. Wrongful making by the owner, importer,
government, the importer may proceed to the CTA and so exporter or consignee of any declaration or
on. Tada! Its not that complicated. affidavit or the wrongful making or delivery
by the same person of any invoice, letter or
This is how Ill organize the discussion below. First, Ill paper all touching on the importation or
discuss seizure and arrest and provide the related
provisions. Second, Ill discuss what properties are subject
exportation of merchandise
to forfeiture. Third, Ill discuss the forfeiture proceeding b. The falsity of such declaration, affidavit,
itself and which body has jurisdiction over the same. invoice, letter or paper
c. An intention on the part of the
Read Section 2201-2212, TCC importer/consignee to evade the payment of
the duties due (Republic v. CA [October 2,
2001])
Q: What is the power of seizure and arrest?
Read Section 2530 to 2536, TCC

Danny, the truck owner, did not have a

Q: What properties are subject to forfeiture certificate of public convenience to operate
under the TCC? his trucking business. Danny did not know
that the shipment of garlic was illegally
See Section 2530, TCC. imported. Can the CoC of the port seize and
forfeit the truck as an instrument in the
Note: Under Section 2530(a), it is not necessary that the
vessel or aircraft must itself carry the contraband. The
smuggling?
complementary if collateral use of the vessel or aircraft for
the smuggling operation is sufficient for it to be deemed to Yes, the CoC of the port can seize and forfeit the
have been used in smuggling. truck as an instrument of the smuggling since the
same was used unlawfully in the importation of
Q: What properties are not subject to smuggled articles. The mere carrying of such articles
forfeiture? on board the truck in commercial quantities shall
subject the truck to forfeiture, since it was no being
used as a duly authorized common carrier, which
See Section 2531, TCC.
was chartered or leased as such (see Section
2530(a), TCC)
Q: Are common carriers subject to
forfeiture? Further, although forfeiture of the vehicle will not be
affected if it is established that the owner thereof
As a general rule, they are not subject to forfeiture. had no knowledge of or participation in the unlawful
However, if the owner has knowledge of its use in act, there arises a prima facie presumption of
smuggling and was a consenting party, it may be knowledge or participation if the owner is not in the
forfeited. business for which the conveyance is generally
used. Thus, not having a certificate of public
Pursuant to Section 2530 of the Tariff and Customs convenience to operate a trucking business, he is
Code of the Philippines, the mere carrying or holding legally deemed no to have been engaged in the
on board of smuggled articles shall subject the trucking business (see Section 2531, TCC)
vessel to forfeiture. However, the vessel is not
subject to forfeiture if it is engaged as duly Read Section 2301-2317, TCC
authorized common carrier and as such carrier it is
not chartered or leased. THE COMMISSIONER OF Note: I will reserve the discussion of the administrative
CUSTOMS AND THE UNDERSECRETARY OF FINANCE VS. protest (in the case of an aggrieved importer) and
GOLD M ARK SEA CARRIERS, INC., CTA EB NO. 825, automatic review of the CoC (in the case of the aggrieved
DECEMBER 24, 2012 government) when I discuss Protest under the Remedies
of the Taxpayer. For now, I will limit it to the administrative
proceeding.
Q: When is there prima facie knowledge by
the owner of the common carrier? Q: Discuss the administrative proceeding of
forfeiture from issuance of warrant of
There is prima facie knowledge by the owner of the
common carrier of its use in smuggling: detention to declaration of forfeiture.
1. Collector issues warrant for detention of

a. If the conveyance was used for smuggling at
property (if owner or importer desires to
least twice before
secure release of property for legitimate use,
b. If the owner is not in the business for which
Collector may surrender subject property
the conveyance is generally used
upon filing of sufficient bond)
c. If the owner is not in a position to own such
2. Collector immediately reports seizure to
conveyance
COC and Chairman of COA
3. Collector gives owner or importer or his
Q: In smuggling a shipment of garlic, the agent written notice of seizure and
smugglers used an eight-wheeler truck opportunity to be heard
which they hired for the purpose of taking 4. Collector causes preparation of list and
out the shipment from the customs zone. particular description of property seized, as

well as appraisal and classification of the prevent smuggling and other frauds upon
same customs
5. Collector, after hearing and in writing, makes c. To render effective and efficient the
a declaration of forfeiture or fixes amount of collection of import and export duties due he
fine or takes such action as may be proper State which enables the government to carry
out its functions
Note: As a result of (5), the aggrieved owner or imported d. The issuance by regular courts of
may file what is called an administrative protest. In said preliminary injunction in seizure and
protest, he is essentially questioning the decision of the forfeiture proceedings before the BoC may
Collector before CoC. In some cases, instead of a arouse suspicion that the issuance or grant
declaration of forfeiture, it is the government who is
aggrieved. In such case, automatic review shall apply. See
was for consideration other than the strict
discussion under Administrative Protest. merits of the case (see Zuno v. Cabredo
[402 SCRA 75])
Q: Who has jurisdiction to hear and e. Under the doctrine of primary jurisdiction,
determine questions touching on the the BoC has exclusive administrative
jurisdiction to conduct searches and
seizure and forfeiture of dutiable goods?
seizures and forfeitures of contraband
without interference from the courts. It could
The CoC sitting in seizure and forfeiture proceedings
conduct search and seizures without need of
has exclusive jurisdiction to hear and determine all
a judicial warrant except if the search is to
questions touching on the seizure and forfeiture of
be conducted in a dwelling place.
dutiable goods.
As held in SUBIC BAY METROPOLITAN AUTHORITY V. Q: What is the nature of customs seizure
RODRIGUEZ [APRIL 23, 2010], the Collector of and forfeiture cases?
Customs has exclusive jurisdiction over seizure and
forfeiture proceedings and the regular courts cannot They are administrative and civil in nature and are
interfere with his exercise thereof or enjoin or directed against the res or the imported articles and
interfere with it. The regular courts are precluded entail the determination of the legality of the
from assuming cognizance over such matters even importation. These are actions in rem. Thus, it is of
through petitions for certiorari, prohibition, or no defense that the owner of the vessel sought to be
mandamus. forfeited had no actual knowledge that his property
is used illegally. The absence or lack of actual
The RTC must defer to the exclusive original knowledge of such use is a defense personal to the
jurisdiction of the BOC in such proceedings. This is owner himself, which cannot in any way absolve the
known as the doctrine of primary jurisdiction. vessel from the liability of forfeiture (CoC v. Manila
Star Ferry [October 21, 1993])
Q: What is the rationale for the exclusive In CORNELIO Q. CASIDO V. REPUBLIC OF THE
customs jurisdiction doctrine? PHILIPPINES, AND HON. NAPOLEON L. MORALES
[C.T.A. CASE NO.8087, FEBRUARY 8, 2012], the CTA
a. RTCs have no jurisdiction to replevin a held that forfeiture of seized goods by the BOC is an
property which is subject to seizure or action in rem against the goods and not against the
forfeiture proceedings for violation of the owner. Absence of knowledge or participation of the
TCC. Otherwise, actions for forfeiture of owner in the unlawful act does not absolve the
property for violation of the Customs laws vessel/goods from forfeiture
could easily be undermined by the simple
Note: (1) The issue is limited to whether the imported
device of replevin (see Dela Fuente v. De goods should be forfeited and disposed of in accordance
Veyra [120 SCRA 455]) with law for violation of the TCC (see Transglobe
b. The doctrine of exclusive customs International v. CA [January 25, 1999])
jurisdiction over customs cases to the
exclusion of the RTC is anchored upon the (2) Forfeiture of seized goods in the BoC is a proceeding
policy of placing no unnecessary hindrance against the goods and not against the owner (Asian
on the governments drive, not only to Terminals v. Bautista-Ricafort [October 27, 2006])

