TRAIN Law Amendments

and
Updates in Taxation Law

by
Japar B. Dimaampao
Associate Justice
Court of Appeals

Continuing Legal Education Program

for Court Attorneys of the
Supreme Court

4 December 2018, 1:15-3:00 pm

PHILJA Training Center
Tagaytay City
 I
SUBSTANTIVE LAW

A.
NEW TAX RULES UNDER
R.A. 10963 Otherwise
Known as TAX REFORM
FOR ACCELERATION AND
INCLUSION (TRAIN)

1.
INCOME TAX

1. Tax exempt – P250,000.00

2. Income Tax Rates. –

 Rates of Tax on Taxable Income of Individuals. — The tax shall

be computed in accordance with and at the rates
established in the following schedule:

(a) Tax Schedule Effective January 1, 2018 until December

31, 2022:

Not over P250,000 0.00%

Over P250,000 but not over P400,000
Over P400,000 but not over P800,000
Over P800,000 but not over P2,000,000
Over P2,000,000 but not over P8,000,000
Over P8,000,000
20% of the excess overP250,000
P30,000 + 25% of the excess over P400,000
P130,000 + 30% of the excess over P2,000,000
P490,000 + 32% of the excess over P2,000,000
P2,410,000 + 35% of the execess over
P8,000,000

Tax Schedule Effective January 1, 2023 and onwards:

Not over P250,000 0.00%

Over P250,000 but not over P400,000
Over P400,000 but not over P800,000
Over P800,000 but not over P2,000,000
Over P200,000 but not over P8,000,000
Over P8,000,000
15% of the excess over P250,000
P22,500 + 20% of the excess over P400,000
P102,500 + 25% of the excess over P800,000
P402,500 + 30% of the excess over P2,000,000
P2,202,500 + 35% of the excess over P8,000,000

3. RATE OF TAX ON INCOME OF PURELY SELF-EMPLOYED

INDIVIDUALS AND/OR PROFESSIONALS WHOSE GROSS SALES OR
GROSS RECEIPTS AND OTHER NON-OPERATING INCOME DO NOT
EXCEED THE VALUE-ADDED TAX (VAT) THRESHOLD OF P3 MILLION –
Self-employed individuals and/or professionals shall have the option to
avail of an eight percent (8%) tax on gross sales or gross receipts and other
non-operating income income in excess of Two Hundred Fifty Thousand
Pesos (P250,000) in lieu of the graduated income tax rates (20%-35%) and
the percentage tax under Section 116 of the Code (3% of the gross sales or
receipts).

4. RATE OF TAX FOR MIXED INCOME EARNERS. – Taxpayers

earning both compensation income and income from business or practice of
profession shall be subject to the following taxes:

(1) All Income from Compensation – 20%-35% tax rates

(2) All Income from Business or Practice of Profession –

“(a) If Total Gross Sales and/or Gross Receipts and Other
Non-operating Income Do Not Exceed the VAT Threshold of
P3 Million – 20%-35% on taxable income, or eight percent
(8%) tax based on gross sales or gross receipts and other
non-operating income in lieu of the graduated income tax
rates (20%-35%) and the percentage tax under Section 116
of the Code (3% of the gross sales or receipts).

5. INTEREST INCOME FROM DEPOSIT UNDER THE FOREIGN

CURRENCY DEPOSIT SYSTEM RECEIVED BY RESIDENT INDIVIDUAL –
15% FINAL INCOME TAX

 USED TO BE SUBJECT TO FINAL INCOME TAX AT THE RATE

OF 7.5%

6. SALES OF SHARES OF STOCK NOT LISTED AND TRADED –

15% FINAL TAX BASED ON NET CAPITAL GAIN

 If traded in the stock exchange – 6/10 of 1% of gross selling

price (percentage tax)

7. EXEMPT GOVERNMENT-OWNED OR CONTROLLED CORPO-

RATIONS

1. GSIS
2. SSS
3. PHIC
4. Local Water Districts

 The PCSO and PAGCOR are no longer tax-exempt.

 Local water districts are granted income tax exemption by virtue
of R.A. No. 10026

8. INTEREST INCOME DERIVED BY A DOMESTIC

CORPORATION FROM A DEPOSITARY BANK UNDER THE EXPANDED
FOREIGN CURRENCY DEPOSIT SYSTEM SHALL BE SUBJECT TO A
FINAL INCOME TAX AT THE RATE OF FIFTEEN PERCENT (15%) OF
SUCH INTEREST INCOME. [Section 7, RA 10963]

9. 13TH MONTH PAY AND OTHER BENEFITS. – Gross benefits

received by officials and employees of public and private entities: Provided,
however, That the total exclusion shall not exceed Ninety Thousand Pesos
(P90,000) which shall cover:

“(i) Benefits (Annual Christmas bonus) received by officials and

 employees of the national and local government pursuant to
Republic Act No. 6686;
“(ii) Benefits (13th Month Pay) received by employees pursuant to
Presidential Decree No. 851, as amended by Memorandum
Order No. 28, dated August 13, 1986; and
“(iii) Benefits received by officials and employees not covered by
Presidential Decree No. 851, as amended by Memorandum
Order No. 28, dated August 13, 1986; and
“(iv) Other benefits such as productivity incentives and Christmas
bonus.” [Section 9, RA 10963]

