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I. General Principles
Q. What are the relevant theories governing the state’s inherent power to tax?
A. Relevant Theories: Necessity Theory – existence of government is a necessity, therefore it has
the right to compel citizens and property to pay taxes; Benefits – Protection Theory – payment of
taxes allows a citizen to enjoy benefits in an organized society; and Life Blood Theory – taxes
constitute the lifeblood of the country and taxes support the operations of government and the
public services extended to the people.
Lifeblood Theory: Taxes are the lifeblood of the nation. The Philippines has been struggling to
improve its tax efficiency collection for the longest time with minimal success. Consequently, the
Philippines has suffered the economic adversities arising from poor tax collections, forcing the
government to continue borrowing to fund the budget deficits. (Western Mindanao Power Corp v.
CIR, 2013)
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. (National Power Corporation v. City of Cabanatuan, (2003))
Benefits Protection Theory: The individual receives the equivalent of the tax in the form of
protection and benefit he receives from the government as such. Churchill and Tait vs. Rafferty,
32 Phil. 580, No. 10572, December 21, 1915)
Necessity Theory: The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State’s sovereignty and a means to give the
citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil
servants to serve, public improvements designed for the enjoyment of the citizenry and those which
come within the State’s territory, and facilities and protection which a government is supposed to
provide. (Phil. Guaranty Co., Inc, vs. Commissioner of Int. Rev., 13 SCRA 775, No. L-22074
April 30, 1965)
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Q. What is the distinction between the power to tax and the exercise of police power?
A. When the purpose of the imposition of a royalty fee upon an oil company is not for the purpose
of generating revenue but a recognition that the oil industry is imbued with public interest, then the
royalty fee will be considered as a regulatory fee.
*Simply stated an imposition that is for revenue is generally a tax while an imposition that has
another purpose such as regulation is an exercise of police power. (Chevron v. BCDA and CDC)
Q. When enacting tax measures, what general guidelines must the legislator consider?
A. In enacting tax measures the legislator must exert every effort to distribute the tax burden
between individuals or classes of population; in general, to redistribute resources between
individuals (to include some form subsidy by way of support to particular classes like the senior
citizens, the poor, the retired employees, the disabled); to provide basis for fiscal policy; to modify
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patterns of consumption or employment (may have incentives or factors to make them less
attractive).
Q. The employees of the Bureau of Customs assailed the constitutionality of the Attrition
Law on the following grounds: denial of due process, violative of the equal protection clause,
undue delegation of power, constitutes itself as a bill of attainder and threatens their security
of tenure. Will the case prosper?
A. No. The Attrition Bill is constitutional. There is a valid classification not violative of the equal
protection clause as the employees of BIR and BOC, being involved in revenue collection, are
different from other government employees. The law does not violate due process and security of
tenure; it is also not a bill of attainder as the underperformance is indicated by a clear standard
expressly provided and dismissal is subject to civil service substantive and procedural rules.
(BOCEA v. Sec. Teves)
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A. As a general rule, tax statutes are construed strictly against the government and liberally in
favor of taxpayers; under the lifeblood theory, it frowns against exemptions and there therefore the
taxpayer has the burden of proof to show his claim (strictissimi juris); tax amnesty is never
presumed.
Miramar Fish Company, Inc. v Commissioner of Internal Revenue., G.R. No. 185432, June 4,
2014: A claim for tax refund or credit, like a claim for tax refund exemption, is construed strictly
against the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT
System is compliance with the 120+30 day mandatory and jurisdictional periods.
CIR v. San Roque Power Corp and other consolidated cases, G.R No. 205543, June 30, 2014:
The general rule is that a void law or administrative act cannot be the source of legal rights or
duties. Article 7 of the Civil Code enunciates this general rule, as well as its exception. The Court
said that although Section 4 of the 1997 Tax Code provides that the "power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of
the Commissioner, subject to review by the Secretary of Finance," Section 7 of the same Code does
not prohibit the delegation of such power. Thus, "the Commissioner may delegate the powers
vested in him under the pertinent provisions of this Code to any or such subordinate officials with
the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may
be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner."
The Court further held that provisions of the NIRC particularly Section 112(A) and (C) must be
interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his
administrative claim for refund or credit within the two-year prescriptive period. If he files
his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to decide the claim. If the Commissioner
decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30
days to file his judicial claim with the CTA.
Q. May a private company refuse to grant a 20% senior for its services?
A. No. The validity of the 20% senior citizen discount and tax deduction scheme under RA 9257, as
an exercise of police power of the State, has already been settled in Carlos Superdrug Corporation.
The discount given to senior citizens meets all the requirements under the equal protection
class. Senior citizens are likewise exempt from 12% VAT imposition. (Manila Memorial Park,
Inc and La Funeraria Paz-Sucat v. DSWD Secretary, 2013)
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given its literal application and applied without interpretation. The general rule of requiring
adherence to the letter in construing statutes applies with particular strictness to tax laws and
provisions of a taxing act are not to be extended by implication. A careful reading of
the RMOs pertaining to the Voluntary Assessment Program (VAP) shows that the recording of the
information in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer
may be excluded from the coverage of the VAP. (CIR v. Ariete et al, 2010)
Q. Is a claim for tax exemption tantamount to questioning the authority of the assessor?
A. No. A claim for tax exemption, whether full or partial, does not deal with the authority of local
assessor to assess real property tax. Such claim questions the correctness of the assessment and
compliance with the applicable provisions of Republic Act (RA) No. 7160 or the Local
Government Code (LGC) of 1991, particularly as to requirement of payment under protest, is
mandatory. (Camp John Hay Dev. Corp. v. Central Board of Assessment Appeals (“CBAA”),
2013)
Q. PEZA holds a special charter and created by law. The main objective of the law is to
provide a package of incentives to investors locating in areas identified as export processing
zones. Through the years, PEZA has established a number of these zones. May PEZA be
taxed as a corporate body?