Q: May forfeiture cases be compromised? from receipt refers to his decisions on administrative tax
protests.
Yes. Subject to the approval of the Secretary of
Unless an appeal is made to the CTA in the manner and
Finance, the CoC may compromise any case arising within the period prescribed by law, the action or ruling of
under the TCC or other laws or part of laws enforced the CoC shall be final and conclusive (Pilipinas Shell v.
by the BoC involving the imposition of fines, CoC [June 18, 2009])
surcharges, and forfeitures (see Section 2306,
TCC) Note that the CTA has jurisdiction only over decisions of
the CoC in cases involving seizures, detention or release
Q: May forfeiture cases be settled? of property affected, not the decision of the Collector.
Yes. Settlement of cases by payment of fine or I will discuss this more in relation to administrative
redemption of forfeited property is allowed. There tax protests.
are, however, exceptions:
---------------------------------------------------------------
a. The importation is absolutely prohibited 2. Taxpayer
b. The surrender of the property to the a) Protest
person offering to redeem would be b) Abandonment
contrary to law c) Abatement and Refund
c. When there is fraud ---------------------------------------------------------------
Note: The above enumeration are also the instances
where there is no right of redemption of seized and ---------------------------------------------------------------
forfeited articles (see Transglobe International v. CA a) Protest
[January 25, 1999]). ---------------------------------------------------------------
--------------------------------------------------------------- Read Section 2308 to 2315, TCC

b) Judicial
(i) Rules on appeal including jurisdiction Q: What is an administrative tax protest?
---------------------------------------------------------------
A tax protest case, under the TCC, involves a
Read Section 2401, TCC protest of the liquidation of import entries. In other
words, it is a protest which questions the legality or
Q: What are the judicial remedies that may correctness of assessed customs duties.
be availed of by the Government?
Q: Is payment prior to protest required?
a. Civil Action
b. Criminal Action Yes. No protest shall be considered unless payment
of the amount due has first been made and the
Note: Such actions shall be brought in the name of the corresponding docket fee (see Section 2308, TCC).
Government of the Philippines and shall be conducted by
customs officers but no action shall be filed in court Q21.1. Discuss the procedure for
without the approval of the CoC. customs protest from issuance of
warrant of detention to appeal to
--------------------------------------------------------------- the Supreme Court.
(i) Rules on appeal including jurisdiction
--------------------------------------------------------------- 1. Collector issues warrant for detention of
property (if owner or importer desires to
Read Section 2042, TCC secure release of property for legitimate use,
Collector may surrender subject property
Note: The Decision of the CoC in cases involving liability upon filing of sufficient bond)
for customs duties, fees, or other money charges, that 2. Collector immediately reports seizure to
must be appealed to the CTA in Division within 30 days COC and Chairman of COA

3. Collector gives owner or importer or his NORTHERN ISLANDS COMPANY, INC., CTA CASE NO. 8068,
agent written notice of seizure and JUNE 6, 2012
opportunity to be heard
4. Collector causes preparation of list and ---------------------------------------------------------------
particular description of property seized, as b) Abandonment
well as appraisal and classification of the ---------------------------------------------------------------
same
5. The Collector, after hearing and in writing, Read Sections 1801-1802, TCC
can either make a declaration of forfeiture
(owner or importer is aggrieved) or rule Q: What is abandonment?
otherwise (government is aggrieved).
Abandonment is the renunciation by an importer of
If the owner or If the government is all his interests and property rights in imported
importer is aggrieved aggrieved by the articles (see Section 1801, TCC)
by the decision of the decision of the
Collector: Collector:
Q: When is an article deemed abandoned?
1. Protest to the 1. Automatic review by
1. Importer expressly signifies in writing to the
Collector within 15 COC
Collector his intention to abandon (express
days 2. Automatic review by
abandonment)
2. If aggrieved by the DOF Secretary
2. When the importer fails to file an entry within
decision or action of 3. If owner or importer
30 days (not extendible) from the date of
the collector upon is aggrieved by
discharge of the last package or having filed
protest, appeal to the decision of COC or
such entry, fails to claim the imported
Commissioner within DOF Secretary
articles within 15 days (not extendible) from
15 days after 4. Appeal to CTA
the date of posting of the notice to claim
notification in writing Division within 30
such importation (implied abandonment)
by the Collector of his days from notice
action or decision 5. Appeal to CTA En Note: Both the Import Entry Declaration (IED) and Import
3. Appeal to CTA Banc Entry and Internal Revenue Declaration (IEIRD) should be
Division within 30 6. Appeal to SC by filed within 30- days from he date of discharge of the last
days from notice certiorari within 15 package from the vessel or aircraft. When the importer
4. Appeal to CTA En days fails to file the entry within the said period, he shall be
Banc deemed to have renounced all his interest and property
5. Appeal to SC by rights to the importations and these should be considered
certiorari within 15 impliedly abandoned in favor of the government (Chevron
Philippines v. CoC [August 11, 2008])
days
Q: What are the effects of abandonment?
Note: Automatic review is intended to protect the interests
of the Government in the collection of taxes and customs a. Any person who abandons an article shall
duties in seizure and protest cases. Without such be deemed to have renounced all his
automatic review, nether the CoC or the DOF Secretary interests and property rights therein.
would know about the decision of the Collector of Customs b. An abandoned article shall ipso facto be
favoring the taxpayer. The power to decide seizure and deemed the property of the Government.
protest cases may be abused if no checks are instituted. c. It does not relieve the owner from any
Automatic review is necessary because nobody is
expected to appeal the decision of the Collector which is
criminal liability
favorable to the taxpayer and adverse to the government d. If the abandoned articles are transferred to a
(Yaokasin v. CoC [180 SCRA 591]). Remember the customs bonded warehouse, he operator
lifeblood theory! shall be liable for the payment of duties and
taxes in the case of losses of the stored
The CTA does not have jurisdiction on rulings of the abandoned imported articles (see R.V.
Secretary of Finance over seizure and forfeiture Marzan v. CA [March 4, 2004])
proceedings which do not involve assessment of any
duties. 3-D INDUSTRIES, INC. VS. SECRETARY OF FINANCE AND

---------------------------------------------------------------
c) Abatement and Refund
---------------------------------------------------------------
Read Sections 1701-1708, TCC
Q: What is abatement?
Abatement is the reduction or non-imposition of

customs duties on certain impored materials as a
result of damage incurred during voyage; deficiency
in contents of packages; loss or destruction of
articles after arrival; or death or injury of animals.
Note: The general rule is that no abatement of duties shall

be made on account of damage incurred or deterioration
suffered during voyage of importation and duties will be
assessed on the actual quantity imported (see Section
1701, TCC).
Q: What are the instances where the

Collector may abate or refund the amount of
duties accruing or paid by the importer?
(exceptions to the general rule)
1. Damage incurred during voyage

2. Missing package
3. Deficiency in contents of packages
4. Articles lost or destroyed after arrival
5. Dead or injured animals
6. Refund of Excess payments (made due to
manifest clerical errors)
Q: What is the procedure for claiming

refund?
1. The taxpayer shall make his claim for refund

of duties in writing and forward it to the
Collector for verification
2. If the Collector found the claim to be correct,
he shall certify it to the CoC with his
recommendation
3. If found correct by the CoC, he shall cause
the same to be paid. (see Section 1708,
TCC)

---------------------------------------------------------- b. Decisions, resolutions or orders on MRs or MNTs

