TAX ATION

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GENERAL PRINCIPLES
b.Regulation As in the case of taxes levied on
I. Concepts, Nature and Characteristics of excises and privileges like those imposed in
Taxation and Taxes. tobacco or alcoholic products or amusement
places like night clubs, cabarets, cockpits, etc.
In the case of Caltex Phils. Inc. vs COA
Taxation Defined: (G.R. No. 92585, May 8, 1992), it was held that
taxes may also be imposed for a regulatory
As a process, it is a means by which the purpose as, for instance, in the rehabilitation and
sovereign, through its law-making body, raises stabilization of a threatened industry which is
revenue to defray the necessary expenses of the affected with public industry like the oil industry.
government. It is merely a way of apportioning
the costs of government among those who in c.Reduction of Social Inequality this is
some measures are privileged to enjoy its made possible through the progressive system of
benefits and must bear its burdens. taxation where the objective is to prevent the
under-concentration of wealth in the hands of few
As a power, taxation refers to the inherent individuals.
power of the state to demand enforced
contributions for public purpose or purposes.
d.Encourage Economic Growth in the realm
of tax exemptions and tax reliefs, for instance,
Rationale of Taxation - The Supreme Court
the purpose is to grant incentives or exemptions
held:
in order to encourage investments and thereby
It is said that taxes are what we pay for
promote the countrys economic growth.
civilized society. Without taxes, the government
would be paralyzed for lack of the motive power
to activate and operate it. Hence, despite the e.Protectionism in some important sectors of
natural reluctance to surrender part of ones the economy, as in the case of foreign
hard-earned income to the taxing authorities, importations, taxes sometimes provide protection
every person who is able must contribute his to local industries like protective tariffs and
share in the running of the government. The customs.
government for its part is expected to respond in
the form of tangible and intangible benefits Taxes Defined
intended to improve the lives of the people and
enhance their moral and material values. The Taxes are the enforced proportional
symbiotic relationship is the rationale of contributions from persons and property levied by
taxation and should dispel the erroneous notion the law-making body of the State by virtue of its
that it is an arbitrary method of exaction by those sovereignty for the support of government and
in the seat of power. for public needs.
Taxation is a symbiotic relationship,
whereby in exchange for the protection that the Essential Characteristic of Taxes [ LEMP3S ]
citizens get from the government, taxes are
paid. (Commissioner of Internal Revenue vs 1.It is levied by the law-making body of the
Allegre, Inc.,et al., L-28896, Feb. 17, 1988) State
The power to tax is a legislative power
Purposes and Objectives of Taxation which under the Constitution only Congress can
exercise through the enactment of laws.
1.Revenue to provide funds or property with Accordingly, the obligation to pay taxes is a
which the State promotes the general welfare and statutory liability.
protection of its citizens.
2.It is an enforced contribution
2.Non-Revenue [PR2EP] A tax is not a voluntary payment or
donation. It is not dependent on the will or
contractual assent, express or implied, of the
a.Promotion of General Welfare Taxation
person taxed. Taxes are not contracts but positive
may be used as an implement of police power in
acts of the government.
order to promote the general welfare of the
people. [see Lutz vs Araneta (98 Phil 148) and
Osmea vs Orbos (G.R. No. 99886, Mar. 31, 3.It is generally payable in money
1993)]
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Tax is a pecuniary burden an exaction to a.It does not mean that only those who are able
be discharged alone in the form of money which to pay and do pay taxes can enjoy the privileges
must be in legal tender, unless qualified by law, and protection given to a citizen by the
such as RA 304 which allows backpay certificates government.
as payment of taxes. b.From the contributions received, the
government renders no special or commensurate
4.It is proportionate in character - It is ordinarily benefit to any particular property or person.
based on the taxpayers ability to pay. c.The only benefit to which the taxpayer is
entitled is that derived from his enjoyment of the
5.It is levied on persons or property - A tax privileges of living in an organized society
may also be imposed on acts, transactions, rights established and safeguarded by the devotion of
or privileges. taxes to public purposes. (Gomez vs Palomar, 25
SCRA 829)
6.It is levied for public purpose or purposes - d.A taxpayer cannot object to or resist the
Taxation involves, and a tax constitutes, a burden payment of taxes solely because no personal
to provide income for public purposes. benefit to him can be pointed out as arising from
the tax. (Lorenzo vs Posadas, 64 Phil 353)
7.It is levied by the State which has jurisdiction
over the persons or property. - The persons, 3.Lifeblood Theory
property or service to be taxed must be subject Taxes are the lifeblood of the government,
to the jurisdiction of the taxing state. being such, their prompt and certain availability
is an imperious need. (Collector of Internal
Revenue vs. Goodrich International Rubber Co.,
Theory and Basis of Taxation Sept. 6, 1965) Without taxes, the government
would be paralyzed for lack of motive power to
1.Necessity Theory activate and operate it.
Taxes proceed upon the theory that the
existence of the government is a necessity; that
it cannot continue without the means to pay its Nature of Taxing Power
expenses; and that for those means, it has the
right to compel all citizens and properties within 1.Inherent in sovereignty The power of
its limits to contribute. taxation is inherent in sovereignty as an incident
In a case, the Supreme Court held that: or attribute thereof, being essential to the
Taxation is a power emanating from existence of every government. It can be
necessity. It is a necessary burden to preserve the exercised by the government even if the
States sovereignty and a means to give the Constitution is entirely silent on the subject.
citizenry an army to resist aggression, a navy to a.Constitutional provisions relating to the power
defend its shores from invasion, a corps of civil of taxation do not operate as grants of the power
servants to serve, public improvements designed to the government. They merely constitute
for the enjoyment of the citizenry and those limitations upon a power which would otherwise
which come with the States territory and be practically without limit.
facilities, and protection which a government is b.While the power to tax is not expressly
supposed to provide. (Phil. Guaranty Co., Inc. vs provided for in our constitutions, its existence is
Commissioner of Internal Revenue, 13 SCRA recognized by the provisions relating to taxation.
775). In the case of Mactan Cebu International
Airport Authority vs Marcos, Sept. 11, 1996, as an
2.The Benefits-Protection Theory incident of sovereignty, the power to tax has
The basis of taxation is the reciprocal duty been described as unlimited in its range,
of protection between the state and its acknowledging in its very nature no limits, so that
inhabitants. In return for the contributions, the security against its abuse is to be found only in
taxpayer receives the general advantages and the responsibility of the legislative which imposes
protection which the government affords the the tax on the constituency who are to pay it.
taxpayer and his property.
2.Legislative in character The power to tax is
exclusively legislative and cannot be exercised by
Qualifications of the Benefit-Protection the executive or judicial branch of the
Theory: government.
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3.Subject to constitutional and inherent for which the taxing power may be used but the
limitations Although in one decided case the degree of vigor with which the taxing power may
Supreme Court called it an awesome power, the be employed in order to raise revenue (I Cooley
power of taxation is subject to certain limitations. 179-181)
Most of these limitations are specifically provided
in the Constitution or implied therefrom while the Constitutional Restraints Re: Taxation is
rest are inherent and they are those which spring the Power to Destroy
from the nature of the taxing power itself While taxation is said to be the power to
although, they may or may not be provided in the destroy, it is by no means unlimited. It is equally
Constitution. correct to postulate that the power to tax is
not the power to destroy while the Supreme
Court sits, because of the constitutional
Scope of Legislative Taxing Power [S2 A P K A restraints placed on a taxing power that violated
M] fundamental rights.
In the case of Roxas, et al vs CTA (April
1.subjects of Taxation (the persons, property or 26, 1968), the SC reminds us that although the
occupation etc. to be taxed) power of taxation is sometimes called the power
2.amount or rate of the tax to destroy, in order to maintain the general
3.purposes for which taxes shall be levied publics trust and confidence in the Government,
provided they are public purposes this power must be used justly and not
4.apportionment of the tax treacherously. The Supreme Court held:
5.situs of taxation The power of taxation is sometimes
6.method of collection called also the power to destroy. Therefore it
should be exercised with caution to minimize
Is the Power to Tax the Power to Destroy? injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly,
In the case of Churchill, et al. vs lest the tax collector kill the hen that lays the
Concepcion (34 Phil 969) it has been ruled that: golden egg. And, in order to maintain the general
The power to impose taxes is one so public trust and confidence in the Government
unlimited in force and so searching in extent so this power must be used justly and not
that the courts scarcely venture to declare that it treacherously.
is subject to any restriction whatever, except The doctrine seeks to describe, in an
such as rest in the discretion of the authority extreme, the consequential nature of taxation
which exercise it. No attribute of sovereignty is and its resulting implications, to wit:
more pervading, and at no point does the power a.The power to tax must be exercised with
of government affect more constantly and caution to minimize injury to proprietary rights of
intimately all the relations of life than through the a taxpayer;
exaction made under it. b.If the tax is lawful and not violative of any of
And in the notable case of McCulloch vs the inherent and constitutional limitations, the
Maryland, Chief Justice Marshall laid down the fact alone that it may destroy an activity or object
rule that the power to tax involves the power of taxation will not entirely permit the courts to
to destroy. afford any relief; and
According to an authority, the above c.A subject or object that may not be destroyed
principle is pertinent only when there is no power by the taxing authority may not likewise be
to tax a particular subject and has no relation to a taxed. (e.g. exercise of a constitutional right)
case where such right to tax exists. This opt-
quoted maxim instead of being regarded as a Power of Judicial Review in Taxation
blanket authorization of the unrestrained use of The courts cannot review the wisdom or
the taxing power for any and all purposes, advisability or expediency of a tax. The courts
irrespective of revenue, is more reasonably power is limited only to the application and
construed as an epigrammatic statement of the interpretation of the law.
political and economic axiom that since the Judicial action is limited only to review
financial needs of a state or nation may outrun where involves:
any human calculation, so the power to meet 1.The determination of validity on the tax in
those needs by taxation must not be limited even relation to constitutional precepts or provisions.
though the taxes become burdensome or 2.The determination, in an appropriate case, of
confiscatory. To say that the power to tax is the the application of the law.
power to destroy is to describe not the purposes
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Aspects of Taxation
1.Levy determination of the persons, property B.As to Burden
or excises to be taxed, the sum or sums to be
raised, the due date thereof and the time and 1.Direct Taxes taxes wherein both the
manner of levying and collecting taxes (strictly incidence as well as the impact or burden of
speaking, such refers to taxation) the tax faces on one person.
examples: income tax, community tax,
2.Collection consists of the manner of donors tax, estate tax
enforcement of the obligation on the part of those
who are taxed. (this includes payment by the 2.Indirect Taxes taxes wherein the incidence
taxpayer and is referred to as tax administration) of or the liability for the payment of the tax falls
The two processes together constitute the on one person, but the burden thereof can be
taxation system. shifted or passed to another person.
examples: VAT, percentage taxes, customs
Basic Principles of a Sound Tax System [FAT] duties excise taxes on certain specific goods
1.Fiscal Adequacy the sources of tax revenue
should coincide with, and approximate the needs Important Points to Consider
of government expenditure. Neither an excess regarding Indirect Taxes:
nor a deficiency of revenue vis--vis the needs of 1.When the consumer or end-user of a
government would be in keeping with the manufacturer product is tax-exempt, such
principle. exemption covers only those taxes for which such
consumer or end-user is directly liable. Indirect
2.Administrative Feasibility tax laws should taxes are not included. Hence, the manufacturer
be capable of convenient, just and effective cannot claim exemption from the payment of
administration. sales tax, neither can the consumer or buyer of
the product demand the refund of the tax that
3.Theoretical Justice the tax burden should be the manufacturer might have passed on to him.
in proportion to the taxpayers ability to pay (Phil. Acetylene Co. inc. vs Commissioner of
(ability-to-pay principle). The 1987 Constitution Internal Revenue et. al., L-19707, Aug.17, 1987)
requires taxation to be equitable and uniform.
2.When the transaction itself is the one that is
tax-exempt but through error the seller pays the
II. Classifications and Distinction tax and shifts the same to the buyer, the seller
gets the refund, but must hold it in trust for
Classification of Taxes buyer. (American Rubber Co. case, L-10963, April
30, 1963)
A.As to Subject matter
3.Where the exemption from indirect tax is given
1.Personal, capitation or poll taxes taxes of to the contractee, but the evident intention is to
fixed amount upon all persons of a certain class exempt the contractor so that such contractor
within the jurisdiction of the taxing power without may no longer shift or pass on any tax to the
regard to the amount of their property or contractee, the contractor may claim tax
occupations or businesses in which they may be exemption on the transaction (Commissioner of
engaged in. Internal Revenue vs John Gotamco and Sons, Inc.,
example: community tax et.al., L-31092, Feb. 27, 1987)