A. No. Being an instrumentality of the national government, the PEZA cannot be taxed by local
government units. Although a body corporate vested with some corporate powers, the PEZA is not
a government-owned or controlled corporation taxable for real property taxes. The PEZA’s
predecessor, the EPZA, it was declared non-profit in character with all its revenues devoted for its
development, improvement, and maintenance. Consistent with this non- profit character, the EPZA
was explicitly declared exempt from real property taxes under its charter. Even the PEZA’s lands
and building whose beneficial use have been granted to other persons may not be taxed with real
property taxes. The PEZA may only lease its lands and buildings to PEZA-registered economic
zone enterprises and entities. These PEZA- registered enterprises and entities, which operate within
economic zones, are not subject to real property taxes. (CITY OF LAPU-LAPU vs. PHILIPPINE
ECONOMIC ZONE AUTHORITY; PROVINCE OF BATAAN, REPRESENTED BY
GOVERNOR ENRIQUE T. GARCIA, JR., AND EMERLINDA S. TALENTO, IN HER
CAPACITY AS PROVINCIAL TREASURER OF BATAAN vs. PHILIPPINE ECONOMIC
ZONE AUTHORITY, G.R No. 184203, G.R NO. 187583, November 26, 2014)
Q. Can an entity located within an ECOZONE seek from BIR the refund of its unutilized
input taxes?
A. No. CORAL BAY NICKEL CORPORATION v. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 190506, June 13, 2016: Under the destination principle and cross border
doctrine, sales of goods and services to Coral Bay Nickel Corporation, a PEZA-registered
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enterprise located in Rio Tuba Export Processing Zone (Ecozone) is subject to 0% VAT. The
proper party to seek the tax refunds or credits should be the sellers of the goods, not the BIR. Thus,
Coral Bay Nickel is not entitled to claim for refund of input VAT it paid on its purchases of goods
and services.
Q. The City of Manila sought to enforce both Sections 14 and 21 of the Manila Revenue Code
claiming that the former is a tax on manufacturers, etc. while the latter applies to business
subject to excise, VAT or percentage tax. Will the imposition of both sections amount to invalid
double taxation?
A. Yes. There is in fact double taxation since both sections are being imposed on the same subject
matter (privilege of doing business within the city), for the same purpose, by the same taxing
authority, within the same taxing jurisdiction, for the same taxing period, and of the same kind or
character (a local business tax imposed on gross sales or receipts). NURSERY CARE
CORPORATION; SHOEMART, INC.; STAR APPLIANCE CENTER, INC.; H&B, INC.;
SUPPLIES STATION INC.; and HARDWARE WORKSHOP, INC. vs. ANTHONY
ACEVEDO, in his capacity as THE TREASURER OF MANILA; and THE CITY OF MANILA,
G.R. NO. 180651, July 30, 2014)
Q. CODE-NGO, assisted by RCBC requested for the approval of the Department of Finance
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(“DOF”) in order for the Bureau of Treasury’s (“BOT”) issuance of ten-year zero coupon
treasury certificates (T-notes). These T-Notes would initially be purchased by a special
purpose vehicle on behalf of CODE-NGO, repackaged and sold at a premium to investors as
PEACE Bonds. Thereafter, the BOT issued the T-notes to RCBC on behalf of CODE-NGO.
RCBC Capital, as the lead underwriter, sold the Peace Bonds in the secondary market. Note
that BDO purchased several PEACE Bonds on different dates. However, the BIR issued a
later ruling declaring that the PEACE Bonds, being deposit substitutes, are subject to the
20% final withholding tax. Are these PEACE Bonds subject to final withholding tax?
A. Yes. The Supreme Court held that the number of lenders is determinative of whether a debt
instrument should be considered a deposit substitute and consequently subject to the 20% final
withholding tax. From the point of view of the financial market, the phrase “at any one time” for
purposes of determining the “20 or more lenders” would mean every transaction executed in the
primary or secondary market in connection with the purchase or sale of securities. Where the
financial assets involved are government securities like bonds, the reckoning of the “20 or more
lenders/investors” is made at any transaction in connection with the purchase or sale of the
government bonds, such as: a) Issuance by the Bureau of Treasury of the bonds to the Government
Securities Eligible Dealers (GSEDs) in the primary market; b) Sale and distribution by GSEDs to
various lenders/investors in the secondary market; c) Subsequent sale or trading by a bondholder
to another lender/investor in the secondary
market usually through a broker or dealer; or d) Sale
by a financial intermediary-bondholder of its participation interests in the bonds to
individual or
corporate lenders in the secondary market.
When, through any of the foregoing transactions, funds are simultaneously obtained from 20 or
more lenders/investors, there is deemed to be a public borrowing and the bonds at that point in time
are deemed deposit substitutes. Consequently, the seller is required to withhold the 20% final
withholding tax on the imputed interest income from the bonds.
* note that this was asked in the 2014 bar even though excluded in the coverage
Philacor Credit Corp v. CIR, 2013: DST is due the person (1) making; (2) signing; (3) issuing;
(4) accepting; or (5) transferring the taxable documents.
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Q. Is an electronic message with instruction to debit an account and pay a person subject to
DST?
A. No. On review with the Supreme Court, it held that an electronic message containing
instructions to debit their respective local or foreign currency accounts in the Philippines and pay a
certain named recipient also residing in the Philippines is not transaction contemplated under
Section 181 of the Tax Code. They are also not bills of exchange due to their non-negotiability.
Hence, they are not subject to DST. (THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED-PHILIPPINE BRANCHES vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 166018 & 167728, June 4, 2014)
Philippine Bank Communications Vs. Commissioner of Internal Revenue, G.R. No. 194065.