V. JUDICIAL REMEDIES (CTA) of the Court in Division in the exercise of its
exclusive original jurisdiction over:
----------------------------------------------------------
i. Tax Collection cases
Note: The rules here are those found in R.A. 1125, as
amended by RA 9282. Some sources and answers to past
ii. Cases involving criminal offenses arising
bar questions may still contain rules applicable to R.A. from violations of the NIRC or TCC and
1125 before its amendment. So make sure you have an other laws administered by the BIR or BOC
updated codal and reference material.
c. Decisions, resolutions or orders of the RTCs in
--------------------------------------------------------------- the exercise of its appellate jurisdiction over:
A. Jurisdiction of the Court of Tax Appeals
1. Exclusive appellate jurisdiction i. Local tax cases
ii. Tax Collection cases
2. Criminal cases
iii. Criminal offenses arising from violations of
--------------------------------------------------------------- the NIRC or TCC and other laws
administered by the BIR or BOC
Note: The CTA is composed of a Presiding Justice and 8
associate justices organized into three divisions.
d. Decisions of the CBAA in the exercise of its
appellate jurisdiction over cases involving
---------------------------------------------------------------
assessment and taxation of real property
1. Exclusive Appellate Jurisdiction originally decided by the provincial or city board
a.) Cases within the jurisdiction of the court of assessment appeals.
en banc
b) Cases within the jurisdiction of the court (see Section 2, Rule 4, A.M. No. 05-11-07-CTA)
in divisions
--------------------------------------------------------------- Read Section 3(a), Rule 4, RRCTA
Note: This refers to the exclusive jurisdiction to review by Q: What are the cases within the exclusive
appeal of the CTA en banc and CTA in division.
appellate jurisdiction to review by appeal of
the CTA in division?
Read Section 2, Rule 4, RRCTA
a. Decisions of the CIR
Q: What are the cases within the exclusive
appellate jurisdiction to review by appeal of i. In cases involving disputed assessments,
the CTA en banc? refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto;
a. Decisions or resolutions on MRs or MNTs of the or
Court in Division in the exercise of its exclusive ii. Other maters arising under the NIRC or
appellate jurisdiction over: other laws administered by the BIR
i. Cases arising from administrative agencies b. Inaction by the CIR where the NIRC provides a
ii. Local tax cases decided by the RTCs in the specific period of action
exercise of their original jurisdiction
iii. Tax collection cases decided by RTCs in i. In cases involving disputed assessments,
the exercise of their original jurisdiction refunds of internal revenue taxes, fees or
involving final and executory assessments other charges, penalties in relation thereto,
for taxes, fees, charges, and penalties, or
where the principal amount of taxes and ii. Other matters arising under the NIRC or
penalties claimed is less than P1,000,000 other laws administered by the BIR
iv. Criminal offenses arising from violations of
the NIRC or TCC and other laws c. Decisions, orders or resolutions of the RTCs in
administered by the BIR or BOC local tax cases decided or resolved by them in
the exercise of their original jurisdiction

statement that the action is final. The rationale is

d. Decisions of the Commissioner of Customs that to let the taxpayer defer the period is to unduly
put in his hand the collection of taxes.
i. In cases involving liability for customs
duties, fees, or other money charges, Q: A taxpayer received on 15 Jan 1996 an
seizure, detention or release of property assessment for internal revenue tax
affected, fines, forfeitures of other penalties deficiency. On 10 Feb 1996, the taxpayer
in relation thereto; or filed a petition for review with the CTA.
ii. Other matters arising under the Customs
Should the CTA entertain the appeal?
Law or other laws administered by the
Bureau of Customs
No. Before the taxpayer can avail of a judicial
remedy, he must first exhaust administrative
e. Decisions of the Secretary of Finance on
remedies by filing a protest within 30 days from
customs cases elevated to him automatically for
receipt of the assessment. An assessment by the
review from decisions of the Commissioner of
BIR is not the CIRs decision from which a petition
Customs which are adverse to the Government
for review may be filed with the CTA. Rather, it is the
under Section 2315 of the TCC
action taken by the CIR in response to the
taxpayers protest on the assessment that would
f. Decisions of the DTI Secretary in the case of
constitute the appealable decision.
non-agricultural product, commodity or article and
the DA Secretary in case of agricultural product,
commodity or article, involving dumping and Q: ABC Corp. received an income tax
countervailing duties under Sections 301 and 302 deficiency from the BIR. ABC filed a protest
of the TCC and safeguard measures under the and submitted to the BIR all relevant
Safeguard Measures Act (RA 8800) where either supporting documents. The CIR did not
party may appeal the decision to impose or not to formally rule on the protest. Thereafter, ABC
impose said duties was served summons and a copy of the
complaint for collection of the tax deficiency
(see Section 3(a), Rule 4, A.M. No. 05-11-07-CTA) filed by the BIR with the RTC. ABC filed a
Note: Any dispute or controversy involving national
petition for review before the CTA. The BIR
internal revenue taxes or customs duties not falling within contends that the petition is premature
the purview of the exclusive appellate jurisdiction of the since there was no formal denial of the
CTA must fall within the jurisdiction of the regular courts. A protest of ABC. Is the BIRs contention
taxpayers suit impugning he constitutionality of a tax correct?
statute, for example, even if involving the NIRC or TCC
would fall within the jurisdiction of the regular courts.
No. The CTA has jurisdiction because the action of
Q: When is a decision of the CIR appealable the CIR qualifies as an appeal from the CIRs
decision on the disputed assessment. When the CIR
to the CTA?
decided to collect the tax assessed without first
deciding on he taxpayers protest, the effect of his
First view: The appealable decision is the one
action of filing a judicial action for collection is a
which categorically stated that the CIRs action on
decision of denial of the protest, in which event the
the disputed assessment is final. [COMMISSIONER OF
taxpayer may file an appeal with the CTA (Republic
INTERNAL REVENUE VS. UNION SHIPPING CORPORATION
v. Lim Tian Teng & Sons [16 SCRA 584])
(M AY 21, 1990)]
Second view: There is no need for a categorical

statement. So long as the tenor of the decision is
that the dispute of the taxpayer is denied, it is
appealable. (see SURIGAO ELECTRIC V. CTA [JUNE
28, 1974])
A survey of cases would indicate that the second

view is followed. There is no need for a categorical

Q: Name some communications sent by the enforce its collection without further notice. In
CIR to taxpayers that are deemed addition, the letter contained a notation indicating
appealable to the CTA. that petitioners request for reconsideration had
been denied for lack of supporting documents.
As provided in Surigao ELECTRIC V. CTA [JUNE 28,
1974]: Q: AA Corp received a FAN for contractors
tax. It protested the assessments.
1. a letter which stated the result of the Thereafter, AA requested for the
investigation requested by the taxpayer and cancellation of the assessments. 4 years
the consequent modification of the passed and nothing happened. CIR then
assessment; issued 2 warrants of distraint to collect the
2. letter which denied the request of the taxes. One year later, CIR answered and
taxpayer for the reconsideration
denied AAs request for cancellation. The
cancellation, or withdrawal of the original
assessment CIR, in its answer to AAs request for the
3. a letter which contained a demand on the cancellation of the assessments, requested
taxpayer for the payment of the revised or the taxpayer to pay the deficiency taxes
reduced assessment; and within ten days from receipt of the demand;
4. a letter which notified the taxpayer of a otherwise, the Bureau would enforce the
revision of previous assessments warrants of distraint. He closed his demand
letter with this paragraph: This constitutes
Q: Is the final demand letter issued by the our final decision on the matter. If you are
BIR reiterating the demand for immediate not agreeable, you may appeal to the Court
payment considered a final decision of Tax Appeals within 30 days from receipt
appealable to the CTA? of this letter. What is the reckoning point of
the appeal period to the CTA the issuance
Yes. As held in CIR v. ISABELA CULTURAL CORP of the warrant of distraint or the letter
[JULY 11, 2001], the letter is deemed as the CIRs embodying the final demand of payment??
final act since failure to comply therewith exposes
the property to distraint and levy. The Supreme The reviewable decision is the latter letter where the
Court stated that a final demand letter from BIR, CIR clearly directed the taxpayer to appeal to the
reiterating to the taxpayer the immediate payment of CTA and not the warrants of levy and distraint. No
a tax deficiency assessment previously made, is amount of quibbling or sophistry can blink the fact
tantamount to a denial of the taxpayers request for that said letter, as its tenor shows, embodies the
reconsideration. Such letter amounts to a final Commissioner's final decision. He even directed the
decision on a disputed assessment and is thus taxpayer to appeal it to the Tax Court. The directive
appealable to the CTA. is in consonance with this Court's dictum that the
Commissioner should always indicate to the
In OCEANIC WIRELESS NETWORK VS. COMMISSIONER taxpayer in clear and unequivocal language what
OF INTERNAL REVENUE [DECEMBER 9, 2005], the constitutes his final determination of the disputed
Supreme Court reiterated that a demand letter for assessment. That procedure is demanded by the
payment of delinquent taxes may be considered a pressing need for fair play, regularity and orderliness
decision on a disputed or protested assessment. in administrative action. (see ADVERTISING
The determination on whether or not a demand letter ASSOCIATES, INC. VS. COURT OF APPEALS [DECEMBER
is final is conditioned upon the language used or the 26, 1984])
tenor of the letter being sent to the taxpayer. In this
case, the letter of demand dated January 24, 1991, Q: U Corp was assessed deficiency income
unquestionably constitutes the final action taken by taxes (FAN). U Corp protested the
the BIR on petitioners request for reconsideration assessment. BIR, without ruling on the
when it reiterated the tax deficiency assessments
protest, issued a warrant of distraint and
due from petitioner, and requested its
payment. Failure to do so would result in the levy. U Corp requested reinvestigation and
issuance of a warrant of distraint and levy to reconsideration of issuance of the warrant.