 Previous total exclusion – P82,000

10. FRINGE BENEFITS — Effective January 1, 2018 and onwards, a

final tax of thirty-five percent (35%) is hereby imposed on the grossed-up
monetary value of fringe benefit furnished or granted to the employee
(except rank and file employees) by the employer, whether an individual or a
corporation unless the fringe benefit is required by the nature of, or
necessary to the trade, business or profession of the employer, or when the
fringe benefit is for the convenience or advantage of the employer. [Section
10, RA 10963]

11. OPTIONAL STANDARD DEDUCTION (OSD)

 A general professional partnership and the partners comprising

such partnership may avail of the optional standard deduction
only once, either by the general professional partnership or the
partners comprising the partnership. [Section 11, RA 10963]

12. SUBSTITUTED FILING OF INCOME TAX RETURNS BY

EMPLOYEES RECEIVING PURELY COMPENSATION INCOME. – Individual
taxpayers receiving purely compensation income, regardless of amount,
from only one employer in the Philippines for the calendar year, the income
tax of which has been withheld correctly by the said employer (tax due
equals tax withheld) shall not be required to file an annual income tax
return. The certificate of withholding filed by the respective employers, duly
stamped “received” by the BIR, shall be tantamount to the substituted filing
of income tax returns by said employees.” [Section 14, RA 10963]

13. INSTALLMENT OF PAYMENT. — When a tax due is in excess of

Two Thousand Pesos (P2,000), the taxpayer other than a corporation, may
elect to pay the tax in two (2) equal installments, in which case, the first
installment shall be paid at the time the return is filed and the second
installment on or before October 15 following the close of the calendar
year, if any installment is not paid on or before the date fixed for its
payment, the whole amount of the tax unpaid becomes due and payable
together with the deliquency penalties.” [Section 16, RA 10963]
 2.
ESTATE TAX

1. ESTATE TAX RATE: Six percent (6%) based on the value of net estate

2. ALLOWABLE DEDUCTIONS FROM GROSS ESTATE:

a) Standard Deduction
a1) Resident Decedent – Five Million Pesos (P5,000,000)
a2) Non-Resident Decedent – Five Hundred Thousand Pesos
(P500,000)
b) Family Home – Ten Million Pesos (P10,000,000)

3. ESTATE TAX RETURNS:

a) Gross estate exceeding P5Million shall be supported with a statement
duly certified to by a certified public accountant
b) Time for filing – within one (1) year from the decedent's death
c) Payment by installment – within two (2) years from the statutory date
for its payment without civil penalty and interest
d) Withdrawal from the decedent's bank deposit account – subject to a
final withholding of six percent (6%)

3.
DONOR'S TAX

1. EXEMPT DONATION: P250,000

2. DONOR'S TAX RATE: 6% of the total gifts in excess of P250,000

3. SALE, EXCHANGE, OR OTHER TRANSFER OF PROPERTY MADE IN

THE COURSE OF BUSINESS (BONA FIDE, AT ARM'S LENGTH, AND
FREE FROM DONATIVE INTENT) – considered as made for an
adequate and full consideration in money or money's worth; hence, no
taxable donation.

4.
VALUE-ADDED TAX (VAT)

1. EXEMPT TRANSACTIONS
a) Importation of professional instruments and implements . . .
personal and household effects belonging to persons coming to settle
in the Philippines or Filipinos, their families and descendants who
are not residents or citizens of other countries, x x x for their own
use and not for barter or sale accompanying such persons, or
arriving within a reasonable time.
b) Sale of residential lot – P1,500,000
c) Sale of residential house and lot – P2,500,000
d) Lease of a residential unit with a monthly rental not exceeding
P15,000
e) Transport of passengers by international carriers
f) Sale or lease of goods and services to senior citizens and persons
with disability (PWD)
 g) Transfer of property pursuant to a plan of merger or consolidation
h) Association dues, membership fees and other assessments and
charges collected by homeowners associations and condominium
corporations
i) Sale of gold to the Bangko Sentral ng Pilipinas (BSP)
j) Sale of drugs and medicines prescribed for diabetes, high cholesterol
and hypertension beginning January 1, 2019
k) Sale or lease of goods or properties or the performance of services –
the gross annual sales and/or receipts do not exceed the amount of
P3Million

2. REFUNDS OR TAX CREDITS OF INPUT TAX

a) The Commissioner shall grant a refund for creditable input taxes
within ninety (90) days from the date of submission of the official
receipts or invoices and other documents in support of the
application
b) The taxpayer affected may, within thirty (30) days from the receipt of
the decision denying the claim, appeal the decision with the Court of
Tax Appeals. Failure on the part of any official, agent, or employee of
the BIR to act on the application within the ninety (90)-day period
shall be punishable under Section 269 of the Code

B.
UPDATES IN
TAX JURISPRUDENCE

1.
TAXES ARE NOT SUBJECT TO SET-OFF; EXCEPTIONS

As a rule, taxes cannot be subject to compensation because the government

and the taxpayer are not creditors and debtors of each other. However, the Supreme
Court allowed the offsetting of taxes under the following exceptional cases:

In Commissioner of Internal Revenue v. Court of Tax Appeals, 234 SCRA 348, the
Court allowed offsetting of taxes in a tax refund case because there was an existing
deficiency income and business tax assessment against the taxpayer. The Court said
that “[t]o award such refund despite the existence of that deficiency assessment is an
absurdity and polarity in conceptual effects” and that “to grant the refund without
determination of the proper assessment and the tax due would inevitably result in
multiplicity of proceedings or suits.