June 20, 2016: The payment of the DST and the filing of the DST Declaration Return upon
loading/reloading of the DS metering machine must not be considered as the "date of payment"
when the prescriptive period to file a claim for a refund/credit must commence. For DS metering
machine users, the payment of the DST upon loading/reloading is merely an advance
payment for future application. The liability for the payment of the DST falls due only
upon the occurrence of a taxable transaction. Therefore, it is only then that payment may be
considered for the purpose of filing a claim for a refund or tax credit. Since actual payment was
already made upon loading/reloading of the DS metering machine and the filing of the DST
Declaration Return, the date of imprinting the documentary stamp on the taxable
document must be considered as the date of payment contemplated under Section 229 of the NIRC.
Q. What is the 120+30 Rule in a Claim for refund or credit of unutilized input tax under
Section 112 of NIRC?
A. Requisites – first, administrative claim must be filed with BIR within two years after the close of
taxable quarter when zero-rated or effectively zero rated sales were made; second, judicial claim
must be made within 30 days from receipt of BIR decision on tax refund/credit claim or if no action
is received from the BIR within 120 days. (Mindanao Geothermal v. CIR, 2013)
Nippon Express Corp v. CIR, 2013: Failure of BIR to act on a claim within 120 days will allow the
taxpayer to seek relief within 30 days from the lapse of said 120 day period.
CIR v. Visayas Geothermal Power Co., 2013: The failure to observe the 120-day period to claim
refund/credit is considered prematurely filed and CTA cannot take cognizance of the judicial claim.
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Q. Migrant Pagbilao Corporation (MPC) was approved for Effective Zero-Rating for the
construction and operation of its power plant. On March 11, 2002, MPC filed before the BIR
an administrative claim for refund of its input VAT for taxable year 2000.
On March 26, 2002, fearing that the period for filing a judicial claim for refund was about to
expire, MPC proceeded to file a petition for review before the Court of Tax Appeals (CTA),
without waiting for the CIR's action on the administrative claim. The CTA Second Division
partially granted the refund claim of MPC but in the reduced amount of P118,749,001.55,
representing unutilized input VAT incurred for the second, third and fourth
quarters of taxable year 2000. The CTA Second Division held that by
virtue of NAPOCOR's exemption from direct and indirect taxes as provided for in Section
13 of Republic Act No. 6395, MPC's sale of services to NAPOCOR is subject to
VAT at 0% rate. The CTA en banc affirmed in toto the decision of the
CTA Second Division. Is the CTA en banc correct in its ruling?
A. No, the CTA has no jurisdiction over the case. The 120+30 Day Periods are mandatory and
jurisdictional.
MPC filed its petition for review with the CTA on March 26, 2002, or a mere
15 days after it filed an administrative claim for refund with the CIR on March 11, 2002. It then did
not wait for the lapse of the 120-day period expressly provided for by law within which the CIR
shall grant or deny the application for refund. MPC's failure to observe the mandatory 120-day
period under the law was fatal to its immediate filing of a judicial claim before the CTA. It rendered
the filing of the CTA petition premature, and barred the tax court from acquiring jurisdiction over
the same.
Note: A jurisdictional issue may be invoked by the Supreme Court motu proprio , and may
be raised at any stage of the proceedings. (CIR vs. Mirant Pagbilao Corporation, G.R. No.
180434. January 20, 2016)
Northern Mindanao Power Corporation vs. Commissioner of Internal Revenue, G.R. No.
185115, February 18, 2015: In case the BIR fails to act on a claim for refund within the 120-day
period prescribed by law, the taxpayer only has 30 days counted from the expiration of the 120-day
period to appeal the unacted claim with the CTA. A taxpayer’s non-compliance with the mandatory
period of 30 days is fatal to its refund claim on the ground of prescription. Consequently, the CTA
acquires no jurisdiction over the taxpayer’s claim as the petition was belatedly filed.
Q: When must a judicial claim before the CTA be filed, in case of inaction of the BIR for an
application of tax credit/refund?
A. Upon filing of the administrative claim, the BIR is given a period of 120 days within which to
(1) grant a refund or issue the tax credit certificate for creditable input taxes; or (2) make a full or
partial denial of the claim for a tax refund or tax credit. Failure on the part of the BIR to act on the
application within the 120-day period shall be deemed a denial. Note that the 120-day period begins
to run from the date of submission of complete documents supporting the administrative claim. If
there is no evidence showing that the taxpayer was required to submit – or actually submitted –
additional documents after the filing of the administrative claim, it is presumed that the complete
documents accompanied the claim when it was filed.
Whether the BIR rules in favor of or against the taxpayer – or does not act at all on the
administrative claim – within the period of 120 days from the submission of complete documents,
the taxpayer may resort to a judicial claim before the CTA. The judicial claim shall be filed within
a period of 30 days after the receipt of respondent's decision or ruling or after the expiration of the
120-day period, whichever is sooner.
The judicial claim shall be filed within a period of 30 days after the receipt of respondent's decision
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The SC ruled that the jurisdiction of the CTA over decisions or inaction of the CIR is only appellate
in nature and, thus, necessarily requires the prior filing of an administrative case before the CIR
under Section 112. A petition filed prior to the lapse of the 120-day period prescribed under said
Section would be premature for violating the doctrine on the exhaustion of administrative
remedies. There is, however, an exception to the mandatory and jurisdictional nature of the 120+30
day period under BIR Ruling No. DA-489-03, dated December 10, 2003, expressly stated that the
“taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial
relief with the CTA by way of Petition for Review.” (TAGANITO MINING CORPORATION vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 198076, November 19, 2014 and G.R.
No. 201195, November 26, 2014)
Q. What is the purpose of the requirement for printing of sales invoices and official receipts?
A. In Silicon Valley, Phils., Inc. v. CIR, 2011, the Supreme Court reiterated that the requirement of
[printing] the BIR permit to print on the face of the sales invoices and official receipts is a control
mechanism adopted by the Bureau of Internal Revenue to safeguard the interest of the government.