Thereafter, BIR filed a collection suit to jurisdiction. The CIR argued that the
collect the taxes. U Corp then filed a petition Revenue District Officer who signed the
for review with the CTA, on the theory that letter which became the basis of the instant
its period to appeal only began to run from petition, cannot be deemed an alter ego of
its receipt of summons in the civil collection the CIR for purposes of issuing a final
case. BIR argued the appeal was filed out of decision on Festos protest under a
time, as the period began to run when the delegated authority. As such, the subject
warrant of distrant and levy was issued. letter is not the CIR's final decision on
Who is correct? Festos protest; thus, the 30 day period to
file an appeal was yet to commence,
U Corp is correct. Under the circumstances, the CIR rendering the instant petition premature. Is
didnt clearly signify his final action on the disputed the contention of the CIR correct?
assessment. Thus, it was only when U Corp
received the summons on the civil suit for collection Yes, the appeal to the CTA was premature. As held
of deficiency income that the period to appeal in FESTO HOLDINGS, INC. VS. COMMISSIONER OF
commenced to run. The request for reinvestigation INTERNAL REVENUE [CTA CASE NO. 8226,
and reconsideration was in effect considered denied SEPTEMBER 2, 2011], the Revenue District Officer
by the CIR when the latter filed a civil suit for who issued the letter cannot be considered as the
collection of deficiency income. [COMMISSIONER OF CIR's decision appealable to this Court, in the
INTERNAL REVENUE VS. UNION SHIPPING CORPORATION absence of any proof that the former was authorized
(M AY 21, 1990)] to decide and act in behalf of the latter on the protest
of a taxpayer. Nowhere is it provided that a Revenue
Q: The City of Makati received assessment District Officer can issue decisions that are
notices imposing deficiency taxes. Makati appealable to this Court. Therefore, there being no
protested. The BIR stated that the decision of the CIR in the present case, this Court
assessments were already final and cannot take cognizance of the present case.
executory. Nonetheless, Makati requested
for another reinvestigation. The Revenue Q: Is the denial by the BIR of the protest on
officer and deputy Commissioner granted the PAN (not the FAN) appealable to the
this request. Did the reinvestigation of the CTA?
case reversed the finality of the
assessments? No, the denial of the CIR must be on the protest of
the FAN. In ALLIED BANKING CORPORATION VS.
No. Only the Commissioner of Internal Revenue has COMMISSIONER OF INTERNAL REVENUE [FEBRUARY 5,
the power to reverse, revoke or modify any existing 2010], the Supreme Court ruled that it is the Formal
ruling of the Bureau of Internal Revenue (BIR), Letter of Demand and Assessment Notice (FAN) that
which power cannot be delegated. In assessment must be administratively protested or disputed within
cases, a reopening/reinvestigation after a final 30 days, and not the PAN.
decision on disputed assessment has been issued
must be initiated by the commissioner. Otherwise, Q: BIR issued a PAN to AB Corp for
the reopening / reinvestigation is without authority deficiency DST. AB protested the PAN.
and failure to appeal the final decision on disputed Thereafter, BIR sent a FAN to AB Corp. The
assessment to CTA would render the assessment letter provided: It is requested that the
final and executory. Here, the reinvestigation was above deficiency tax be paid immediately
merely granted by a revenue officer and a deputy upon receipt hereof, inclusive of penalties
commissioner. (see CITY OF M AKATI VS. incident to delinquency. This is our final
COMMISSIONER OF INTERNAL REVENUE [CTA CASE decision based on investigation. If you
NO. 641, SEPTEMBER 16, 2011])
disagree, you may appeal the final decision
within thirty (30) days from receipt hereof,
Q: The CIR filed a Motion to Dismiss the
otherwise said deficiency tax assessment
Petition for Review commenced by Festo
shall become final, executory and
Holdings on the ground of lack of

demandable. Thereafter, AB immediately Yes. The appellate jurisdiction of the CTA is not
filed a petition for review with the CTA. limited to cases which involve decisions of the
Should the petition be dismissed? Commissioner of Internal Revenue on matters
relating to assessments or refunds. The second part
No. Ordinarily, the procedure is that its the FAN that of the provision covers other cases that arise out of
must be administratively protested, as a prerequisite the NIRC or related laws administered by the
to subsequently filing a PFR with the CTA. However, Bureau of Internal Revenue. The wording of the
the SC ruled in this case that the CIR was estopped provision is clear and simple. It gives the CTA the
from claiming the need for a protest. AB Corp cant jurisdiction to determine if the warrant of distraint
be blamed for not filing a protest against the FAN and levy issued by the BIR is valid and to rule if the
since the language used and the tenor of the PAN Waiver of Statute of Limitations was validly effected.
indicate that it is the final decision of the CIR on the
matter. The CIR is required to indicate, in a clear This is not the first case where the CTA validly ruled
and unequivocal language, whether his action on a on issues that did not relate directly to a disputed
disputed assessment constitutes his final assessment or a claim for refund. In Pantoja v.
determination thereon in order for the taxpayer David, we upheld the jurisdiction of the CTA to act
concerned to determine when his or her right to on a petition to invalidate and annul the distraint
appeal to the tax court accrues. Thus, CIR is now orders of the Commissioner of Internal Revenue.
estopped from claiming that he did not intend the Also, in Commissioner of Internal Revenue v. Court
PAN to be a final decision. Moreover in the Formal of Appeals, the decision of the CTA declaring
Letter of Demand with Assessment Notices, CIR several waivers executed by the taxpayer as null
used the word appeal instead of protest, and void, thus invalidating the assessments issued
reinvestigation, or reconsideration. Although by the BIR, was upheld by this Court. (see
there was no direct reference for petitioner to bring PHILIPPINE JOURNALISTS INC. VS. COMMISSIONER OF
the matter directly to the CTA, it cannot be denied INTERNAL REVENUE [DECEMBER 16, 2004])
that the word appeal under prevailing tax laws
refers to the filing of a Petition for Review with the Q: The CIR, pursuant to the NIRC, issued a
CTA (see ALLIED BANKING CORPORATION VS. RMO imposing a 5% lending investors tax
COMMISSIONER OF INTERNAL REVENUE [FEBRUARY 5, on pawnshops. The RMO identified
2010]) pawnshops as a lending investor due to
the nature of its activities. Leal, a pawnshop
Q: What other matters are cognizable by owner, filed with the RTC a petition for
the CTA? prohibition that sought to stop the CIR from
implementing the RMO. CIR filed a motion to
The other matters cognizable by the CTA should
dismiss. CIR alleged RTC had no
be of the same nature, kind or class as the matters
specifically enumerated as within its jurisdiction. jurisdiction over the matter. Did the RTC
have jurisdiction over the action to nullify
Q: Sec 7(a)(1) of RA 1125 as amended by RA the RMO?
9262 provides that the CTA has exclusive
No, the CTA had exclusive jurisdiction. The
appellate jurisdiction to review by appeal
questioned is actually a ruling or opinion of the CIR
the decisions of the Commissioner of in implementing the Tax Code with regard taxability
Internal Revenue in cases involving of pawnshops. The RMO was issued pursuant to
disputed assessments, refunds of internal CIRs powers under Section 244 of the NIRC
revenue taxes, fees or other charges, (providing for the power of the Commissioner of
penalties in relation thereto, or other Internal Revenue to make rulings or opinions in
matters arising under the National Internal connection with the implementation of the provisions
Revenue or other laws administered by the of internal revenue laws, including ruling on the
Bureau of Internal Revenue. Does the CTA classification of articles of sales and similar
also have jurisdiction to determine the purposes). Thus, the petition should have been filed
with the CTA. (see COMMISSIONER OF INTERNAL
validity of warrants of distraint/levy and the
REVENUE VS. LEAL [NOVEMBER 18, 2002])
waiver of statute of limitations?