2.Property Taxes taxes on things or property 4.When the law granting tax exemption
of a certain class within the jurisdiction of the specifically includes indirect taxes or when it is
taxing power. clearly manifest therein that legislative intention
example: real estate tax to exempt embraces indirect taxes, then the
buyer of the product or service sold has a right to
3.Excise Taxes charges imposed upon the be reimbursed the amount of the taxes that the
performance of an act, the enjoyment of a sellers passed on to him. (Maceda vs
privilege, or the engaging in an occupation. Macaraig,supra)
examples: income tax, value-added tax,
estate tax or donors tax
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C.As to Purpose examples: national internal revenue taxes,

customs duties
1.General/Fiscal/Revenue tax imposed for the
general purposes of the government, i.e., to raise 2.Municipal/Local Tax tax imposed by Local
revenues for governmental needs. Government units.
Examples: income taxes, VAT, and almost examples: real estate tax, professional tax
all taxes
Regressive System of Taxation vis--vis
2.Special/Regulatory tax imposed for special Regressive Tax
purposes, i.e., to achieve some social or A regressive tax, must not be confused
economic needs. with regressive system of taxation.
Examples: educational fund tax under Real Regressive Tax: tax the rate of which
Property Taxation decreases as the tax base increases.
Regressive System of Taxation:
D.As to Measure of Application focuses on indirect taxes, it exists when there are
more indirect taxes imposed than direct taxes.
1.Specific Tax tax imposed per head, unit or
number, or by some standard of weight or Taxes distinguished from other Impositions
measurement and which requires no assessment
beyond a listing and classification of the subjects a.Toll vs Tax
to be taxed. Toll sum of money for the use of
Examples: taxes on distilled spirits, wines, something, generally applied to the consideration
and fermented liquors which is paid for the use of a road, bridge of the
like, of a public nature.
2.Ad Valorem Tax tax based on the value of
the article or thing subject to tax.
example: real property taxes, customs Tax vs Toll
duties 1.demand of 1.demand of
sovereignty proprietorship
E.As to Date 2.paid for the support 2.paid for the use of
of the government anothers property
3.generally, no limit as 3.amount depends on
1.Progressive Tax the rate or the amount of
to amount imposed the cost of construction
the tax increases as the amount of the income or
or maintenance of the
earning (tax base) to be taxed increases.
public improvement
examples: income tax, estate tax, donors
used
tax
4.imposed only by the 4.imposed by the
government government or private
2.Regressive Tax the tax rate decreases as the individuals or entities
amount of income or earning (tax base) to be
taxed increases.
Note: We have no regressive taxes (this is b.Penalty vs Tax
according to De Leon) Penalty any sanctions imposed as a
punishment for violations of law or acts deemed
injurious.
3.Mixed Tax tax rates are partly progressive
and partly regressive.
Tax vs Penalty
1.generally intended to 1.designed to regulate
4.Proportionate Tax tax rates are fixed on a raise revenue conduct
flat tax base. 2.imposed only by the 2.imposed by the
examples: real estate tax, VAT, and other government government or private
percentage taxes individuals or entities