Without producing the Authority to Print, the taxpayer cannot claim any tax refund/tax credit.
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Q. May a claim of refund prosper if the VAT invoices do not indicate the transactions as
zero-rated?
A. No. The Court stressed that the failure to indicate the words “zero-rated” on the invoices and
receipts issued by a taxpayer would result in the denial of the claim for refund or tax credit.
(EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 183531, March 25, 2015)
Q. In a claim for refund of excess income tax payments resulting from unutilized creditable
withholding taxes, is the taxpayer required to present in evidence its quarterly income tax
return of the subsequent year to prove that excess income tax payment was indeed not
carried over to the succeeding year?
A. No. According to the Supreme Court, subsequent quarterly income tax returns are not
indispensable. What Sec. 76 of the Tax Code requires is to prove the prima facie entitlement to a
claim, including the fact of not having carried over the excess credits to the subsequent quarters or
taxable year. It does not say that to prove such a fact, succeeding quarterly ITRs are absolutely
needed. This simply underscores the rule that any document, other than quarterly ITRs may be used
to establish that indeed the non-carry over clause has been complied with, provided that such is
competent, relevant and part of the records. (Winebrenner & Iñigo Insurance Brokers, Inc. vs.
Commissioner of Internal Revenue, 748 SCRA 591, G.R. No. 206526 January 28, 2015)
Q. May the BIR impose conditions not included in a tax treaty for the application of tax
relief?
A. No. A tax treaty is an agreement that provides for a uniform treatment of a taxable event
between agreeing countries. The Court reiterated that the purpose of a tax treaty is “it is used to
reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer
avoid international juridical double taxation. Double taxation is the imposition of comparable taxes
in two or more states on the same taxpayer in respect of the same subject matter and for identical
periods”
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Thus the Court held that the BIR cannot impose additional requirements that would negate the
availment of relief provided under international agreements. (Deutsche Bank v. CIR, 2013)
Q. Are persons selling aviation fuel exempt from paying taxes for selling their fuel to
international air carriers?
A. Under the basic international law principle of pacta sunt servanda, the state has the duty to
fulfill its treaty obligations in good faith. This entails harmonization of national legislation with
treaty provisions. Section 135 (a) of the National Internal Revenue Code embodies the country’s
compliance with its undertakings under the 1944 Chicago Convention on International Aviation
(Chicago Convention), Article 24 (9) of which has been interpreted to prohibit taxation of aircraft
fuel consumed for international transport, and various bilateral air service agreements not to
impose excise tax on aviation fuel purchased by international carriers from domestic manufacturers
or suppliers on petroleum products sold to tax-exempt international carriers. Evidently,
construction of the tax exemption provision in question should give primary consideration to its
broad implications on the country’s commitment under international agreements. In view of the
foregoing the Court held that respondent, as the statutory taxpayer who is directly liable to pay the
excise tax on its petroleum products is entitled to a refund or credit of the excise taxes it paid for
petroleum products sold to international carriers, the latter having been granted exemption from the
payment of said excise tax under Section 135 (a) of the NIRC. (Commissioner of Internal Revenue
v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497. February 19, 2014)
Q. What is income?
A. Income consists of profit or gains as to the amount of money coming to a person or corporation
over a specified period of time.
Income: definition, nature, tests when it becomes taxable; inclusions of gross income,
classification as to source (compensation income, fringe benefits, professional income, income
from business, income from dealings in property; passive income investment (ex. Final tax of 20%
on interest income, royalty income except on royalty on books which is subject to 10%, yield on
monetary benefit from deposit substitutes, prizes or awards except PCSO and Lotto winnings);10%
final tax on royalties on literary works, books and musical compositions (LBM); 10% on from
winnings from horse races; 10% on cash and stock dividends for Filipinos, annuities, proceeds
from insurance policies, prizes and awards, pensions, retirement benefit or separation pay; income
from whatever source (ex. forgiveness of indebtedness, tax refund); capital gains tax expect a
question on this review Sec. 24(D) of the NIRC for schedule of rate and for actual computation of
final sale over a property transaction); Tax rates for non-resident aliens are higher. Check
relevant provisions.
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domestic corporations (review principles on transfer pricing); foreign corporations (review profit
sharing for branches) including resident and non-resident foreign corporations, partnerships
including general partnerships, co-ownerships and estates and trusts.
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Q. Enumerate the different kinds of resident foreign corporations and discuss their tax
liabilities, if any.
A. Philippine Branch is a foreign corporation in the Philippines that is allowed by the SEC to do
business in the Philippines in such activities it normally does in its home country. It is normally
taxable in like manner as a local corporation – 12% VAT, 30% corporate income tax, and such
other applicable internal revenue taxes. Also, repatriation of its operational income in the
Philippines is subject to 15% branch profit remittance tax.
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applicable tax treaty. (Air Canada vs. Commissioner of Internal Revenue G.R. No. 169507.
January 11, 2016)
Accenture, Inc. v. CIR, 2012: Tax for services rendered by a resident corporation outside
Philippine territory: The Court held that that the recipient of the service should be doing
business outside the Philippines to qualify for zero-rating is the only logical interpretation of
Section 102(b) (2) of the 1977 Tax Code, as we explained in Burmeister: “This can only be the
logical interpretation of Section 102 (b) (2). If the provider and recipient of the "other services" are
both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise,
those subject to the regular VAT under Section 102 (a) can avoid paying the VAT by simply
stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret
Section 102 (b) (2) to apply to a payer-recipient of services doing business in the Philippines is to
make the payment of the regular VAT under Section 102 (a) dependent on the generosity of the
taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating
payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes
Section 102 (a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax
is a mandatory exaction, not a voluntary contribution. x x x
Further, when the provider and recipient of services are both doing business in the Philippines, their
transaction falls squarely under Section 102 (a) governing domestic sale or exchange of services.