Similarly, in the case of ASIA INTERNATIONAL Note: See also EGIS PROJECTS S.A. VS. THE SECRETARY OF
AUCTIONEERS, INC. VS. PARAYNO (DECEMBER 18, FINANCE AND COMMISSIONER OF INTERNAL REVENUE [CTA
2007], several RRs and RMOs were also CASE NO. 8413, JANUARY 29, 2013] where the CTA held
considered as rulings/opinions of the CIR on the tax that the issue on the constitutionality or validity of RMO
Nos. 72-2010 and 1-2000 or its relevant provisions is
treatment of motor vehicles sold at public auction beyond the jurisdiction of the CTA, but of the regular
within the SSEZ. They were deemed issued courts.
pursuant to the power of the CIR to interpret
provisions of the NIRC. Thus, when an action to SMART COMMUNICATIONS, INC. VS. MUNICIPALITY OF MALVAR,
annul such RRs/RMOs was filed with the RTC, SC BATANGAS, CTA EB NO. 767 (CTA AC NO. 58), JUNE 26,
held that such was improper, as it was the CTA that 2012, where the CTA held that the issue on the validity or
had exclusive jurisdiction constitutionality of Ordinance is not within the jurisdiction
of the CTA, but with the regular courts.
Q: A was assessed for income tax
However, in NEGROS CONSOLIDATED FARMERS ASSOCIATION
deficiency. The taxpayer failed to file a MULTI-PURPOSE COOPERATIVE VS. COMMISSIONER OF
protest and thus the said assessment has INTERNAL REVENUE [CTA CASE NO. 7994; FEBRUARY 17,
become final and unappealable. Thereafter, 2012], the CTA held that it has jurisdiction to rule on the
the taxpayer filed a petition for review to the validity of a rule or regulation issued by the Bureau of
CTA arguing that the right of the CIR to Internal Revenue. This case should not be controlling in
light of the SC ruling in British American Tobacco.
collect the assessed tax has prescribed. The
CIR contends that the CTA has no ---------------------------------------------------------------
jurisdiction because when the law says that 2. Criminal Cases
the CTA has jurisdiction over other a) Exclusive original jurisdiction
matters it presupposes that the tax b) Exclusive appellate jurisdiction in
assessment has not become final and criminal cases
unappealable. Is the CIRs contention ---------------------------------------------------------------
correct?
Note: This applies to CTA in Divisions. Note that, with
No. The fact that an assessment has become final regard to criminal cases, the CTA en banc has exclusive
for failure of the taxpayer to file a protest within the appellate jurisdiction over the decisions or resolutions on
time allowed only means that the validity or MRs or MNTs of the Court in Division in the exercise of its
correctness of the assessment may no longer be exclusive appellate jurisdiction or in the exercise of its
questioned on appeal. However, the validity of the exclusive original jurisdiction over criminal offenses arising
assessment itself is a separate and distinct issue from violations of the NIRC or TCC and other Tax Laws.
from the issue of whether the right of the CIR to
collect the validly assessed tax has prescribed. This Read Section 3(b) and 3(a), Rule 4, RRCTA
issue of prescription, being a matter provided for by
the NIRC, is well within the jurisdiction of the CTA to Q: What are the criminal cases within the
decide. (Commissioner of Internal Revenue v. exclusive original jurisdiction of the CTA?
Hambrecht & Quist Philippines, Inc., [November
17, 2010]) The CTA shall exercise exclusive original jurisdiction
over all criminal cases where the principal amount
Q: Does the CTA have jurisdiction relative to involved of taxes and fees is P1,000,000 or more,
matters involving the constitutionality of exclusive of charges and penalties, arising from
regulations issued by the BIR? violations of the NIRC, TCC and other laws
administered by the BOC or the BIR.
No. The doctrine in ASIA INTERNATIONAL
AUCTIONEERS V. PARAYNO [DECEMBER 18, 2007] Q: What are the criminal cases within the
which ruled that the CTA has such jurisdiction has exclusive original jurisdiction of the regular
been reversed in BRITISH AMERICAN TOBACCO V. courts?
CAMACHO [AUGUST 20, 2008]. The regular courts
have jurisdiction to rule upon the constitutionality of The regular courts have original jurisdiction in
a tax law or a regulation issued by the BIR. offenses and felonies where:

a. The principal amount of taxes and fees, exclusive ---------------------------------------------------------------

of charges and penalties, claimed is less than a) Who may appeal, mode of appeal, effect
P1,000,000 of appeal
b. There is no specified amount claimed ---------------------------------------------------------------
Q: What are the criminal cases within the Q: Who may appeal in the CTA?
exclusive appellate jurisdiction of the CTA?
Read Section 11, RA 1125 and Section 3,
a. Appeals from judgments, resolutions or orders of Rule 8, RRCTA
the RTCs in tax cases originally decided by them
in their respective territorial jurisdiction; and
a. A party adversely affected by a decision, ruling,
b. Petitions for review of the judgments, resolutions
or the inaction of:
or orders of the RTCs in the exercise of their
i. CIR
appellate jurisdiction over tax cases originally
ii. CoC
decided by the MeTCs, MTCs or MCTCs.
iii. DOF Secretary
iv. DTI Secretary
Note: (1) The same rules apply with regard to the
exclusive jurisdiction of the CTA in division over tax v. DA Secretary
collection cases. vi. RTC (in the exercise of its original
jurisdiction)
(2) As held in YABES V. FLOJO [JULY 20, 1982], the
Supreme Court held that the lower courts can acquire b. A party adversely affected by a decision or
jurisdiction over a claim for collection of deficiency taxes resolution of a Division on a MR or MNT
only after the assessment made by the CIR has become
final and unappealable, not where there is still a pending c. A party adversely affected by a decision or ruling
CTA case. of the CBAA and the RTC in the exercise of their
appellate jurisdiction.
--------------------------------------------------------------- Q: What are the different modes of appeal?
B. Judicial Procedures
1. Judicial action for collection of taxes Read Section 4, Rule 8, RRCTA
a) Internal revenue taxes
b) Local taxes a. Petition for review under Rule 42 to be acted
upon the CTA in division with respect to a
i) Prescriptive period
decision, ruling or inaction of:
--------------------------------------------------------------- i. CIR (on disputed assessments or claim for
refund of internal revenue taxes erroneously
Note: This has been thoroughly discussed under Tax
or illegally collected)
Remedies and Local Government Taxation. I will not
discuss them anymore. ii. CoC
iii. DOF Secretary
--------------------------------------------------------------- iv. DTI Secretary
v. DA Secretary
2. Civil Cases
vi. RTC (in the exercise of their original
a) Who may appeal, mode of appeal, effect jurisdiction)
of appeal
i) Suspension of collection of tax Period to file: 30 days
a) Injunction not available to restrain
collection b. Petition for review under Rule 43 to be acted
ii) Taking of evidence upon the CTA en banc with respect to a decision
iii) Motion for reconsideration or new trial or resolution of the Court in Division on a MR or
40
b) Appeal to the CTA, en banc MNT.
c) Petition for review on certiorari to the
Supreme Court
--------------------------------------------------------------- 40
In cases falling under the exclusive appellate jurisdiction of the
CTA en banc, a petition for review of a decision or resolution of