Similarly, in South African Airways v. Commissioner of Internal Revenue, 612

SCRA 665, the Court permitted the offsetting of taxes because the correctness of the
return filed by the taxpayer was put in issue.

In the recent case of SMI-ED Philippines Technology, Inc. v. Commissioner of

Internal Revenue, 739 SCRA 691, the Court also allowed offsetting because there was
a need for the court to determine if a taxpayer claiming refund of erroneously paid
taxes is more properly liable for taxes other than that paid. The Court explained that
the determination of the proper category of tax that should have been paid is not an
assessment but is an incidental issue that must be resolved in order to determine
whether there should be a refund. However, x x x while offsetting may be allowed,
the BIR can no longer assess the taxpayer for deficiency taxes in excess of the
amount claimed for refund if prescription has already set in.

In all these cases, the Supreme Court allowed offsetting of taxes only because
the determination of the taxpayer's liability is intertwined with the resolution of the
claim for tax refund of erroneously or illegally collected taxes under Section 229 of
the NIRC. [CIR v. Toledo Power Company, 775 SCRA 709]

2.
AN OFFLINE INTERNATIONAL AIR CARRIER SELLING
PASSAGE TICKETS IN THE PHILIPPINES, THROUGH
A GENERAL SALES AGENT, IS A RESIDENT FOREIGN
CORPORATION DOING BUSINESS IN THE PHILIPPINES

Doing business includes appointing representatives or distributors operating

under full control of the foreign corporation, domiciled in the Philippines or who in
any calendar year stay in the country for a period totaling one hundred eighty (180)
days or more.

Upon this point, an offline carrier, a foreign air carrier not certified by the
Civil Aeronautics Board, that maintains office or has designated or appointed agents
or employees in the Philippines, through whom, it sells or offers for sale any air
transportation, or negotiates for, or holds itself out by solicitation, advertisement, or
otherwise sells, provides, furnishes, contracts, or arranges for such transportation, is
undoubtedly “doing business” or “engaged in trade or business in the
Philippines.

As such, it is taxable under Section 28(A)(1), and not Section 28(A)(3) of the
1997 National Internal Revenue Code, subject to any applicable tax treaty to which
the Philippines is a signatory. Pursuant to Article 8 of the RP-Canada Tax Treaty,
Air Canada may only be imposed a maximum tax of 1 ½ % of its gross revenues
earned from the sale of its tickets in the Philippines. [Air Canada v. CIR, 778 SCRA
131]

3.
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY
(MCIAA) IS EXEMPT FROM REAL ESTATE TAX

In the 2006 MIAA case, the Supreme Court held that MIAA's airport lands
and buildings are exempt from real estate tax imposed by local governments; that it
is not a GOCC but an instrumentality of the national government, with its real
properties being owned by the Republic of the Philippines, and these are exempt
from real estate tax. The Court declared that MCIAA is an instrumentality of the
national government. [Mactan-Cebu International Airport Authority (MCIAA) v. City of
Lapu-Lapu and Elena T. Pacaldo., 757 SCRA 323]
 4.
THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA)
IS AN INSTRUMENTALITY OF THE NATIONAL GOVERNMENT
EXEMPT FROM PAYMENT OF REAL PROPERTY TAXES

PEZA is an intrumentality of the national government. It is not integrated

within the department framework but is an agency attached to the Department of
Trade and Industry. It administers its own funds and operates autonomously with
the PEZA Board as an instrumentality of the national government. PEZA is vested
with special functions or jurisdiction by law. Being an instrument of the national
government, the PEZA cannot be taxed by local government units. [City of Lapu-Lapu
v. Philippine Economic Zone Authority, 742 SCRA 524]

5.
PAGCOR IS STILL EXEMPT FROM
CORPORATE INCOME TAX WITH RESPECT
TO ITS INCOME FROM GAMING OPERATIONS

Under P.D. 1869, as amended, PAGCOR is subject to income tax only with
respect to its operation of related services. Accordingly, the income tax exemption
ordained under Section 27(c) of R.A. No. 8424 clearly pertains only to PAGCOR's
income from operation of related services. Such income tax exemption could not
have been applicable to PAGCOR's income from gaming operations as it is already
exempt therefrom under P.D. 1869, as amended. Indeed, the grant of tax exemption
or the withdrawal thereof assumes that the person or entity involved is subject to
tax. This is the most sound and logical interpretation because PAGCOR could not
have been exempted from paying taxes which it was not liable to pay in the first
place. This is clear from the wordings of P.D. 1869, as amended, imposing a
franchise tax of five percent (5%) on its gross revenue or earnings derived by
PAGCOR from its operation under the Franchise in lieu of all taxes of any kind or
form, as well as fees, charges or levies of whatever nature, which necessarily include
corporate income tax. [PAGCOR v. BIR, 744 SCRA 712]