Indeed, this is a purely local sale or exchange of services subject to the regular VAT, unless of
course the transaction falls under the other provisions of Section 102 (b).’
Q. Goodyear Philippines (“Goodyear”) increased its Authorized Capital Stock from P400M
(divided to 4M shares with par value of P100) to P1.73B (divided to 4M common shares and
13.3M preferred shares with par value of P100 each). Consequently, all the preferred shares
wer subscribed by Goodyear Tire and Rubber Company (“GTRC”), a foreign company
registered in the US. Thereafter, Goodyear’s Board of Directors authorized the redemption
of GTRC’s 3.72M worth of preferred shares at the redemption price of P372M representing
the aggregate par value and P97M representing accrued and unpaid dividends. Is the gain
derived by GTRC subject to 15% Final Witholding Tax (“FWT”) on dividends?
A. No. The term dividends means any distribution made by a corporation to its shareholders out of
its earnings or profits and payable to its shareholders, whether in one or in other property. In light of
the foregoing, the Court holds therefore that the redemption price representing the amount of
P97,732,314.00 received by GTRC could not be treated as accumulated dividends in arrears that
could be subjected to 15% FWT. Verily, respondent’s AFS covering the years 2003 to 2009 show
that it did not have unrestricted retained earnings, and in fact, operated in a position of deficit. Thus,
absent the availability of unrestricted retained earnings, the board of directors of respondent had no
power to issue dividends. (Commissioner of Internal Revenue v. Goodyear Philippines Inc., G.R.
No. 216130, August 3, 2016)
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A. Only the net value of the estate is liable to tax. A schedule of brackets of amount of net value
and the corresponding rate schedule per bracket are imposed.
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Internal Revenue, 2012); case is heard initially by a division of the CTA and an appeal can
further be made with the CTA en banc ( within 15 days under Section 4 (A) RULE, 8 in relation
to Rule 43 of the Rules of Civil Procedure) and final arbiter is the Supreme Court. Through the
enactment of Republic Act No. 9282, the jurisdiction of the CTA has been expanded to include not
only civil tax cases but also cases that are criminal in nature, as well as local tax cases, property
taxes and final collection of taxes.
Q. Can a protesting taxpayer appeal to the CIR from the failure to act by the CIR’s
authorized representative?
A. No. In PAGCOR v. Commissioner of Internal Revenue, 27 Jan 2016, the Supreme Court
outlined the remedies available to a protesting taxpayer, to wit:
(1) A whole or partial denial by the CIR's authorized representative may be appealed to the
CIR or the CTA
(2) A whole or partial denial by the CIR may be appealed to the CTA
(3) The CIR or CIR's authorized representative's failure to act may be appealed to the CTA.
NOTE: There is no mention of an appeal to the CIR from the failure to act by the CIR's
authorized representative.
Q. What cases are within the jurisdiction of the Court of Tax Appeals?
A. Pursuant to the provisions of Republic Act No. 1125 and other laws prior to R.A. 9282, the
Court of Tax Appeals retains exclusive appellate jurisdiction to review by appeal, the following:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other
law or part of law administered by the Bureau of Internal Revenue;
2. Decisions of the Commissioner of Customs in cases involving liability for customs duties,
fees or other money charges; seizure, detention or release of property affected; fines,
forfeitures or other penalties imposed in relation thereto; or other matters arising under the
Customs Law or other law or part of law administered by the Bureau of Customs [Rep. Act.
No. 1125, (1954), Sec. 7];
3. In automatic review cases where such decisions of the Commission of Customs favorable
to the taxpayer is elevated to the Secretary of Finance (Sec. 2315, TCC); and
4. Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product,
commodity or article, or the Secretary of Agriculture, in the case of agricultural product,
commodity or article, in connection with the imposition of the Anti-Dumping Duty,
Countervailing and Safeguard Duty [Republic Act Nos. 8751 and 8752, (1999) Sec. 301
(a) and (p), and Republic Act 8800].
Under Republic Act Number 9282, the CTA's original appellate jurisdiction was expanded to
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Q. Petron imported liters of alkylate and paid VAT therein. However, the Collector of
Customs subjected these alkylate imports to excise tax following Customs Memorandum
Circular (CMC) No. 164-2012 stating that alkylate is a product of distillation similar to
naphta and is subject to excise tax under Section 148(e) of the NIRC. Thereafter, Petron filed
a petition for review with the CTA raising the issue of whether its importation of alkylates is
subject to excise tax. The CIR argued that the interpretation of Section 148(e) is an exercise
of her quasi-legislative function, which is reviewable by the Secretary of Finance, thus, the
CTA has no jurisdiction to decide on the matter. Decide.