Period to file: 15 days. It may be extended to an SM Land v. City of Manila, G.R. No.
additional period not exceeding 15 days. 197151, October 22, 2012
c. Petition for review under Rule 43 to be acted DOCTRINE: The 30-day period to appeal decisions of the
upon by the CTA en banc with respect to the RTC to the CTA is extendible
decisions or rulings of:
FACTS: On the strength of the provisions of Tax
i. CBAA Ordinance Nos. 7988 and 8011, whichamended
ii. RTCs (in the exercise of their appellate Ordinance No. 7794, also known as the Revenue Code of
Manila, the City of Manila assessed petitioners/taxpayers,
jurisdiction)
together with their other sister companies, increased rates
of business taxes for the year 2003 and the first to third
Period to file: 30 days quarters of 2004. The companies filed under protest and
later filed an application for refund and later a complaint
Q: CC Corp filed a petition in the RTC to for refund with the Regional Trial Court (RTC). The RTC
nullify an ordinance enacted by the City of granted the claim for refund. Respondent City of Manila
filed a petition for review with the CTA, after the latter
Manila. RTC dismissed the petition. CC Corp
granted its request for extension of time to file the petition
filed a petition for review with CTA. It was for review. One of the issues presented before the Court
argued that the petition for review was filed was whether the 30-day period provided by law within
out of time. Can the 30 day period to file a which to appeal decisions of the RTC to the CTA may be
petition for review to the CTA of an adverse extended.
decision or ruling of the RTC (in the HELD: According to the Court, Section 11 of Republic Act
exercise of its original jurisdiction) be No. 9282 does state that the Petition for Review shall be
extended? filed with the CTA following the procedure analogous to
Rule 42 of the Revised Rules of Civil Procedure. Section
Yes. As held in CITY OF M ANILA VS. COCA-COLA 1, Rule 42 of the Revised Rules of Civil Procedure
provides that the Petition for Review of an adverse
BOTTLERS PHILIPPINES, INC. [AUGUST 4, 2009], it is
judgment or final order of the RTC must be filed with the
clear from the Section 3 of the Revised Rules of the Court of Appeals within: (1) the original 15-day period from
CTA that to appeal an adverse decision or ruling of receipt of the judgment or final order to be appealed; (2)
the RTC to the CTA, the taxpayer must file a Petition an extended period of 15 days from the lapse of the
for Review with the CTA within 30 days from receipt original period; and (3) only for the most compelling
of said adverse decision or ruling of the RTC. It must reasons, another extended period not to exceed 15 days
be pointed out that the rule is silent as to whether from the lapse of the first extended period. Following by
the 30 day period can be extended or not. However, analogy, Section 1, Rule 42 of the Revised Rules of Civil
Section 11 of Republic Act No. 9282 does state that Procedure, the 30-day original period for filing a Petition
for Review with the CTA under Section 11 of Republic Act
the Petition for Review shall be filed with the
No. 9282, as implemented by Section 3 (a), Rule 8 of the
CTA following the procedure analogous to Rule 42 Revised Rules of the CTA, may be extended for a period
of the Revised Rules of Civil Procedure. Following of 15 days. No further extension shall be allowed
by analogy Section 1, Rule 42 of the Revised Rules thereafter, except only for the most compelling reasons, in
of Civil Procedure, the 30-day original period for which case the extended period shall not exceed 15 days
filing a Petition for Review with the CTA under
Section 11 of Republic Act No. 9282, as In MUNICIPALITY OF CAINTA, RIZAL VS. BRILLANTE
implemented by Section 3(a), Rule 8 of the Revised REALTY CORPORATION [CTA AC NO. 88, JANUARY 02,
Rules of the CTA, may be extended for a period 2013], the CTA held that the thirty-day period to
of 15 days. No further extension shall be allowed appeal an adverse decision of the Regional Trial
thereafter, except only for the most compelling Court to the Court of Tax Appeals may be extended
reasons, in which case the extended period shall not for a period of 15 days, subject to filing of motion for
exceed 15 days. extension before the CTA and payment of
appropriate fees.
the Court in Division must be preceded by the filing of a timely MR

or MNT with the Division. (see Section 1, Rule 8, RRCTA)

Q: Does a Motion for Reconsideration of the

decision of the CIR toll the 30 day period to Note: (1) The CTA may issue injunction only in the
exercise of its appellate jurisdiction. CIR vs. J.C. Yuseco
appeal the denial of the protest of the FAN [G.R. No. L-12518, October 28, 1961]
to the CTA?
(2) The prohibition on the issuance of a writ of injunction to
No. A motion for reconsideration of the denial of the enjoin the collection of taxes is applied only to national
administrative protest does not toll the 30-day period internal revenue taxes, not to local taxes. ANGELES CITY V.
to appeal to the CTA. (see FISHWEALTH CANNING ANGELES ELECTRIC CORPORATION [JUNE 29, 2010]
CORPORATION VS. COMMISSIONER OF INTERNAL
REVENUE [JANUARY 21, 2010]) (3) TROs and injunctions issued by courts other than the
CTA against the BIR should be annulled and cancelled for
lack of jurisdiction [see RMO 042-10 [MAY 4, 2010].)
---------------------------------------------------------------
i) Suspension of collection of tax ---------------------------------------------------------------
a) Injunction not available to restrain ii) Taking of evidence
collection ---------------------------------------------------------------
---------------------------------------------------------------
Q: When may the CTA receive evidence?
Q: Does the perfection of an appeal suspend
the collection of taxes? (effect of an appeal) Read Section 2, Rule 12, RRCTA
No appeal taken to the CTA shall suspend the The Court may receive evidence in the following
payment, levy, distraint and/or sale of any of the cases:
taxpayers property for the satisfaction of his tax
liability. However, when in the opinion of the CTA a. In all cases falling within the original jurisdiction
the collection of the tax may jeopardize the interest of the CTA in division pursuant to Section 3, Rule
of the Government and/or the taxpayer, the Court at 4 of the RRCTA
any stage of the proceedings may suspend or b. In appeals in both civil and criminal cases where
restrain the collection of the tax and require the the Court grants a new trial pursuant to Section
taxpayer either to deposit the amount claimed or to 2, Rule 53 and Section 12, Rule 124 of the Rules
file a surety bond for no more than double the of Court
amount with the Court.
Q: Who are authorized to take evidence?
Note: Nonetheless, during the pendency of the appeal, the
taxpayer may still enter into a compromise settlement of
his tax liability for as long as any of the grounds for a Read Section 3-4, Rule 12, RRCTA
compromise (doubtful validity of assessment and financial
incapacity) is present. A compromise of a tax liability is The following are authorized:
possible at any stage of litigation even during appeal
(Pampanga Sugar Co. v. CIR [114 SCRA 496]) a. Any justice of the court when
i. The determination of a question of fact
Q: May the CTA issue an injunction to enjoin arises at any stage of the proceedings or
the collection of taxes by the BIR? ii. The taking of an account is necessary
iii. The determination of an issue of fact
Yes. When a decision of the CIR on a tax protest is requires the examination of a long account
appealed to the CTA, such appeal does not suspend
the payment, levy, distraint and/or sale of any of the b. Any court official for the sole purpose of marking
taxpayers property. However, when in the opinion of comparison with the original and identification by
the CTA the collection of the tax may jeopardize the witnesses of the received documentary evidence
interest of the Government and/or the taxpayer, the
Court at any stage of the proceedings may suspend
or restrain the collection of the tax and require the
taxpayer either to deposit the amount claimed or to
file a surety bond for no more than double the
amount with the Court.