F.As to Scope or authority imposing the c.Special Assessment vs Tax

tax Special Assessment an enforced
proportional contribution from owners of lands
especially or peculiarly benefited by public
1.National Tax tax imposed by the National improvements.
Government.
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persons and property to exercise privilege

Tax vs Special 6.non-payment does 6.non-payment makes
Assessment not necessarily make the act or business
1.imposed on persons, 1.levied only on land the act or business illegal
property and excise illegal
2.personal liability of 2.not a personal liability
the person assessed of the person assessed, Three kinds of licenses are
i.e. his liability is limited recognized in the law:
only to the land 1.Licenses for the regulation of useful
involved occupations.
3.based on necessity as 3.based wholly on 2.Licenses for the regulation or restriction of non-
well as on benefits benefits useful occupations or enterprises
received 3.Licenses for revenue only
4.general application 4.exceptional both as
(see Apostolic Prefect time and place
vs Treas. Of Baguio, 71 Importance of the distinctions
Phil 547) between tax and license fee:
1.Some limitations apply only to one and not to
Important Points to Consider the other, and that exemption from taxes may
Regarding Special Assessments: not include exemption from license fees.
1.Since special assessments are not taxes within 2.The power to regulate as an exercise of police
the constitutional or statutory provisions on tax power does not include the power to impose fees
exemptions, it follows that the exemption under for revenue purposes. (see American Mail Line vs
Sec. 28(3), Art. VI of the Constitution does not City of Butuan, L-12647, May 31, 1967 and
apply to special assessments. related cases)
2.However, in view of the exempting proviso in 3.An extraction, however, maybe considered both
Sec. 234 of the Local Government Code, a tax and a license fee.
properties which are actually, directly and 4.But a tax may have only a regulatory purpose.
exclusively used for religious, charitable and 5.The general rule is that the imposition is a tax if
educational purposes are not exactly exempt its primary purpose is to generate revenue and
from real property taxes but are exempt from the regulation is merely incidental; but if regulation is
imposition of special assessments as well.( see the primary purpose, the fact that incidentally
Aban) revenue is also obtained does not make the
3 .The general rule is that an exemption from imposition of a tax. (see Progressive
taxation does not include exemption from special Development Corp. vs Quezon City, 172 SCRA
assessment. 629)

d.License or Permit Fee vs Tax e.Debt vs Tax

License or Permit fee is a charge Debt is based upon juridical tie, created by
imposed under the police power for the purposes law, contracts, delicts or quasi-delicts between
of regulation. parties for their private interest or resulting from
their own acts or omissions.
Tax vs
License/Permit Fee Tax vs Debt
1.enforced contribution 1.legal compensation or 1.based on law 1.based on contracts,
assessed by sovereign reward of an officer for express or implied
authority to defray specific purposes 2.generally, cannot be 2.assignable
public expenses assigned
2.for revenue purposes 2.for regulation 3.generally payable in 3.may be paid in kind
purposes money
3.an exercise of the 3.an exercise of the 4.generally not subject 4.may be subject to
taxing power police power to set-off or set-off or compensation
4.generally no limit in 4.amount is limited to compensation
the amount of tax to be the necessary expenses 5.imprisonment is a 5.no imprisonment for
paid of inspection and sanction for non- non-payment of debt
regulation payment of tax except
5.imposed also on 5.imposed on the right poll tax
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6.governed by special 6.governed by the

prescriptive periods ordinary periods of 4.Tariff it may be used in 3 senses:
provided for in the Tax prescriptions a.As a book of rates drawn usually in
Code alphabetical order containing the names of
7.does not draw 7.draws interest when several kinds of merchandise with the
interest except only so stipulated, or in case corresponding duties to be paid for the same.
when delinquent of default b.As duties payable on goods imported or
exported (PD No. 230)
General Rule: Taxes are not subject to set-off or c.As the system or principle of imposing duties
legal compensation. The government and the on the importation/exportation of goods.
taxpayer are not creditors and debtors or each
other. Obligations in the nature of debts are due 5.Internal Revenue refers to taxes imposed by
to the government in its corporate capacity, while the legislative other than duties or imports and
taxes are due to the government in its sovereign exports.
capacity (Philex Mining Corp. vs CIR, 294 SCRA
687; Republic vs Mambulao Lumber Co., 6 SCRA 6.Margin Fee a currency measure designed to
622) stabilize the currency.

Exception: Where both the claims of the 7.Tribute synonymous with tax; taxation
government and the taxpayer against each other implies tribute from the governed to some form of
have already become due and demandable as sovereignty.
well as fully liquated. (see Domingo vs Garlitos, L-
18904, June 29, 1963)
8.Impost in its general sense, it signifies any
tax, tribute or duty. In its limited sense, it means
a duty on imported goods and merchandise.
Pertinent Case:
Inherent Powers of the State
Philex Mining Corp. vs Commissioner of
Internal Revenue 1.Police Power
G.R. No. 125704, Aug. 28, 1998 2.Power of Eminent Domain
3.Power of Taxation
The Supreme Court held that: We have
consistently ruled that there can be no offsetting Distinctions among the Three Powers
of taxes against the claims that the taxpayer may
have against the government. A person cannot Taxation Police Eminent
refuse to pay a tax on the ground that the Power Domain
government owes him an amount equal to or PURPOSE
greater than the tax being collected. The - levied for - exercised - taking of
collection of a tax cannot await the results of a the to promote property for
lawsuit against the government. purpose of public public use
raising welfare thru
f.Tax Distinguished from other Terms. revenue regulations
AMOUNT OF EXACTION
1.Subsidy a pecuniary aid directly granted by - no limit - limited to - no exaction,
the government to an individual or private the cost of compensation
commercial enterprise deemed beneficial to the regulations, paid by the
public. issuance of government
the license
or
2.Revenue refers to all the funds or income surveillance
derived by the government, whether from tax or
BENEFITS RECEIVED
from whatever source and whatever manner.
- no special - no direct - direct benefit
or direct benefits but results in the
3.Customs Duties taxes imposed on goods benefits a healthy form of just
exported from or imported into a country. The received economic compensation
term taxes is broader in scope as it includes but the standard of
customs duties. enjoyment society or
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of the damnum 5.International Comity