A. The Court ruled in favor of the CIR. It recognized the fact that the CTA is a court of special
jurisdiction, with power to review by appeal decision involving tax disputes rendered wither by the
Commissioner of Internal Revenue and Commissioner of Customs. Conversely, it has no
jurisdiction to determine the validity of a ruling issued by the CIR or the COC in the exercise of
their quasi-legislative powers to interpret tax laws. In this case, Petron’s tax liability was premised
on the COC’s issuance of CMC No. 164-2012, which gave effect to the CIR’s June 29, 2012 Letter
interpreting Section 148(e) of the NIRC as to include alkylate among the articles subject to customs
duties, hence, Petron’s petition before the CTA ultimately challenging the legality and
constitutionality of the CIR’s interpretation of a tax provision. The CTA had no jurisdiction to take
cognizance of the petition as its resolution would necessarily involve a declaration of the validity or
constitutionality of the CIR's interpretation of Section 148 (e) of the NIRC, which is subject to the
exclusive review by the Secretary of Finance and ultimately by the regular courts. (Commissioner
of Internal Revenue vs. Court of Tax Appeals and Petron Corporation, G.R. No. 207843, July
15, 2015)
Q. Kepco Corporation filed with the BIR its claim for refund for input tax incurred for the
1st and 2nd quarters of calendar year 2000 from its importation and domestic purchases of
capital goods and services preparatory to its production and sales of electricity to
NAPOCOR. For failure of BIR to act upon the claim for refund or issuance of tax credit
certificate, KEPCO filed a Petition for Review. Thereafter, KEPCO filed its Memorandum,
but BIR failed to file its Memorandum despite notice, thus, the case was deemed submitted
for decision. Subsequently, the CTA First Division rendered a Decision, holding that KEPCO
is entitled to a refund for its unutilized input VAT paid. There being no Motion for
Reconsideration filed by BIR, the decision became final and executory. Aggrieved, BIR filed
a petition for annulment of judgment with the CTA en banc but it was dismissed, and its
motion for reconsideration was likewise denied. Does the CTA en banc have jurisdiction to
take cognizance of Petition for Annulment of Judgment filed by BIR?
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A. The Court denied BIR’s Petition as it ruled that SC, CA, and CTA en banc cannot annul
judgment of their divisions. Annulment of Judgment (Rule 47) involves exercise of original
jurisdiction and implies power by a superior court against the final judgment, decision or ruling of
an inferior court based on the grounds of extrinsic fraud and lack of jurisdiction. The Divisions are
not separate and distinct courts but are divisions of one and the same court. There is no hierarchy of
courts within the SC, CA, and CTA, for each remain as one court notwithstanding that they also
work in divisions.
Q. Will a case for tax evasion fail without a deficiency tax assessment?
A. No. BUREAU OF INTERNAL REVENUE, as represented by the COMMISSIONER OF
INTERNAL REVENUE vs. COURT OF APPEALS, SPOUSES ANTONIO VILLAN MANLY,
and RUBY ONG MANLY, G.R No. 197590, November 24, 2014: The Court ruled that tax evasion
is deemed complete when the violator has knowingly and willfully field a fraudulent return with
intent to evade and defeat a part of all of the tax. Corollarily, an assessment of the tax deficiency is
not required in a criminal prosecution for tax evasion. However, in Commissioner of Internal
Revenue v. Court of Appeals, the Court clarified that although a deficiency assessment is not
necessary, the fact that a tax is due must first be proved before one can be prosecuted for tax
evasion. (Commissioner of Internal Revenue v. Kepco Ilijan Corporation, G.R. No. 199422,
June 21, 2016)
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Q. Ms. Sarmiento, Next Mobile Inc’s Director of Finance, executed several waivers of the
statute of limitations to extend the three-year prescriptive period of assessment for taxes due.
Naturally, BIR issued its assessment beyond the prescriptive period. Thereafter, Ms.
Sarmiento contests the issued assessment arguing that her waivers were void because of the
following: (a) waivers were executed without a notarized board authority; (b) the dates of
acceptance by BIR were not indicated therein; (c) several irregularities were present in the
subject waivers; and (d) estoppel does not apply in questioning the validity of waiver of the
statute of limitations. Are the Waivers valid? the BIR’s right to assess already prescribed?
A. No. The general rule is that a waiver of the statute of limitations that does not comply with the
requisites for its validity specified under RMO No. 20-90 and RDAO 01-05 is generally invalid and
ineffective to extend the prescriptive period to assess taxes. However, due to peculiar
circumstances and as an exception to the general rule, the supposedly invalid waivers may be
considered valid for the following reasons:
First, the parties are in pari delicto or in equal fault. The two parties to a controversy are equally
guilty and they shall have no action against each other.
Second, Parties must come to court with clean hands. Parties ho do not come to Court with clean
hands cannot be allowed to benefit from their own wrongdoing. Taxpayer should not be allowed to
benefit from the flaws in its own waivers and successfully insist on their invalidity in order to evade
its responsibility to pay taxes.
Third, taxpayer is estopped from questioning the validity of its Waivers. Verily, the application of
estoppel in this case would promote the administration of the law, prevent injustice and avert the
accomplishment of a wrong. Finally, the Court cannot tolerate a highly suspicious situation. In this
case, the taxpayer, on one hand, after voluntarily executing the Waivers insisted on their invalidity
by raising the very same defects it caused. On the other hand, the BIR miserably failed to exact
from the taxpayer strict compliance with the rules. (COMMISSIONER OF INTERNAL
REVENEU v. NEXT MOBILE, INC., G.R. NO.212825, DECEMBER 7, 2015)
Q: On April 12, 2000, GJM Philippines Manufacturing, Inc. (GJM) filed its Annual Income
Tax Return for the year 1999.
On February 12, 2003, the BIR issued a Pre-Assessment Notice and Details of Discrepancies
against GJM. On April 14, 2003, it issued an undated Assessment Notice, indicating a
deficiency income tax assessment in the amount of PI,480,099.29.
On July 25, 2003, the BIR issued a Preliminary Collection Letter requesting GJM to pay said
income tax deficiency for the taxable year 1999. Said letter was addressed to GJM's former
address in Pio del Pilar, Makati. On August 18, 2003, although the BIR sent a Final Notice
Before Seizure to GJM's address in Cavite, the latter claimed that it did not receive the same.
Is the right to assess prescribed?
A. Yes, the right to assess has prescribed already. CIR has three (3) years from the date of the actual
filing of the return or from the last day prescribed by law for the filing of the return, whichever is
later, to assess internal revenue taxes. GJM filed its Annual Income tax Return for the taxable year
1999 on April 12, 2000. The three (3)-year prescriptive period, therefore, was only until April 15,
2003.