--------------------------------------------------------------- Q: Who may file an appeal to the CTA en

iii) Motion for reconsideration or new trial banc?
---------------------------------------------------------------
a. A party adversely affected by a resolution of
Read Section 1, 4 and 5, Rule 15 a Division of the CTA on a MR or MNT may
file a petition for review with the CTA en
banc
Q: Who may file a MR or MNT? b. A party adversely affected by a decision or
ruling of the CBAA or the RTC in the
Any aggrieved party may seek a reconsideration or exercise of their appellate jurisdiction
new trial of any decision, resolution or order of the
court Note: You cannot directly appeal a decision or order of a
Division to the CTA en banc. You must first file a timely
Note: (1) The period to file the MR or MNT is 15 days. MR or MNT. (see Section 1, Rule 8, RRCTA)
(2) No second MR or MNT is allowed (see Section 7, Q: Is a prior MR required before filing a
Rule 15, RRCTA) Petition for Review of a decision of a CTA
division?
Note, however, that a Motion for Reconsideration filed on
the Amended Decision of the Court in Division is not a
second motion for reconsideration, which is a proscribed
Yes. The mandatory provisions of Rule 8, Section 1
under Section 7, Rule 15 of the CTA Rules, in relation to of the Revised Rules of the Court of Tax
Section 2, Rule 52 of the 1997 Rules of Civil Procedure, Appeals requiring that the petition for review of a
as amended. MIRANT (NAVOTAS II) CORPORATION VS. decision or resolution of the Court in
COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO. Division must be preceded by the filing of a timely
783, JULY 18, 2012 motion for reconsideration or new trial with the
Division. The word "must" clearly indicates the
Q: What is the effect of the filing of the MR mandatory -- not merely directory -- nature of a
or MNT? requirement. The rules are clear. Before the CTA
En Banc could take cognizance of the petition for
The filing of the MR or MNT shall suspend the review concerning a case falling under its exclusive
running of the period within which an appeal may be appellate jurisdiction, the litigant must sufficiently
perfected show that it sought prior reconsideration or moved
for a new trial with the concerned CTA division. (see
COMMISSIONER OF CUSTOMS VS. M ARINA SALES, INC.
Q: What are the grounds for the filing of a
[NOVEMBER 22, 2010])
MR or MNT?
Q: Juday was criminally charged in the CTA
a. Fraud, accident, mistake or excusable negligence for filing a fraudulent income tax return.
(FAME) which ordinary prudence could not have
Thereafter, she filed a motion to quash in
guarded against and by reason of which such
aggrieved party has probably been impaired in the CTA 1st division. The MTQ was denied.
his rights or MR was also denied. She then filed a motion
b. Newly discovered evidence which he could not, for extension of time to file her petition for
with reasonable diligence, have discovered and review in CTA en banc. Thereafter, she filed
produced at the trial and which, if presented, her petition for review with CTA en banc.
would probably alter the result CTA en banc denied both the petition for
extension, and the petition for review, on the
--------------------------------------------------------------- theory that the denial of the motion to quash
b) Appeal to the CTA, en banc was an interlocutory order, and therefore,
--------------------------------------------------------------- unappealable. Was the dismissal by CTA en
banc proper?
Read Section 18, RA 1125
Yes. CTA en banc did not err in denying petitioners
Motion for Extension of Time to File Petition for

Review. Petitioner cannot file a Petition for Review ---------------------------------------------------------------

with the CTA en banc to appeal the Resolution of C. Criminal Cases
the CTA First Division denying her Motion to Quash. a) Institution and prosecution of criminal
The Resolution is interlocutory and, thus, actions
unappealable. Even if her Petition for Review is to
i) Institution of civil action in criminal
be treated as a petition for certiorari, it is dismissible
for lack of merit. (see JUDY ANNE L. SANTOS VS. action
PEOPLE OF THE PHILIPPINES AND BUREAU OF INTERNAL b) Appeal and period to appeal
REVENUE [AUGUST 26, 2008]) i) Solicitor General as counsel for the
people and government officials sued in
--------------------------------------------------------------- their official capacity
c) Petition for review on certiorari to the c) Petition for review on certiorari to the
Supreme Court Supreme Court
--------------------------------------------------------------- ---------------------------------------------------------------
Read Section 19, RA 1125 and Section 1, ---------------------------------------------------------------

Rule 16, RRCTA a) Institution and prosecution of criminal
actions
Q: Who may file an appeal to the Supreme i) Institution of civil action in criminal
Court? action
---------------------------------------------------------------
Any party adversely affected by a decision or ruling
of the Court en banc may appeal to the Supreme Read Section 2, Rule 9, RRCTA
Court.
Q: How are criminal actions instituted?
Q: What is the mode of appeal from the CTA
en banc to the Supreme Court? All criminal actions before the CTA in Division in the
exercise of its original jurisdiction shall be instituted
The mode of appeal is a petition for review on by the filing of an information in the name of the
certiorari under Rule 45. People of the Philippines.
Q: ABC Corporation, engaged in the retail of Note: (1) The institution of the criminal action shall
medicines and other pharmaceutical drugs filed a interrupt the running of the period of prescription
claim for TCC pertaining to the 20% sales discounts
granted to senior citizens. The CTA denied the claim (2) For violations of the NIRC and other laws enforced by
for insufficiency of evidence. Thus, ABC filed its the BIR, the CIR must approve the filing
petition for review before the SC. Instead of filing a
(3) For violations of the TCC and other laws enforced by
reply to the comments of respondent, ABC filed a the BOC, the CoC must approve their filing
motion to withdraw praying that the case be
dismissed without prejudice. According to BAC, the
amount of tax credit being claimed would just be
Read Section 2, Rule 9, RRCTA
included in its future claims for issuance of TCC. The
CIR argues that the decision of the CTA became
final and executory and thus the tax credit could no Q: Who shall prosecute the criminal action?
longer be claimed in the future. Is the contention of
the CIR correct? The criminal actions shall be conduced and
prosecuted under he direction and control of the
Yes. By withdrawing the appeal the taxpayer is public prosecutor
deemed to have accepted the decision of the CTA.
Note: For violations of the NIRC and other laws enforced
And since the CTA had already denied taxpayers
by the BIR and violations of the TCC and other laws
request for the issuance of TCC for insufficiency of enforced by the BoC, the prosecution may be conducted
evidence, it may no longer be included in taxpayers by their respective duly deputized legal officers.
future claim. (Central Luzon Drug Corporation v.
CIR [March 2, 2011] ).