privileges absque
of living in injuria is b.Constitutional Limitations or those
an attained expressly found in the constitution or implied
organized from its provision
society
NON-IMPAIRMENT OF CONTRACTS
1.Due process of law
- the - contract - contracts may
impairment may be be impaired 2.Equal protection of law
rule subsist impaired 3.Freedom of Speech and of the press
TRANSFER OF PROPERTY RIGHTS 4.Non-infringement of religious freedom
- taxes paid - no transfer - property is 5.Non-impairment of contracts
become but only taken by the 6.Non-imprisonment for debt or non-payment
part of restraint on govt upon of poll tax
public the exercise payment of just 7.Origin of Appropriation, Revenue and Tariff
funds of property compensation
Bills
right exists
SCOPE
8.Uniformity, Equitability and Progressitivity of
Taxation
- affects all - affects all - affects only
persons, persons, the particular 9.Delegation of Legislative Authority to Fx Tariff
property property, property Rates, Import and Export Quotas
and excise privileges, comprehended 10.Tax Exemption of Properties Actually,
and even Directly, and Exclusively used for Religious
rights Charitable
BASIS 11.Voting requirements in connection with the
- public - public -public Legislative Grant of Tax Exemption
necessity necessity necessity, 12.Non-impairment of the Supreme Courts
and the private property jurisdiction in Tax Cases
right of the is taken for 13.Tax exemption of Revenues and Assets,
state and public use including Grants, Endowments, Donations or
the public to Contributions to Education Institutions
self-
protection c. Other Constitutional Provisions related
and self- to Taxation
preservation
AUTHORITY WHICH EXERCISES THE POWER
1.Subject and Title of Bills
- only by - only by the - may be
the government granted to 2.Power of the President to Veto an items in an
governmen or its public service, Appropriation, Revenue or Tariff Bill
t or its political companies, or 3.Necessity of an Appropriation made before
political subdivisions public utilities money
subdivision 4.Appropriation of Public Money
s 5.Taxes Levied for Special Purposes
6.Allotment to LGC
III. Limitations on the Power of Taxation
Inherent Limitations
Limitations, Classified
A. Public Purpose of Taxes
a.Inherent Limitations or those which restrict 1.Important Points to Consider:
the power although they are not embodied in the a.If taxation is for a public purpose, the tax
Constitution [P N I T E] must be used:
a.1) for the support of the state or
1.Public Purpose of Taxes a.2) for some recognized objects of
2.Non-delegability of the Taxing Power governments or
a.3) directly to promote the welfare of
3.Territoriality or the Situs of Taxation the community (taxation as an implement of
4.Exemption of the Government from taxes police power)
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b.The term public purpose is synonymous

with governmental purpose; a purpose B. Non-delegability of Taxing Power
affecting the inhabitants of the state or
taxing district as a community and not 1. Rationale: Doctrine of Separation of
merely as individuals. Powers; Taxation is purely legislative,
Congress cannot delegate the power to
c. A tax levied for a private purpose others.
constitutes a taking of property without due
process of law. 2. Exceptions:
a. Delegation to the President (Art.VI. Sec.
d. The purposes to be accomplished by 28(2) 1987 Constitution)
taxation need not be exclusively public. Although The power granted to Congress under this
private individuals are directly benefited, the tax constitutional provision to authorize the President
would still be valid provided such benefit is only to fix within specified limits and subject to such
incidental. limitations and restrictions as it may impose,
tariff rates and other duties and imposts include
e. The test is not as to who receives the tariffs rates even for revenue purposes only.
money, but the character of the purpose for Customs duties which are assessed at the
which it is expended; not the immediate result of prescribed tariff rates are very much like taxes
the expenditure but rather the ultimate. which are frequently imposed for both revenue-
raising and regulatory purposes (Garcia vs
g. In the imposition of taxes, public purpose Executive Secretary, et. al., G.R. No. 101273, July
is presumed. 3, 1992)

b. Delegations to the Local Government

2. Test in determining Public Purposes in (Art. X. Sec. 5, 1987 Constitution)
tax It has been held that the general principle
against the delegation of legislative powers as a
a. Duty Test whether the thing to be consequence of the theory of separation of
threatened by the appropriation of public revenue powers is subject to one well-established
is something which is the duty of the State, as a exception, namely, that legislative power may be
government. delegated to local governments. The theory of
non-delegation of legislative powers does not
b. Promotion of General Welfare Test apply in maters of local concern. (Pepsi-Cola
whether the law providing the tax directly Bottling Co. of the Phil, Inc. vs City of Butuan, et .
promotes the welfare of the community in equal al., L-22814, Aug. 28, 1968)
measure.
c. Delegation to Administrative Agencies
with respect to aspects of Taxation not legislative
Basic Principles of a Sound Tax System in character.
(FAT) example: assessment and
collection
a. Fiscal Adequacy the sources of tax revenue
should coincide with, and approximate the needs 3.Limitations on Delegation
of government expenditure. Neither an excess
nor a deficiency of revenue vis--vis the needs of a. It shall not contravene any
government would be in keeping with the Constitutional provisions or inherent limitations of
principle. taxation;
b. The delegation is effected either by the
b. Administrative Feasibility tax laws should Constitution or by validly enacted legislative
be capable of convenient, just and effective measures or statute; and
administration. c. The delegated levy power, except when
the delegation is by an express provision of
c. Theoretical Justice the tax burden should Constitution itself, should only be in favor of the
be in proportion to the taxpayers ability to pay local legislative body of the local or municipal
(ability-to-pay principle). The 1987 Constitution government concerned.
requires taxation to be equitable and uniform.
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4.Tax Legislation vis--vis Tax the tax so laid and thus, the government
Administration - Every system of taxation would be taxing itself to raise money to
consists of two parts: pay over to itself;
a. the elements that enter into the a.2) In order that the functions of the
imposition of the tax [S2 A P K A M], or tax government shall not be unduly impede;
regulation; and and
b. the steps taken for its assessment and a.3) To reduce the amount of money that
collection or tax administration has to be handed by the government in
If what is delegated is tax legislation, the the course of its operations.
delegation is invalid; but if what is involved is 2.Unless otherwise provided by law, the
only tax administration, the non-delegability rule exemption applies only to government entities
is not violated. through which the government immediately and
directly exercises its sovereign powers (Infantry
Post Exchange vs Posadas, 54 Phil 866)
C. Territoriality or Situs of Taxation 3.Notwithstanding the immunity, the
government may tax itself in the absence of any
1.Important Points to Consider: constitutional limitations.
a.Territoriality or Situs of Taxation means 4.Government-owned or controlled
place of taxation depending on the nature corporations, when performing proprietary
of taxes being imposed. functions are generally subject to tax in the
b.It is an inherent mandate that taxation absence of tax exemption provisions in their
shall only be exercised on persons, charters or law creating them.
properties, and excise within the territory of
the taxing power because: E. International Comity
b.1) Tax laws do not operate beyond a
countrys territorial limit. 1.Important Points to Consider:
b.2) Property which is wholly and a.The property of a foreign state or
exclusively within the jurisdiction of government may not be taxed by another.
another state receives none of the
protection for which a tax is supposed to b.The grounds for the above rule are:
be compensation. b.1) sovereign equality among states
b.2) usage among states that when one
c.However, the fundamental basis of the enter into the territory of another, there is an
right to tax is the capacity of the government implied understanding that the power does not
to provide benefits and protection to the intend to degrade its dignity by placing itself
object of the tax. A person may be taxed, under the jurisdiction of the latter
even if he is outside the taxing state, where b.3) foreign government may not be sued
there is between him and the taxing state, a without its consent so that it is useless to assess
privity of relationship justifying the levy. the tax since it cannot be collected
b.4) reciprocity among states
2.Factors to Consider in determining
Situs of Taxation Constitutional Limitations
a.kind and Classification of the Tax
b.location of the subject matter of the tax 1.Due Process of Law
c.domicile or residence of the person
d.citizenship of the person a.Basis: Sec. 1 Art. 3 No person shall be
e.source of income deprived of life, liberty or property without
f.place where the privilege, business or due process of law x x x.
occupation is being exercised
Requisites :
1. The interest of the public generally
D. Exemption of the Government from Taxes as distinguished from those of a
particular class require the
1.Important Points to Consider: intervention of the state;
Reasons for Exemptions: 2. The means employed must be
a.1) To levy tax upon public property reasonably necessary to the
would render necessary new taxes on accomplishment for the purpose
other public property for the payment of and not unduly oppressive;
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San Beda College of LAW ALABANG