6.
NEW DE MINIMIS BENEFITS

Benefits received by an employee by virtue of a collective bargaining

agreement (CBA) and productivity incentive schemes provided that the total annual
monetary value received from both CBA and productivity incentive schemes
combined do not exceed ten thousand pesos (Php10,000.00) per employee per
taxable year. [Revenue Regulations No. 1-2015]

7.
THE 20% SENIOR CITIZEN DISCOUNT
 IS AN EXERCISE OF POLICE POWER

In the recent case of Manila Memorial Park, Inc. v. Secretary of the DSWD, 711
SCRA 302, the Supreme Court ruled that the 20% senior citizen discount is an
exercise of police power. In holding so, the Court explained that the 20% discount is
intended to improve the welfare of senior citizens who, at their age, are less likely to
be gainfully employed, more prone to illness and other disabilities, and, thus, in
need of subsidy in purchasing basic commodities. (T)he 20% discount may be
properly viewed as belonging to the category of price regulatory measures which
affect the profitability of establishments subjected thereto. Ergo, the subject
regulation is a police power measure.

8.
THE SOCIALIZED HOUSING TAX (SHT) IS LEVIED
IN THE EXERCISE OF THE POLICE POWER OF THE STATE

It is settled that the socialized housing tax (SHT) is not a pure exercise of
taxing power or merely to raise revenue; it is levied with a regulatory purpose. The
levy is primarily in the exercise of the police power for the general welfare of the
entire local government unit. It is greatly imbued with public interest. Removing
slum areas is not only beneficial to the underprivileged and homeless constituents
but advantageous to the real property owner as well. The situation will improve the
value of their property investments, fully enjoying the same in view of an orderly,
secure and safe community, and will enhance the quality of life of the poor, making
them law-abiding constituents and better consumers of business products. [Ferrer, Jr.
v. Bautista, 760 SCRA 652]

9.
NATURE OF COCONUT LEVY FUNDS
AND BUILDING PERMIT

The coconut levy funds partake of the nature of taxes and can only be used
for public purpose, and importantly, for the purpose for which it was exacted, i.e.,
the development, rehabilitation and stabilization of the coconut industry. They
cannot be used to benefit ― whether directly or indirectly ― private individuals, be
it by way of a commission, or as the subject Agreement interestingly words it,
compensation. [Cojuangco, Jr. v. Republic, 686 SCRA 472]

It has been held that a building permit is a regulatory imposition. For one, in
processing an application for a building permit, the Building Official shall see to it
that the applicant satisfies and conforms with the approved standard requirements
on zoning and land use, lines and grades, structural design, sanitary and sewerage,
environmental health, electrical and mechanical safety. For another, clearances from
various government authorities exercising and enforcing regulatory functions
affecting buildings/structures may be required before a building permit may be
issued. [Angeles University Foundation v. City of Angeles, 675 SCRA 359]

10.
ST. LUKE'S MEDICAL CENTER, INC., ORGANIZED AS A
 NON-STOCK AND NON-PROFIT CHARITABLE INSTITUTION
IS NOT IPSO FACTO ENTITLED TO A TAX EXEMPTION

There is no dispute that St. Luke’s is organized as a non-stock and non-profit

charitable institution. However, this does not automatically exempt St. Luke’s from
paying taxes. This only refers to the organization of St. Luke’s. Even if St. Luke’s
meets the test of charity, a charitable institution is not ipso facto tax exempt. To be
exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property “actually, directly and
exclusively” for charitable purposes. To be exempt from income taxes, Section 30(E)
of the NIRC requires that a charitable institution must be “organized and operated
exclusively” for charitable purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the institution be “operated exclusively” for
social welfare. [Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc., 682
SCRA 66]

11.
MINIMUM CORPORATE INCOME TAX (MCIT)
IS NOT A TAX ON CAPITAL

The MCIT is imposed on gross income which is arrived at by deducting the

capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other
direct expenses from gross sales. Clearly, the capital is not being taxed. [Chamber of
Real Estate and Builder's Associations, Inc. v. Romulo, 614 SCRA 605, 628]

12.
TOLL FEES COLLECTED BY TOLL OPERATORS
MAY BE SUBJECTED TO VALUE-ADDED TAX

Section 108(A) of the Code clearly states that services of all other franchise grantees
are subject to VAT, except as may be provided under Section 119 of the Code.
Tollway operators are not among the franchise grantees subject to franchise tax
under the latter provision. Neither are their services among the VAT-exempt
transactions under Section 109 of the Code.

x x x The grant of tax exemption is a matter of legislative policy that is within the
exclusive prerogative of Congress. The Court's role is to merely uphold this
legislative policy, as reflected first and foremost in the language of the tax statute.
Thus, any unwarranted burden that may be perceived to result from enforcing such
policy must be properly referred to Congress. The Court has no discretion on the
matter but simply applies the law.