Read Section 12, Rule 9, RRCTA c) Petition for review on certiorari to the
Supreme Court
Q: Is the civil action deemed instituted with ---------------------------------------------------------------
the criminal action?
Note: Same rule as in Civil Cases.
Yes. The criminal action and corresponding civil
action for the recovery of civil liability for taxes and ---------------------------------------------------------------
penalties shall be deemed jointly instituted in the C. Taxpayers suit impugning the validity of
same proceeding. The filing of the criminal action tax measures or acts of taxing authorities
shall necessarily carry with it the filing of the civil ---------------------------------------------------------------
action. No right to reserve the filing of such civil
action separately from the criminal action shall be Q: What is a taxpayers suit?
allowed.
A taxpayers suit is a case where the act
--------------------------------------------------------------- complained of directly involves the illegal
b) Appeal and period to appeal disbursement of public funds derived from taxation.
i) Solicitor General as counsel for the
people and government officials sued in Q: Distinguish a taxpayers suit from a
their official capacity citizens suit?
---------------------------------------------------------------
Taxpayers Citizens Suit
Read Section 9, Rule 9, RRCTA Suit
Definition Case where the Case in which is in the
act complained of nature of a public right,
Q: What are the modes of appeal with directly involves if not the duty of every
respect to criminal cases? the illegal citizen, to institute in
disbursement of protection of the
a. Notice of Appeal pursuant to Sections 3(a) and 6, public funds general public
Rule 122 of the Rules of Court to the CTA in Plaintiff Plaintiff is The plaintiff is but a
Division with respect to an appeal from criminal affected by the mere instrument of
expenditure of public concern.
cases decided by the RTC in the exercise of its
the public funds
original jurisdiction
b. Petition for Review under Rule 43 to the CTA En
Q: How is the concept of locus stand
Banc with respect to criminal cases decided by
i) CTA in Division in the exercise of its applied in a taxpayers suit?
appellate jurisdiction
ii) RTC in the exercise of its appellate Locus standi is a right of appearance in a court of
jurisdiction justice on a given question. It is the personal and
substantial interest in the case, such that the party
Note: In both cases, the period to file is 15 days. has sustained or will sustain direct injury as a result
of a challenged act. In order to challenge the
constitutionality of tax measures or illegal
Read Section 10, Rule 9, RRCTA expenditures of public money, the taxpayer must
have locus standi.
Q: Who shall act as a representative of the
People and the Government? Q: What are the requisites of a taxpayers
suit? (for taxpayers to have locus standi to
The Solicitor General shall represent the People and sue)
government officials sued in their official capacity in
all cases brought to the CTA in the exercise of its As laid down in ANTI-GRAFT LEAGUE V. SAN JUAN
appellate jurisdiction. [260 SCRA 251], the requisites of a taxpayers suit
are:
---------------------------------------------------------------

1. Public funds are disbursed by a political A constitutional question is ripe for adjudication
subdivision or instrumentality and in doing so, a when the government act being challenged has a
law is violated or some irregularity is committed; direct adverse effect on the individual challenging it.
and; As a general rule, a taxpayer must show that he
2. Petitioner is directly affected by the alleged ultra would be prejudiced or benefited by the suit which
vires act questions the validity of the collection of taxes or the
manner of expenditure of funds collected from
Hence, in LOZADA V. COMELEC [120 SCRA 337], it taxation. Personal injury or benefit must be shown
was held that the petitioners action for mandamus for judicial controversy to be ripe for judicial
to compel the COMELEC to hold a special collection determination
is not considered a taxpayers suit because it does
not involve public expenditure. Further, there is no NOTE: However, it must be noted that where the public
allegation that tax money is spent illegally. Also, in interest requires the resolution of the constitutional issues
JOYA V. PCGG [225 SCRA 568], the Supreme Court raised by the taxpayer, the doctrine of ripe for judicial
held that such was not a taxpayers suit because the determination is within the Courts discretion to set aside
ABAKADA GURO PARTY-LIST V. PURISIMA [G.R. NO.
case did not involve a misapplication of public funds. 166715, AUGUST 14, 2008]
In fact, the paintings and antique silverware alleged
to have been public properties were acquire from ========== END OF REVIEWER ============
private sources and not with public money.
Thank you for using my reviewer. Again, if you
Q: Must a taxpayer be a party to a find it useful, please share it to others. Also, if
government contract so that it can its not so much to ask, pray that my girlfriend
challenge the validity of a disbursement of and I do well and pass the bar exams.
public funds?
Ateneo Law Batch 2013 and all the other
barristers who will come to possess this
No. The prevailing doctrine in taxpayers suit is to reviewer, good luck to us all. AMDG.
allow taxpayers to question contracts entered into by
the national government or GOCCs allegedly in For comments, corrections, and suggestions,
contravention of law. A taxpayer need not be a party please email me at pmreyestax@gmail.com.
to the contract to challenge its validity (ABAYA V.
EBDANE [515 SCRA 720])
Q: How is the doctrine of transcendental Prayer to St. Joseph of Cupertino for

importance applied to a taxpayers suit? success in Examinations
As a general rule, only those with locus standi may O Great St. Joseph of Cupertino who while
impugn the tax measure or illegal imbursement of
public funds. However, the Supreme Court has
on earth did obtain from God the grace to be
discretion to entertain a taxpayers suit and brush asked at your examination only the
aside lack of locus standi where the issues are of questions you knew, obtain for me a like
such transcendental importance in keeping with the favour in the examinations for which I am
courts duty to determine if public officers have not now preparing. In return I promise to make
abused the discretion given to them KILOSBAYAN V. you known and cause you to be invoked.
GUINGONA [G.R. 113375, MAY 5, 1994]
Through Christ our Lord.
NOTE: However, while the taxpayer need not suffer
personal damage if matter is of transcental important, he
must prove damage to others. [JUMAMIL V. CAF [G.R. NO. St. Joseph of Cupertino, Pray for us.
144570, SEPTEMBER 1, 2005] Amen.
Q: How is ripeness for judicial

determination applied in a taxpayers suit?


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PM REYES BAR REVIEWER ON TAXATION II

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3. Provide for an equal distribution of wealth

The properties and rights are transferred to the

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The fair market value shall be the Transfer in contemplation of death

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and Z. The CIR contends that such transfers

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Recovable Transfers Proceeds of Life Insurance

Q: What is a revocable transfer? Q: When shall proceeds of the life insurance

Note: (1) The rule on transfer for insufficient

(2) As a numerical example

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Note: Nonresident aliens cannot avail of the special

In determining whether there was sufficient consideration,

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In De Guzman v. De Guzman-Carillo [May 18,

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Unpaid mortgage or indebtedness on Losses

1. Taxes which have accrued as of or before Q: What is a vanishing deduction?

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Read Section 86(A)(5)

3. Subtract 2 from 1 Q: What is the standard deduction?

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any Tax whatsoever) is allowed as a deduction 2. Special deductions

Note: Under Section 86(C), the share of the

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Read Section 87, Tax Code

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Note: To best illustrate or registerable property such as real

--------------------------------------------------------------- Read Section 91-97, Tax Code

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---------------------------------------------------------- Note: Its purpose is to complement estate taxation by

Q: What law governs the imposition of ---------------------------------------------------------------

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1. It must be in public document

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rubber products, the Central Bank required ---------------------------------------------------------------

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c. by parents to each of their legitimate, institution, accredited NGO, trust or

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--------------------------------------------------------------- The tax shall be computed on the basis of the total

Note: To best illustrate

Q: Who are liable for donors tax? Gross gifts made

Q: What is the rule for donations made by Gross gifts made

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--------------------------------------------------------------- Under the VAT method of taxation, which is invoice-

Q: What is the tax credit method?

Under the tax credit method, an entity can credit

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--------------------------------------------------------------- Note: RR 16-2011 [October 27, 2011] increased the

The 12% VAT is based on the gross selling price

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