3. The deprivation was done under infringes no constitutional limitation. (see

the authority of a valid law or of Commissioner vs. Lingayen Gulf Electric, 164
the constitution; and SCRA 27)
4. The deprivation was done after 5. The rule of uniformity does not call for
compliance with fair and perfect uniformity or perfect equality, because
reasonable method of procedure this is hardly attainable.
prescribed by law.
In a string of cases, the Supreme Court 4.Freedom of Speech and of the Press
held that in order that due process of law must
not be done in an arbitrary, despotic, capricious, a.Basis: Sec. 4 Art. III. No law shall be
or whimsical manner. passed abridging the freedom of speech, of
expression or of the pressx x x
2.Equal Protection of the Law b. Important Points to Consider:
1. There is curtailment of press
a.Basis: Sec.1 Art. 3 xxx Nor shall any freedom and freedom of thought if a tax is levied
person be denied the equal protection of the in order to suppress the basic right of the people
laws. under the Constitution.
Important Points to Consider: 2. A business license may not be
1. Equal protection of the laws required for the sale or contribution of printed
signifies that all persons subject to legislation materials like newspaper for such would be
shall be treated under circumstances and imposing a prior restraint on press freedom
conditions both in the privileges conferred and 3. However, an annual registration
liabilities imposed fee on all persons subject to the value-added tax
2. This doctrine prohibits class does not constitute a restraint on press freedom
legislation which discriminates against some and since it is not imposed for the exercise of a
favors others. privilege but only for the purpose of defraying
part of cost of registration.
b.Requisites for a Valid Classification
1. Must not be arbitrary 5.Non-infringement of Religious Freedom
2. Must not be based upon substantial
distinctions a.Basis: Sec. 5 Art. III. No law shall be
3. Must be germane to the purpose of law. made respecting an establishment of religion
4. Must not be limited to exiting conditions or prohibiting the free exercise thereof. The
only; and free exercise and enjoyment of religious
5. Must play equally to all members of a profession and worship, without
class. discrimination or preference, shall be forever
be allowed. x x x
3.Uniformity, Equitability and b. Important Points to Consider:
Progressivity of Taxation 1. License fees/taxes would constitute a
restraint on the freedom of worship as they are
a.Basis: Sec. 28(1) Art. VI. The rule of actually in the nature of a condition or permit of
taxation shall be uniform and equitable. The the exercise of the right.
Congress shall evolve a progressive system 2. However, the Constitution or the Free
of taxation. Exercise of Religion clause does not prohibit
b. Important Points to Consider: imposing a generally applicable sales and use tax
1. Uniformity (equality or equal on the sale of religious materials by a religious
protection of the laws) means all taxable articles organization. (see Tolentino vs Secretary of
or kinds or property of the same class shall be Finance, 235 SCRA 630)
taxed at the same rate. A tax is uniform when the
same force and effect in every place where the 6.Non-impairment of Contracts
subject of it is found.
2. Equitable means fair, just, reasonable a.Basis: Sec. 10 Art. III. No law impairing
and proportionate to ones ability to pay. the obligation of contract shall be passed.
3. Progressive system of Taxation b.Important Points to Consider:
places stress on direct rather than indirect taxes, 1. A law which changes the terms of the
or on the taxpayers ability to pay contract by making new conditions, or changing
4. Inequality which results in singling out those in the contract, or dispenses with those
one particular class for taxation or exemption expressed, impairs the obligation.
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2. The non-impairment rule, however,

does not apply to public utility franchise since a a.Basis: Sec. 28(3) Art. VI. Charitable
franchise is subject to amendment, alteration or institutions, churches and parsonages or
repeal by the Congress when the public interest convents appurtenant thereto, mosques,
so requires. non-profit cemeteries, and all lands, building,
and improvements actually, directly and
exclusively used for religious, charitable or
7.Non-imprisonment for non-payment of educational purposes shall be exempt from
poll tax taxation.
b. Important Points to Consider:
a.Basis: Sec. 20 Art. III. No person shall be 1. Lest of the tax exemption: the use
imprisoned for debt or non-payment of poll and not ownership of the property
tax. 2. To be tax-exempt, the property
b. Important Points to Consider: must be actually, directly and exclusively used for
1. The only penalty for delinquency in the purposes mentioned.
payment is the payment of surcharge in the form 3. The word exclusively means
of interest at the rate of 24% per annum which primarily.
shall be added to the unpaid amount from due 4. The exemption is not limited to
date until it is paid. (Sec. 161, LGC) property actually indispensable but extends to
2. The prohibition is against facilities which are incidental to and reasonably
imprisonment for non-payment of poll tax. necessary for the accomplishment of said
Thus, a person is subject to imprisonment for purposes.
violation of the community tax law other than for 5. The constitutional exemption
non-payment of the tax and for non-payment of applies only to property tax.
other taxes as prescribed by law. 6. However, it would seem that under
existing law, gifts made in favor or religious
8.Origin or Revenue, Appropriation and charitable and educational organizations would
Tariff Bills nevertheless qualify for donors gift tax
exemption. (Sec. 101(9)(3), NIRC)
a.Basis: Sec. 24 Art. VI. All appropriation,
revenue or tariff bills, bill authorizing 11. Voting Requirements in connection
increase of the public debt, bills of local with the Legislative Grant for tax exemption
application, and private bills shall originate
exclusively in the House of Representatives, a.Basis: Sec. 28(4) Art. VI. No law granting
but the Senate may propose or concur with any tax exemption shall be passed without
amendments. the concurrence of a majority of all the
b. Under the above provision, the Senators members of the Congress.
power is not only to only concur with b. The above provision requires the
amendments but also to propose concurrence of a majority not of attendees
amendments. (Tolentino vs Sec. of Finance, constituting a quorum but of all members of
supra) the Congress.