The VAT on the franchise grantees has been in the statute books since 1994 when
R.A. 7716 or the Expanded Value Added Tax law was passed. It is only now,
however, that the executive has earnestly pursued the VAT imposition against
tollway operators. The executive exercises exclusive discretion in matters pertaining
to the implementation and execution of tax laws. Consequently, the executive is
more properly suited to deal with the immediate and practical consequences of the
VAT imposition. [Diaz v. Secretary of Finance, 654 SCRA 96]
 13.
PRIOR PAYMENT OF VALUE-ADDED TAXES IS NOT
A PREREQUISITE BEFORE A TAXPAYER COULD
AVAIL OF THE TRANSITIONAL INPUT TAX CREDIT

A transitional input tax credit is not a tax refund per se but a tax credit. Logically,
prior payment of taxes is not required before a taxpayer could avail of transitional
input tax credit. It is settled that tax credit is not synonymous to tax refund. Tax
refund is defined as the money that a taxpayer overpaid and is thus returned by the
taxing authority. Tax credit, on the other hand, is an amount subtracted directly
form one's total tax liability. It is any amount given to a taxpayer as a subsidy, a
refund, or an incentive to encourage investment. [Fort Bonifacio Development
Corporation v. Commissioner of Internal Revenue, 689 SCRA 76]

14.
LOCAL GOVERNMENT UNITS (LGU) ARE DEVOID
OF TAXING POWER OVER THE MANUFACTURING
AND DISTRIBUTION OF PETROLEUM PRODUCTS

Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is
the petroleum products per se or even the activity or privilege related to the
petroleum products, such as manufacturing and distribution of said products, it is
covered by the limitation under Section 133(h) and thus, no levy can be imposed. On
the contrary, Section 143 of the LGC (RA 7160) defines the general power of LGUs to
tax businesses within its jurisdiction. Thus, the omnibus grant of power to LGUs
under Section 143(h) of the LGC cannot overcome the specific exception or
exemption in Section 133(h) of the same Code. This is in accord with the rule on
statutory construction that specific provisions must prevail over general ones. A
special and specific provision prevails over a general provision irrespective of their
relative positions in the statute. Generalia specialibus non derogant. Where there is in
the same statute a particular enactment and also a general one which in its most
comprehensive sense would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only
such cases within its general language as are not within the provisions of the
particular enactment. [Batangas City v. Pilipinas Shell Petroleum Corporation, 762 SCRA
153, 155]

15.
FLEXIBLE CLAUSE UNDER THE CUSTOMS
MODERNIZATION AND TARIFF ACT (CMTA)

In the interest of the general welfare and national security, the President,
upon recommendation of the National Economic and Development Authority
(NEDA): (1) increase, reduce or remove existing protective tariff rates of import
duty, but in no case shall be higher than one hundred percent (100%) ad valorem; (2)
establish import quota or ban importation of any commodity as may be necessary;
and (3) impose additional duty on all imports not exceeding ten percent (10%) ad
valorem, whenever necessary. This is known as the Flexible Clause enshrined in
Section 1608 of R.A. 10863 otherwise known as the Customs Modernization and
Tariff Act (CMTA).

II
PROCEDURAL LAW
(TAX REMEDIES)

1.
ASSESSMENT IS A WRITTEN NOTICE AND DEMAND

In the context in which it is used in the NIRC, an assessment is a written

notice and demand made by the BIR on the taxpayer for the settlement of a due tax
liability that is there definitely set and fixed. A written communication containing a
computation by a revenue officer of the tax liability of a taxpayer and giving him an
opportunity to contest or disprove the BIR examiner's findings is not an assessment
since it is yet indefinite. We rule that the recommendation letter of the
Commissioner cannot be considered a formal assessment. Even a cursory perusal of
the said letter would reveal three key points: 1. It was not addressed to the
taxpayers. 2. There was no demand made on the taxpayers to pay the tax liability,
nor a period for payment set therein. 3. The letter was never mailed or sent to the
taxpayers by the Commissioner. In fine, the said recommendation letter served
merely as the prima facie basis for filing criminal informations that the taxpayers had
violated Section 45 (a) and (d), and 110, in relation to Section 100, as penalized under
Section 255, and for violation of Section 253, in relation to Section 252 9(b) and (d) of
the Tax Code. [Adamson v. Court of Appeals, 588 SCRA 27]

2.
LIQUIDATION UNDER THE TARIFF AND CUSTOMS
CODE OF THE PHILIPPINES (TCCP) IS AKIN TO
AN ASSESSMENT UNDER THE NIRC

A tax protest case, under the TCCP, involves a protest of the liquidation of
import entries. A liquidation is the final computation and ascertainment by the
collector of the duties on imported merchandise, based on official reports as to the
quantity, character, and value thereof, and the collector's own finding as to the
applicable rate of duty; it is akin to an assessment of internal revenue taxes under
the National Internal Revenue Code where the tax liability of the taxpayer is
definitely determined. [Pilipinas Shell Petroleum Corporation v. Commissioner of
Customs, 589 SCRA 574]

3.
THE SENDING OF A PRELIMINARY ASSESSMENT NOTICE (PAN)
TO TAXPAYER TO INFORM HIM OF THE ASSESSMENT MADE IS
BUT PART OF THE DUE PROCESS REQUIREMENT IN THE
 ISSUANCE OF A DEFICIENCY TAX ASSESSMENT,
THE ABSENCE OF WHICH RENDERS NUGATORY ANY
ASSESSMENT MADE BY THE TAX AUTHORITIES