If the taxpayer denies having received an assessment from the BIR, it then
becomes incumbent upon the latter to prove by competent evidence that such
notice was indeed received by the addressee. Here, the onus probandi has shifted to
the BIR to show by contrary evidence that GJM indeed received the assessment in the
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due course of mail. It has been settled that while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a disputable presumption subject to
controversion, the direct denial of which shifts the burden to the sender to prove that the mailed
letter was, in fact, received by the addressee.
BIR failed to prove that GJM received the assessment, thus, right to assess has prescribed.
(Commissioner of Internal Revenue vs. GJM Philippines Manufacturing, Inc., G.R. No. 202695.
February 29, 2016)
Q. What are the rules on protest and refund for income tax?
A. A taxpayer may protest any assessment administratively; taxes may be paid under protest.
General Rule: Refund may be requested by the taxpayer within two years from payment.
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conditions for the grant of a claim for refund of creditable withholding income tax, to wit:
(1) The claim is filed with the Commissioner of Internal Revenue within the two-year
period from the date of payment of the tax;
(2) It is shown on the return of the recipient that the income payment received was declared
as part of the gross income; and
(3) The fact of withholding is established by a copy of a statement duly issued by the payor
to the payee showing the amount paid and the amount of the tax withheld therefrom.
Q. What are the requirements for entitlement of a corporate taxpayer for a refund or the
issuance of tax credit certificate involving excess withholding taxes?
A The Court held that the following requisites must be complied with to sustain the claim for
refund:
1) That the claim for refund was filed within the two-year reglementary period pursuant to Sec.
229 of the NIRC;
2) When it is shown on the ITR that the income payment received is being declared part of the
tax payer’s gross income; and
3) When the fact of withholding is established by a copy of the withholding tax statement, duly
issued by the payor to the payee, showing the amount paid and income tax withheld from that
account. . REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE
COMMISSIONER OF INTERNAL REVENUE vs. TEAM (PHILS.) ENERGY
CORPORATION (FORMERLY MIRANT PHILS ENERGY CORPORATION), G.R. No.
188016, January 14, 2015)
Q. Is the CTA prohibited from determining whether taxes should have been paid because it
is an assessment?
A. No. The Supreme Court ruled that in an action for the refund of taxes allegedly erroneously paid,
the Court of Tax Appeals may determine whether there are taxes that should have been paid is not
assessment. It is incidental to determining whether there should be a refund. (SMI-ED
PHILIPPINES TECHNOLOGY, INC. vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 175410, November 12, 2014)
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The City of Manila, etc. et al. v. Hon. Caridad H. Grecia-Cuerdo etc., et al, G.R. No. 175723.
February 4, 2014: Petitioners availed of the wrong remedy when they filed the special civil action
for certiorari under Rule 65 of the Rules of Court with the Court in assailing the resolutions of the
Court of Appeals (CA) which dismissed their petition filed with the said court and their motion for
reconsideration of such dismissal. Hence, in the instant case, petitioner should have filed a petition
for review on certiorari under Rule 45, which is a continuation of the appellate process over the
original case.
Clark Investors and Locators Association, Inc. vs. Secretary of Finance and Commissioner of
Internal Revenue, G.R. No. 200670, July 6, 2015: A petition for certiorari (Rule 65) cannot be
invoked against the Secretary of Finance and Commissioner of Internal Revenue as they do not fall
within the ambit of a tribunal, board, or officer exercising judicial or quasi-judicial functions in
issuing Revenue Regulations. On the contrary, what they exercise in issuing these Revenue
Regulations is their quasi-legislative or rule-making power, thus, outside the scope of a petition for
certiorari.
V. Local Taxation
Q. What taxes may local government unit collect?
A. Under Section 5 of Article X of the Constitution, local government units are allowed to collect
tolls, fees and charges. (TFC).
Q. Are submarine or underwater cables considered real property, thus subject to real
property tax under the LGC?
A. Yes. Submarine or underwater cables are akin to electric transmission lines which the Court
declared in Manila Electric Company v. City Assessor and City Treasurer of Lucena City (G.R. No.
166202, August 5, 2015), as “no longer exempted from real property tax” and may qualify as
“machinery” subject to real property tax. Both electric lines and communication cables, in the
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strictest sense, are not directly adhered to the soil but pass through posts, relay or landing stations,
but both may be classified under the term “machinery” as real property under Article 415(5) of the
New Civil Code for the simple reason that such pieces of equipment serve the owner's business or
tend to meet the needs of his industry or works that are on real estate. (Capitol Wireless, Inc., v.
The Provincial Treasurer of Batangas, et al., G.R. No. 180110, May 30, 2016)
Q. SNAPM registered its power plant operation as a pioneer enterprise with the Board
of Investments (BOI). BOI approved the application on July 12, 2007.
The Local Government Code exempts BOI-registered pioneer enterprises from the
payment of local business taxes (LBTs) for a period of 6 years from the date of
registration. SNAPM however, overlooked this exemption and paid its LBTs for the year 2007.
On January 20, 2009, SNAPM realized its mistake and notified the officials of
Alfonso Lista, Ifugao, of its exemption from paying LBTs until July 11, 2013. However, the
mayor of Alfonso Lista refused to recognize the exemption. He threatened to
withhold the issuance of a mayor’s Permit should SNAPM refuse to pay its LBTs. Is
SNAPM exempted for paying LBT?
A. A pioneer enterprise registered with the BOI has a clear and unmistakable right to be exempt
from paying LBTs under the Local Government Code, for a period of 6 years from
registration. However, SNAPM's entitlement to a six-year exemption from LBTs already
expired on July 12, 2013; hence, the municipality now has the right to collect LBTs from SNAPM.
(The Municipality of Alfonso Lista, Ifugao, represented by Charles L. Cattiling, in his capacity
as Municipal Mayor and Estrella S. Aliguyon, in her capacity as Municipal Treasurer vs. The
Court of Appeals, Special former Sixth Division and SN Aboitiz Power-Magat, Inc. G.R. No.