9.Delegation of Legislative Authority to 12. Non-impairment of the Supreme

Fix Tariff Rates, Imports and Export Quotas Courts jurisdiction in Tax Cases

a.Basis: Sec. 28(2) Art. VI x x x The a.Basis: Sec. 5 (2) Art. VIII. The Congress
Congress may, by law, authorize the shall have the power to define, prescribe, and
President to fix within specified limits, and apportion the jurisdiction of the various
subject to such limitations and restrictions as courts but may not deprive the Supreme
it may impose, tariff rates, import and export Court of its jurisdiction over cases
quotas, tonnage and wharfage dues, and enumerated in Sec. 5 hereof.
other duties or imposts within the framework Sec. 5 (2b) Art. VIII. The Supreme
of the national development program of the Court shall have the following powers: x x
government. x(2) Review, revise, modify or affirm on
appeal or certiorari x x x final judgments and
10.Tax Exemption of Properties Actually, orders of lower courts in x x x all cases
Directly and Exclusively used for Religious, involving the legality of any tax, impost,
Charitable and Educational Purposes
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San Beda College of LAW ALABANG

assessment, or toll or any penalty imposed in 3. Income which is unrelated to school

relation thereto. operations like income from bank deposits, trust
fund and similar arrangements, royalties,
13. Tax Exemptions of Revenues and dividends and rental income are taxable.
Assets, including grants, endowments, 4. The use of the schools income or assets
donations or contributions to Educational must be in consonance with the purposes for
Institutions which the school is created; in short, use must be
school-related, like the grant of scholarships,
a.Basis: Sec. 4(4) Art. XIV. Subject to the faculty development, and establishment of
conditions prescribed by law, all grants, professional chairs, school building expansion,
endowments, donations or contributions used library and school facilities.
actually, directly and exclusively for
educational purposes shall be exempt from
tax. Other Constitutional Provisions related to
b. Important Points to Consider: Taxation
1. The exemption granted to non-stock, non-
profit educational institution covers income, 1.Subject and Title of Bills (Sec. 26(1)
property, and donors taxes, and custom duties. 1987 Constitution)
2. To be exempt from tax or duty, the revenue,
assets, property or donation must be used Every Bill passed by Congress shall
actually, directly and exclusively for educational embrace only one subject which shall be
purpose. expressed in the title thereof.
3. In the case or religious and charitable
entities and non-profit cemeteries, the exemption in the Tolentino E-VAT case, supra, the E-vat,
is limited to property tax. or the Expanded Value Added Tax Law (RA
4. The said constitutional provision granting 7716) was also questioned on the ground that
tax exemption to non-stock, non-profit the constitutional requirement on the title of a
educational institution is self-executing. bill was not followed.
5. Tax exemptions, however, of proprietary (for
profit) educational institutions require prior 2.Power of the President to Veto items in
legislative implementation. Their tax exemption is an Appropriation, Revenue or Tariff Bill
not self-executing. (Sec. 27(2), Art. VI of the 1987 Constitution)
6. Lands, Buildings, and improvements
actually, directly, and exclusively used for The President shall have the power to
educational purposed are exempt from property veto any particular item or items in an
tax, whether the educational institution is Appropriation, Revenue or Tariff bill but the veto
proprietary or non-profit. shall not affect the item or items to which he
does not object.
c.Department of Finance Order No. 137-
87, dated Dec. 16, 1987 3.Necessity of an Appropriation made
before money may be paid out of the
The following are some of the highlights of the Treasury (Sec. 29(1), Art. VI of the 1987
DOF order governing the tax exemption of non- Constitution)
stock, non-profit educational institutions:
1. The tax exemption is not only limited to No money shall be paid out of the
revenues and assets derived from strictly school Treasury except in pursuance of an appropriation
operations like income from tuition and other made by law.
miscellaneous feed such as matriculation, library,
ROTC, etc. fees, but it also extends to incidental 4.Appropriation of Public Money for the
income derived from canteen, bookstore and benefit of any Church, Sect, or System of
dormitory facilities. Religion (Sec. 29(2), Art. VI of the 1987
2. In the case, however, of incidental income, Constitution)
the facilities mentioned must not only be owned
and operated by the school itself but such No public money or property shall be
facilities must be located inside the school appropriated, applied, paid or employed, directly
campus. Canteens operated by mere or indirectly for the use, benefit, support of any
concessionaires are taxable. sect, church, denomination, sectarian institution,
or system of religion or of any priest, preacher,
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minister, or other religious teacher or dignitary as In the case of Manila Electric Co. vs Yatco
such except when such priest, preacher, minister (69 Phil 89), the Supreme Court ruled that
or dignitary is assigned to the armed forces or to insurance premium paid on a fire insurance policy
any penal institution, or government orphanage covering property situated in the Phils. are
or leprosarium. taxable in the Phils. Even though the fire
insurance contract was executed outside the
5.Taxes levied for Special Purpose (Sec. Phils. and the insurance policy is delivered to the
29(3), Art. VI of the 1987 Constitution) insured therein. This is because the Philippines
Government must get something in return for the
All money collected or any tax levied protection it gives to the insured property in the
for a special purpose shall be treated as a special Phils. and by reason of such protection, the
fund and paid out for such purpose only. It the insurer is benefited thereby.
purpose for which a special fund was created has
been fulfilled or abandoned the balance, if any, 2.The maxim of Mobilia Sequuntur
shall be transferred to the general funds of the Personam and Situs of Taxation
government. According to this maxim, which means
movable follow the person, the situs of personal
An example is the Oil Price Stabilization property is the domicile of the owner. This is
Fund created under P.D. 1956 to stabilize the merely a fiction of law and is not allowed to stand
prices of imported crude oil. In a decide case, in the way of taxation of personalty in the place
it was held that where under an executive where it has its actual situs and the requisite
order of the President, this special fund is legislative jurisdiction exists.
transferred from the general fund to a trust
liability account, the constitutional mandate Example: shares of stock may have situs
is not violated. The OPSF, according to the for purposes of taxation in a state in which they
court, remains as a special fund subject to COA are permanently kept regardless of the domicile
audit (Osmea vs Orbos, et al., G.R. No. of the owner, or the state in which he corporation
99886, Mar. 31, 1993) is organized.

6.Allotment to Local Governments

Basis: Sec. 6, Art. X of the 1987 3.Legislative Power to Fix Situs
If no constitutional provisions are violated,
Constitution
the power of the legislative to fix situs is
Local Government units shall have a
undoubted.
just share, as determined by law, in the
national taxes which shall be automatically
Example: our law fixes the situs of
released to them.
intangible personal property for purposes of the
estate and gift taxes. (see Sec. 104, 1997 NIRC)

Note: In those cases where the situs for

IV. Situs of Taxation and Double Taxation
certain intangibles are not categorically spelled
out, there is room for applying the mobilia rule.
Situs of Taxation

1.Situs of Taxation literally means the Place 4.Double Taxation and the Situs
Limitation (see later topic)
of Taxation.
2.Basic Rule state where the subject to be Criteria in Fixing Tax Situs of Subject of
taxed has a situs may rightfully levy and collect Taxation
the tax
a.Persons Poll tax may be levied upon
Some Basic Considerations Affecting persons who are residents of the State.
Situs of Taxation
1.Protection
b.Real Property is subject to taxation in
the State in which it is located whether the
A legal situs cannot be given to property
owner is a resident or non-resident, and is
for the purpose of taxation where neither the
taxable only there.
property nor the person is within the protection of
the taxing state Rule of Lex Rei Sitae
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c.Tangible Personal property taxable in b.Enter into treaties with other states
the state where it has actual situs where it
is physically located. Although the owner
resides in another jurisdiction. Double Taxation