The use of the word “shall” in subsection 3.1.2 of Revenue Regulations 12-99
(sow Subsection 3.1.1, Revenue Regulations 18-2013) describes the mandatory nature
of the service of a PAN. The persuasiveness of the right to due process reaches both
substantial and procedural rights and the failure of the CIR to strictly comply with
the requirements laid down by law and its own rules is a denial of Metro Star's right
to due process. Thus, for its failure to send the PAN stating the facts and the law on
which the assessment was made as required by Section 228 of R.A. 8424, the
assessment made by the CIR is void. [See Commissioner of Internal Revenue v. Metro
Star Superama, Inc., 637 SCRA 633]

4.
A MOTION FOR RECONSIDERATION OF THE DENIAL OF THE
ADMINISTRATIVE PROTEST DOES NOT TOLL THE 30-DAY
PERIOD TO APPEAL TO THE COURT OF TAX APPEALS

Petitioner's administrative protest was denied by Final Decision on Disputed

Assessment dated August 2, 2005 issued by respondent and which petitioner
received on August 4, 2005. Under Section 228 of the 1997 Tax Code, petitioner had
30 days to appeal respondent's denial of its protest to the CTA. Since petitioner
received the denial of its administrative protest on August 4, 2005, it had until
September 3, 2005 to file a petition for review before the CTA Division. It filed one,
however, on October 20, 2005, hence, it was filed out of time. Indeed, a motion for
reconsideration of the denial of the administrative protest does not toll the 30-day
period to appeal to the CTA. [See Fishwealth Canning Corporation v. Commissioner of
Internal Revenue, 610 SCRA 524]

5.
AN APPEAL TO THE CTA EN BANC MUST BE PRECEDED BY
THE FILING OF A TIMELY MOTION FOR RECONSIDERATION
OR NEW TRIAL WITH THE CTA DIVISION

Section 1, Rule 8 of the Revised Rules of the CTA states:

SECTION 1. Review of cases in the Court en banc. — In cases

falling under the exclusive appellate jurisdiction of the Court en banc,
the petition for review of a decision or resolution of the Court in
Division must be preceded by the filing of a timely motion for
reconsideration or new trial with the Division.

Thus, in order for the CTA En Banc to take cognizance of an appeal via a
petition for review, a timely motion for reconsideration or new trial must first be
filed with the CTA Division that issued the assailed decision or resolution. Failure to
do so is a ground for the dismissal of the appeal as the word “must” indicates that
the filing of a prior motion is mandatory, and not merely directory.

The same is true in the case of an amended decision. Section 3, Rule 14 of the
same rules defines an amended decision as “[a]ny action modifying or reversing a
decision of the Court en banc or in Division.” As explained in CE Luzon Geothermal
Power Company, Inc. v. Commissioner of Internal Revenue, an amended decision is a
different decision, and thus, is a proper subject of a motion for reconsideration.

In this case, the CIR's failure to move for a reconsideration of the Amended
Decision of the CTA Division is a ground for the dismissal of its Petition for Review
before the CTA En Banc. Thus, the CTA En Banc did not err in denying the CIR's
appeal on procedural grounds. (Asia Trust Development Bank, Inc. v. CIR, 823 SCRA
648)

6.
A FORMAL LETTER OF DEMAND WITH ASSESSMENT
NOTICES STATING THAT IT IS BIR'S FINAL DECISION
BASED ON INVESTIGATION IS APPEALABLE TO THE CTA

Allied Banking Corporation received the Formal Letter of Demand with

Assessment Notices, which partly reads:

“It is requested that the above deficiency tax be paid

immediately upon receipt hereof, inclusive of penalties incident to
delinquency. This is our final decision based on investigation. If you
disagree, you may appeal the final decision with thirty (30) days from
receipt hereof, otherwise said deficiency tax assessment shall become
final, executory and demandable.”

A careful reading of the Formal Letter of Demand with Assessment Notices

leads us to agree with Allied Banking Corporation that the instant case is an
exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the
part of the administrative agency concerned. [Allied Banking Corporation v.
Commissioner of Internal Revenue, 611 SCRA 692]

7.
TAXPAYER HAS TWO OPTIONS IN CASE THE BIR
COMMISSIONER FAILED TO ACT ON THE DISPUTED
ASSESSMENT WITHIN THE 180-DAY PERIOD FROM THE DATE
OF SUBMISSION OF RELEVANT SUPPORTING DOCUMENTS

In RCBC v. CIR, 522 SCRA 144, the Court has held that in case the Commissioner
failed to act on the disputed assessment within the 180-day period from date of submission
of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax
Appeals within 30 days after the expiration of the 180-day period; or (2) await the final
decision of the Commissioner on the disputed assessments and appeal such final decision
to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. [Lascona
Land Co., Inc. v. Commissioner of Internal Revenue, 667 SCRA 455]