191442. July 27, 2016)
Additional Cases:
Camp John Hay Development Corporation v. Central Board of Assessment Appeals, G.R. No.
169234. October 2, 2013. Section 252 and Section 222 of the Local Government Code sets out the
administrative remedies available to a taxpayer or real property owner who does not agree with the
assessment of the real property tax sought to be collected. Two conditions must be met: the
taxpayer/real property owner questioning the assessment should first pay the tax due before his
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protest can be entertained. Secondly, within the period prescribed by law, any owner or person
having legal interest in the property not satisfied with the action of the provincial, city or municipal
assessor in the assessment of his property may file an appeal with the Local Board of Assessment
Appeals (LBAA) of the province or city concerned. Thereafter, within thirty days from receipt, he
may elevate, by filing a notice of appeal, the adverse decision of the LBAA with the Central Board
of Assessment Appeals
Camp John Hay Development Corporation v. Central Board of Assessment Appeals, G.R. No.
169234. October 2, 2013. A claim for exemption from payment of real property taxes does not
actually question the assessor’s authority to assess and collect such taxes, but pertains to the
reasonableness or correctness of the assessment by the local assessor
Smart Communications, Inc. v. Municipality of Malvar, Batangas, G.R. No. 20442. February
18, 2014. Section 5, Article X of the 1987 Constitution provides that “[e]ach local government
unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. The LGC defines the term “charges” as referring to pecuniary liability, as
rents or fees against persons or property, while the term “fee” means “a charge fixed by law or
ordinance for the regulation or inspection of a business or activity. The effect is merely incidental.
Thus, the fees imposed in Ordinance No. 18 are not taxes. Considering that the fees in Ordinance
No. 18 are not in the nature of local taxes, and petitioner is questioning the constitutionality of the
same, the CTA correctly dismissed the petition for lack of jurisdiction.
City of Manila, Hon. Alfredo S. Lim, as Mayor of the City of Manila, et al. v. Hon. Angel Valera
Colet, as Presiding judge, Regional Trial Court of Manila (Br.43), et al. G.R No. 120051,
December 10, 2014: The power to tax of local government units is a delegated power and must be
exercised within the guidelines and limitations that Congress may provide. taxing power of local
government units.
Capitol Wireless, Inc. v. The Province Treasurer of Batangas, G.R. No. 180110. May 30, 2016:
Submarine or undersea communications cables are akin to electric transmission
lines which this Court has recently declared in Manila Electric Company v. City Assessor and
City Treasurer of Lucena City, as "no longer exempted from real property tax" and may qualify as
"machinery" subject to real property tax under the Local Government Code.
Pucuyan v. Manila Electric Company, Inc., G.R. No. 197136. April 18, 2016 The Court finds
that the municipal assessor of Muntinlupa failed to furnish MERALCO with the
mandatory notice of assessment. Section 64 stated that "no court shall entertain any suit assailing
the validity of tax assessed under this Code until the taxpayer shall have paid, under protest, the tax
assessed against him ... " However, in relation to Section 27, the taxpayer's obligation to pay the tax
assessed against him arises only upon notification of such assessment. It bears reiterating that the
assessment fixes and determines the tax liability of the taxpayer. The basic
postulate of fairness thus requires that it is only upon notice of such assessment that the
obligation of the taxpayer to pay the same arises.
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permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and
other charges, until they have legally left the jurisdiction of Customs.
b. Countervailing Duty: The countervailing duty is a special duty charged whenever any
product, commodity or article of commerce is granted directly or indirectly by the government in
the country of origin or exportation, any kind or form of specific subsidy upon the production,
manufacture or exportation of such product, commodity or article, and the importation of such
subsidized product, commodity or article has caused or threatens to cause material injury to a
domestic industry or has materially retarded the growth or prevents the establishment of a domestic
industry.
c. Marking Duty: The marking of articles (or its containers) is a prerequisite for every article or
container imported into the Philippines in accordance with Section 303 of the TCCP. In case of
failure to mark an article or its container at the time of importation, there shall be levied upon
such article a marking duty of 5% ad valorem.
e. General Safeguard Measure: The general safeguard measure is applied by the Secretary of
Trade and Industry, in the case of non-agricultural products, or the Secretary of Agriculture, in the
case of agricultural products, upon positive final determination of the Tariff Commission that a
product is being imported into the country in increased quantities, whether absolute or relative to
domestic production, as to cause or threaten to cause serious injury to the domestic industry.
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In the case of non-agricultural products, however, the Secretary of Trade and Industry shall first
establish that the application of such safeguard measures will be in the course of public interest.
The general safeguard measure shall be limited to the extent of redressing or preventing the injury
and to facilitate adjustments by the domestic industry from the adverse effects directly attributed to
the increased imports.
B. EXPORT DUTIES
C. Remedies
1. The Commissioner of Customs has jurisdiction in cases involving liability for customs duties,
fees or other money charges; seizure, detention or release of property affected; fines, forfeitures or
other penalties imposed in relation thereto; or other matters arising under the Customs Law or other
law or part of law administered by the Bureau of Customs [Rep. Act. No. 1125, (1954), Sec. 7].
2. Decisions of the Commission of Customs favorable to the taxpayer are elevated to the Secretary
of Finance (Sec. 2315, TCC); and
3. The Secretary of Trade and Industry has jurisdiction in the case of non-agricultural product,
commodity or article, while the Secretary of Agriculture, in the case of agricultural product,
commodity or article, in connection with the imposition of the Anti-Dumping Duty, Countervailing
and Safeguard Duty [Republic Act Nos. 8751 and 8752, (1999) Sec. 301 (a) and (p), and Republic
Act 8800].
4. Decisions/ Resolutions of the DTI and DA Secretaries may be elevated to the Tariff
Commission.
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