Rule of Lex Rei Sitae Two (2) Kinds of Double Taxation

1.Obnoxious or Direct Duplicate Taxation
d.Intangible Personal Property situs or (Double taxation in its strict sense) - In the
personal property is the domicile of the objectionable or prohibited sense means that the
owner, in accordance with the principle same property is taxed twice when it should be
MOBILIA SEQUUNTUR PERSONAM, said taxed only once.
principle, however, is not controlling when it
is inconsistent with express provisions of Requisites:
statute or when justice demands that it 1.Same property is taxed twice
should be, as where the property has in fact 2.Same purpose
a situs elsewhere. (see Wells Fargo Bank v. 3.Same taxing authority
Collector 70 PHIL 325; Collector v. Fisher L- 4.Within the same jurisdiction
11622, January, 1961) 5.During the same taxing period
6.Same kind or character of tax
e.Income properly exacted from persons
who are residents or citizens in the taxing 2.Permissive or Indirect Duplicate
jurisdiction and even those who are neither Taxation (Double taxation in its broad sense)
residents nor citizens provided the income is This is the opposite of direct double taxation and
derived from sources within the taxing state. is not legally objectionable. The absence of one
or more of the foregoing requisites of the
obnoxious direct tax makes it indirect.
f.Business, Occupation, and Transaction
power to levy an excise tax depends upon
the place where the business is done, of the Instances of Double Taxation in its Broad
occupation is engaged in of the transaction Sense
not place. 1.A tax on the mortgage as personal property
when the mortgaged property is also taxed at its
full value as real estate;
2.A tax upon a corporation for its capital stock
g.Gratuitous Transfer of Property
as a whole and upon the shareholders for their
transmission of property from donor to
shares;
donee, or from a decedent to his heirs may
3.A tax upon a corporation for its capital stock
be subject to taxation in the state where the
as a whole and upon the shareholders for their
transferor was a citizen or resident, or where
shares;
the property is located.
4.A tax upon depositions in the bank for their
deposits and a tax upon the bank for their
V. Multiplicity of Situs
property in which such deposits are invested
5.An excise tax upon certain use of property
There is multiplicity of situs when the
and a property tax upon the same property; and
same subject of taxation, like income or
6.A tax upon the same property imposed by
intangible, is subject to taxation in several taxing
two different states.
jurisdictions. This happens due to:
a.Variance in the concept of domicile for
Means to Reduce the Harsh Effect of
tax purposes;
Taxation
b.Multiple distinct relationship that may arise
with respect to intangible personality; and 1.Tax Deduction subtraction from gross
c.The use to which the property may have income in arriving a taxable income
been devoted, all of which may receive the 2.Tax Credit an amount subtracted from an
protection of the laws of jurisdiction other than individuals or entitys tax liability to arrive at the
the domicile of the owner total tax liability

Remedy taxation jurisdiction may provide: A deduction differ from a tax credit in that a
a.Exemption or allowance of deductions or deduction reduces taxable income while credit
tax credit for foreign taxes reduces tax liability
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Impact of taxation is the point at

3.Exemptions which a tax is originally imposed.
4.Treaties with other States Incidence of Taxation is the point on
5.Principle of Reciprocity which a tax burden finally rests or settles down.
Relations among Shifting, Impact and
Constitutionality Incidence of Taxation the impact is the initial
Double Taxation in its stricter sense is phenomenon, the shifting is the intermediate
undoubtedly unconstitutional but that in the process, and the incidence is the result.
broader sense is not necessarily so. Kinds of Shifting:
General Rule: Our Constitution does not a.Forward Shifting the burden of
prohibit double taxation; hence, it may not be tax is transferred from a factor of production
invoked as a defense against the validity of tax through the factors of distribution until it finally
laws. settles on the ultimate purchaser or consumer
a.Where a tax is imposed by the National b.Backward Shifting effected when
Government and another by the city for the the burden of tax is transferred from the
exercise of occupation or business as the taxes consumer or purchaser through the factors of
are not imposed by the same public authority distribution to the factor of production
(City of Baguio vs De Leon, Oct. 31, 1968) c.Onward Shifting this occurs when
b.When a Real Estate dealers tax is imposed the tax is shifted two or more times either
for engaging in the business of leasing real estate forward or backward
in addition to Real Estate Tax on the property
leased and the tax on the income desired as they 2.Capitalization, defined the reduction in
are different kinds of tax the price of the taxed object equal to the
c.Tax on manufacturers products and capitalized value of future taxes which the
another tax on the privilege of storing exportable purchaser expects to be called upon to pay
copra in warehouses within a municipality are
imposed as first tax is different from the second 3.Transformation The method whereby the
d.Where, aside from the tax, a license fee is
manufacturer or producer upon whom the tax has
imposed in the exercise of police power. been imposed, fearing the loss of his market if he
should add the tax to the price, pays the tax and
Exception: Double Taxation while not forbidden, endeavors to recoup himself by improving his
is something not favored. Such taxation, it has
process of production thereby turning out his
been held, should, whenever possible, be avoided units of products at a lower cost.
and prevented.
a.Doubts as to whether double taxation has
been imposed should be resolved in favor of the 4.Tax Evasion is the use of the taxpayer of
taxpayer. The reason is to avoid injustice and illegal or fraudulent means to defeat or lessen the
unfairness. payment of a tax.
b.The taxpayer may seek relief under the
Uniformity Rule or the Equal Protection Indicia of Fraud in Taxation
guarantee. a.Failure to declare for taxation purposes true
Forms of Escape from Taxation and actual income derived from business for two
consecutive years, and
Six Basic Forms of Escape from b.Substantial underdeclaration of income tax
Taxation returns of the taxpayer for four consecutive years
1.Shifting coupled with overstatement of deduction.
2.Capitalization
Evasion of the tax takes place only when
3.Transformation there are no proceeds. Evasion of Taxation is
4.Evasion tantamount, fiscally speaking, to the absence
5.Avoidance of taxation.
6.Exemption
5.Tax Avoidance is the use by the taxpayer
1.Shifting Transfer of the burden of a tax by of legally permissible alternative tax rates or
the original payer or the one on whom the tax method of assessing taxable property or income
was assessed or imposed to another or someone in order to avoid or reduce tax liability.
else
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San Beda College of LAW ALABANG