8.
 THE PROPER PARTY TO SEEK A REFUND FOR
INDIRECT TAX IS THE STATUTORY TAXPAYER

Excise taxes, which apply to articles manufactured or produced in the Philippines

for domestic sale or consumption or for any other disposition and to things imported into
the Philippines, is basically an indirect tax. While the tax is directly levied upon the
manufacturer/importer upon removal of the taxable goods from its place of production or
from the customs custody, the tax, in reality, is actually passed on to the end consumer as
part of the transfer value or selling price of the goods, sold, bartered or exchanged. In early
cases, we have ruled that for indirect taxes (such as valued-added tax or VAT), the proper
party to question or seek a refund of the tax is the statutory taxpayer, the person on whom
the tax is imposed by law and who paid the same even when he shifts the burden thereof
to another. Thus, in Contex Corporation v. Commissioner of Internal Revenue, we held that
while it is true that petitioner corporation should not have been liable for the VAT
inadvertently passed on to it by its supplier since their transaction is a zero-rated sale on the
part of the supplier, the petitioner is not the proper party to claim such VAT refund. Rather,
it is the petitioner’s suppliers who are the proper parties to claim the tax credit and
accordingly refund the petitioner of the VAT erroneously passed on to the latter. [Silkair
(Singapore) Pte. Ltd. v. Commissioner of Internal Revenue, 664 SCRA 33]

9.
IN APPLYING THE TWO-YEAR PERIOD FOR CLAIM
FOR TAX REFUND, THE ADMINISTRATIVE CODE
OF 1987 TAKES PRECEDENCE OVER THE CIVIL CODE

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of
the Administrative Code of 1987 deal with the same subject matter—the
computation of legal periods. Under the Civil Code, a year is equivalent to 365 days
whether it be a regular year or a leap year. Under the Administrative Code of 1987,
however, a year is composed of 12 calendar months. Needless to state, under the
Administrative Code of 1987, the number of days is irrelevant. There obviously
exists a manifest incompatibility in the manner of computing legal periods under
the Civil Code and the Administrative Code of 1987. For this reason, we hold that
Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more
recent law, governs the computation of legal periods. Lex posteriori derogat priori.
[Commissioner of Internal Revenue v. Primetown Property Group, Inc., 531 SCRA 436]

10.
REQUISITES FOR CLAIMING UNUTILIZED/
EXCESS IN INPUT VAT

Pursuant to Section 112 of the National Internal Revenue Code (NIRC) of

1997, the requisites for claiming unutilized/excess VAT, except transitional
input VAT, are as follows:
 1) The taxpayer-claimant is VAT-registered;
2) The taxpayer-claimant is engaged in zero-rated or effectively zero-
rated sales;
3) There are creditable input taxes due or paid attributable to the zero-
rated or effectively zero-rated sales;
4) This input tax has not been applied against the output tax;
5) The application and claim for a refund have been filed within the
prescribed period. [CIR v. Toledo Power Company, 765 SCRA 511]

11.
THE IRREVOCABILITY RULE APPLIES ONLY
TO THE OPTION OF CARRY-OVER

In the recent case of University Physicians Services, Inc. v. CIR, G.R. No.
205955, 7 March 2018, the Supreme Court, passing upon a novel issue, held that the
irrevocability rule is limited only to the option of carry-over such that a taxpayer is
still free to change its choice after electing a refund of its excess tax credit. But once
it opts to carry over such excess creditable tax, after electing refund or issuance of
tax credit certificate, the carry-over option becomes irrevocable. Accordingly, the
previous choice of a claim for refund, even if subsequently pursued, may no longer
be granted. xxx Sections 76 and 228, paragraph (c) of the NIRC, as amended,
unmistakably evince that choice of refund or tax credit certificate is not irrevocable.

12.
A TAX ORDINANCE MAY BE ASSAILED BEFORE THE
SECRETARY OF JUSTICE WITHIN THIRTY (30) DAYS
FROM EFFECTIVITY THEREOF

Clearly, the law requires that the dissatisfied taxpayer who questions the
validity or legality of a tax ordinance must file his appeal to the Secretary of Justice,
within 30 days from effectivity thereof. In case the Secretary decides the appeal, a
period also of 30 days is allowed for an aggrieved party to go to court. But if the
Secretary does not act thereon, after the lapse of 60 days, a party could already
proceed to seek relief in court. These three separate periods are clearly given for
compliance as a prerequisite before seeking redress in a competent court. Such
statutory periods are set to prevent delays as well as enhance the orderly and
speedy discharge of judicial functions. For this reason the courts construe these
provisions of statutes as mandatory. [Cagayan Electric Power and Light Co., Inc. v. City
of Cagayan De Oro, 685 SCRA 609]

13.
THERE IS NO EXPRESS PROVISION IN THE LOCAL GOVERNMENT
CODE (LGC) PROHIBITING COURTS FROM ISSUING
AN INJUNCTION TO RESTRAIN LOCAL
GOVERNMENTS FROM COLLECTING TAXES

A principle deeply embedded in our jurisprudence is that taxes being the

lifeblood of the government should be collected promptly, without unnecessary
hindrance or delay. In line with this principle, the National Internal Revenue Code
of 1997 (NIRC) expressly provides that no court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or
charge imposed by the code. An exception to this rule obtains only when in the
opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the
interest of the government and/or the taxpayer. Unlike the National Internal
Revenue Code, the Local Tax Code does not contain any specific provision
prohibiting courts from enjoining the collection of local taxes. Such statutory lapse
or intent, however it may be viewed, may have allowed preliminary injunction
where local taxes are involved but cannot negate the procedural rules and
requirements under Rule 58. [Angeles City v. Angeles Electric Corporation, 622 SCRA
43]

14.
THE CTA HAS JURISDICTION OVER
PETITIONERS FOR CERTIORARI

The CTA, by constitutional mandate, is vested with the jurisdiction to issue

writs of certiorari.

Reasons:
1. The judicial power of the CTA includes that of determining whether
or not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an interlocutory order in cases
falling within the exclusive appellate jurisdiction of the tax court.

2. In transferring exclusive jurisdiction over appealed tax cases to the

CTA, it can reasonably be assumed that the law intended to transfer also such
power as is deemed necessary, if not indispensable, in aid of such appellate
jurisdiction.

3. The supervisory power or jurisdiction of the CTA to issue a writ of

certiorari in aid of its appellate jurisdiction should co-exist with, and be a
complement to, its appellate jurisdiction to review, by appeal, the final orders
and decisions of the RTC, in order to have complete supervision over the acts
of the latter. [City of Manila v. Grecia-Cuerdo, 715 SCRA 182]

15.
THE CTA EN BANC HAS NO JURISDICTION OVER
PETITION FOR ANNULMENT OF JUDGMENT OF ITS DIVISION

The Revised Rules of the CTA provide for no instance of an annulment of

judgment. The CTA en banc may not reverse, annul or void a final decision of a
division. Instead, what remained as a remedy for the aggrieved party was to file a
petition for certiorari under Rule 65, which could have been filed as an original
action before the Supreme Court and not before the CTA En Banc. [CIR v. Kepco Ilijan
Corporation, 794 SCRA 193]

16.
THE SECRETARY OF JUSTICE HAS JURISDICTION
OVER THE DISPUTE BETWEEN PSALM (POWER SECTOR
ASSETS AND LIABILITIES MANAGEMENT CORPORATION)
AND NPC AND BIR OVER THE IMPOSITION OF
VAT ON THE SALE OF THE TWO POWER PLANTS

A dispute between PSALM and NPC and BIR, which are both wholly
government-owned corporations, and the BIR, a government office, over the
imposition of VAT on the sale of the two power plants is vested in the Secretary of
Justice. There is no question that original jurisdiction is with the CIR, who issues the
preliminary and the final tax assessments. However, if the government entity
disputes the tax assessment, the dispute is already between the BIR (represented by
the CIR) and another government entity, in this case, the petitioner PSALM. Under
Presidential Decree No. 242 (PD 242), all disputes and claims solely between
government agencies and offices, including government-owned or controlled
corporations, shall be administratively settled or adjudicated by the Secretary of
Justice, the Solicitor General, or the Government Corporate Counsel, depending on
the issues and government agencies involved. [PSALM v. CIR, 835 SCRA 235)

17.
THE COURT OF TAX APPEALS MAY TAKE COGNIZANCE
OF CASES DIRECTLY CHALLENGING THE
CONSTITUTIONALITY OR VALIDITY OF A TAX LAW
OR REGULATION OR ADMINISTRATIVE ISSUANCE

The Court of Tax Appeals has undoubted jurisdiction to pass upon the
constitutionality or validity of a tax law or regulation when raised by the taxpayer as
a defense in disputing or contesting an assessment or claiming a refund. It is only in
the lawful exercise of its power to pass upon all the matters brought before it, as
sanctioned by Section 7 of Republic Act No. 1125, as amended.

Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 129
provides an exception to the original jurisdiction of the Regional Trial Courts over
actions questioning the constitutionality or validity of tax laws or regulations.
Except for local tax cases, actions directly challenging the constitutionality or
validity of a tax law or regulation or administrative issuance may be filed directly
before the Court of Tax Appeals. [Banco De Oro, et al. v. Secretary of Finance, 800
SCRA 392]

18.
THE IRREVOCABILITY RULE APPLIES ONLY
TO THE OPTION OF CARRY-OVER

In the recent case of University Physicians Services, Inc. v. CIR, G.R. No.
205955, March 7, 2018, the Supreme Court, passing upon a novel issue, held that the
irrevocability rule is limited only to the option of carry-over such that a taxpayer is
still free to change its choice after electing a refund of its excess tax credit. But once it
opts to carry over such excess creditable tax, after electing refund or issuance of tax
credit certificate, the carry-over option becomes irrevocable. Accordingly, the
previous choice of a claim for refund, even if subsequently pursued, may no longer
be granted. x x x Section 76 and 228, paragraph (c) of the NIRC, as amended,
unmistakably evince that choice of refund or tax credit certificate is not irrevocable.

19.
BOND MAY BE DISPENSED WITH
UNDER EXCEPTIONAL CASES

In the recent case of Pacquiao v. CTA, 789 SCRA 19, the Supreme Court
echoed the recognized exceptions to the filing of the required bond, viz:

1) The taxpayer need not file a bond if the method employed by the
collector in the collection of the tax is not sanctioned by law.
2) The order of the Collector of Internal Revenue to effect collection of
the alleged income taxes through summary administrative
proceeding had been issued well beyond the three-year period of
limitation.

The purpose of the rule is not only to prevent jeopardizing the interest of the
taxpayer, but more importantly, to prevent the absurd situation wherein the court
would declare that the collection by the summary methods of distraint and levy was
violative of law, and then, in the same breath, require the taxpayer to deposit or file
a bond as a prerequisite for the issuance of a writ of injunction.