Tax Avoidance is not punishable by law, a 2.May be based on some ground of public
taxpayer has the legal right to decrease the policy, such as, for example, to encourage new
amount of what otherwise would be his taxes and necessary industries.
or altogether avoid by means which the law 3.May be created in a treaty on grounds of
permits. reciprocity or to lessen the rigors of international
double or multiple taxation which occur where
Distinction between Tax Evasion and there are many taxing jurisdictions, as in the
Avoidance taxation of income and intangible personal
property
Tax Evasion vs Tax
Avoidance E.Equity, not a ground for Tax Exemption
accomplished by accomplished by There is no tax exemption solely on the
breaking the letter legal procedures or ground of equity, but equity can be used as a
of the law means which maybe basis for statutory exemption. At times the law
contrary to the intent authorizes condonation of taxes on equitable
of the sponsors of the considerations. (Sec 276, 277, Local Government
tax law but Code)
nevertheless do not
violate the letter of F.Kinds of Tax Exemptions
the law 1.As to basis
a.Constitutional Exemptions Immunities
from taxation which originate from the
VI. Exemption from Taxation Constitution
b.Statutory Exemptions Those which
A.Tax Exemption is a grant of immunity, emanate from Legislation
express or implied, to particular persons or
corporations from the obligations to pay taxes. 2.As to form
a.Express Exemption Whenever expressly
B.Nature of Tax Exemption granted by organic or statute of law
1.It is merely a personal privilege of the b.Implied Exemption Exist whenever
grantee particular persons, properties or excises are
2.It is generally revocable by the government deemed exempt as they fall outside the scope of
unless the exemption is founded on a contract the taxing provision itself
which is protected from impairment, but the
contract must contain the other essential 3.As to extent
elements of contracts, such as, for example, a a.Total Exemption Connotes absolute
valid cause or consideration. immunity
3.It implies a waiver on the part of the b.Partial Exemption One where collection
government of its right to collect what otherwise of a part of the tax is dispensed with
would be due to it, and in this sense is prejudicial
thereto. G.Principles Governing the Tax Exemption
4.It is not necessarily discriminatory so long as 1.Exemptions from taxation are highly
the exemption has a reasonable foundation or disfavored by law, and he who claims an
rational basis. exemption must be able to justify by the clearest
grant of organic or statute of law. (Asiatic
C.Rationale of tax Exemption Petroleum vs Llanes, 49 PHIL 466; Collector of
Public interest would be subserved by the Internal Revenue vs. Manila Jockey Club, 98 PHIL
exemption allowed which the law-making body 670)
considers sufficient to offset monetary loss
entailed in the grant of the exemption. (CIR vs
2.He who claims an exemption must justify
that the legislative intended to exempt him by
Bothelo Shipping Corp., L-21633, June 29,
words too plain to be mistaken. (Visayan Cebu
1967; CIR vs PAL, L-20960, Oct. 31, 1968)
Terminal vs CIR, L-19530, Feb. 27, 1965)
3.He who claims exemptions should
D.Grounds for Tax Exemptions
convincingly proved that he is exempt
1.May be based on a contract in which case,
the public represented by the Government is 4.Tax exemptions must be strictly construed
supposed to receive a full equivalent therefore (Phil. Acetylene vs CIR, L-19707, Aug. 17, 1967)
 TAX ATION
San Beda College of LAW ALABANG

5.Tax Exemptions are not presumed. (Lealda Important Point to Consider

Electric Co. vs CIR, L-16428, Apr. 30, 1963) 1.The law on prescription, being a remedial
6.Constitutional grants of tax exemptions are measure, should be liberally construed to afford
self-executing (Opinion No. 130, 1987, Sec. Of protection as a corollary, the exceptions to the
Justice) law on prescription be strictly construed. (CIR vs
7.Tax exemption are personal. CA. G.R. No. 104171, Feb. 24, 1999)
8.Deductions for income tax purposes partake
of the nature of tax exemptions, hence, they are Doctrine of Equitable Recoupment
strictly construed against the tax payer It provides that a claim for refund barred
9.A tax amnesty, much like a tax exemption is by prescription may be allowed to offset
never favored or presumed by law (CIR vs CA, unsettled tax liabilities should be pertinent only
G.R. No. 108576, Jan. 20, 1999) to taxes arising from the same transaction on
10.The rule of strict construction of tax which an overpayment is made and
exemption should not be applied to organizations underpayment is due.
performing strictly religious, charitable, and This doctrine, however, was rejected by
educational functions the Supreme Court, saying that it was not
convinced of the wisdom and proprietary thereof,
VII.Other Doctrines in Taxation and that it may work to tempt both the collecting
agency and the taxpayer to delay and neglect
Prospectivity of Tax Laws their respective pursuits of legal action within the
period set by law. (Collector vs UST, 104 PHIL
General Rule: Taxes must only be imposed 1062)
prospectively
Taxpayers Suit - It is only when an act
Exception: The language of the statute clearly complained of, which may include legislative
demands or express that it shall have a enactment, directly involves the illegal
retroactive effect. disbursement of public funds derived from
taxation that the taxpayers suit may be allowed.
Important Points to Consider VIII.Interpretation and Construction of Tax
1.In order to declare a tax transgressing the Statutes
due process clause of the Constitution it must be Important Points to Consider:
so harsh and oppressive in its retroactive 1.On the interpretation and construction of tax
application (Fernandez vs Fernandez, 99 statutes, legislative intention must be considered.
PHIL934)
2.Tax laws are neither political nor penal in 2.In case of doubt, tax statutes are construed
nature they are deemed laws of the occupied strictly against the government and liberally
territory rather than the occupying enemy. construed in favor of the taxpayer.
(Hilado vs Collector, 100 PHIL 288)
3.Tax laws not being penal in character, the 3.The rule of strict construction against the
government is not applicable where the language
rule in the Constitution against the passage of the
of the tax law is plain and there is no doubt as to
ex post facto laws cannot be invoked, except for
the legislative intent.
the penalty imposed.
4.The exemptions (or equivalent provisions,
Imprescriptibility of Taxes
such as tax amnesty and tax condonation) are
not presumed and when granted are strictly
General Rule: Taxes are imprescriptible
construed against the grantee.
Exception: When provided otherwise by the tax
5.The exemptions, however, are construed
law itself.
liberally in favor of the grantee in the following:
Example: NIRC provides for statutes of
a.When the law so provides for such liberal
limitation in the assessment and collection of
construction;
taxes therein imposed
b.Exemptions from certain taxes granted
under special circumstances to special classes of
persons;
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c.Exemptions in favor of the Government, its b. Assessment and Collection of all

political subdivisions; national internal revenue taxes, fees
d.Exemptions to traditional exemptees, such and charges;
as, those in favor of charitable institutions. c. Enforcement of all forfeitures,
penalties and fines connected
6.The tax laws are presumed valid. therewith;
d. Execution of judgment in all cases
7.The power to tax is presumed to exist. decided in its favor by the Court of Tax
Appeals and the ordinary courts.
TAX ADMINISTRATION AND ENFORCEMENT e. Effecting and administering the
supervisory and police powers
conferred to it by the Tax Code or other
Agencies Involved in Tax Administration laws.
f. Obtaining information, summoning,
1. Bureau of Internal Revenue and the examining and taking testimony of
Bureau of Customs for internal revenue persons for purposes of ascertaining
and customs law enforcement. It is the correctness of any return or in
noteworthy to note that the BIR is determining the liability of any person
largely decentralized in that a great for any internal revenue tax, or in
extent of tax enforcement duties are collecting any such liability.
delegated to the Regional Directors
and Revenue District Officers.
Rule of No Estoppel Against the
2. Provincial, City and Municipal Government
assessors and treasures for local and
real property taxes. It is a settled rule of law that in the
performance of its governmental functions, the
state cannot be estopped by the neglect of its
Agents and Deputies for Collection of agents and officers. Nowhere is it more true than
National Internal Revenue Taxes in the field of taxation (CIR vs. Abad, et. al., L-
19627, June 27, 1968). Estoppel does not apply to
Under Sec. 12 of the 1997 NIRC, the preclude the subsequent findings on taxability
following are constituted as agents of the (Ibid.)
Commissioner:
The principle of tax law enforcement is:
a. The Commissioner of Customs and his The Government is not estopped by the
subordinates with respect to the mistakes or errors of its agents; erroneous
collection of national internal revenue application and enforcement of law by
taxes on imported goods; public officers do not block the subsequent
b. The head of the appropriate correct application of statutes (E. Rodriguez,
government office and his Inc. vs. Collector of Internal Revenue, L-23041,
subordinates with respect to the July 31, 1969.)
collection of energy tax; and
c. Banks duly accredited by the Similarly, estoppel does not apply to
Commissioner with respect to receipt deprive the government of its right to raise
of payments of internal revenue taxes defenses even if those defenses are being raised
authorized to be made through banks. only for the first time on appeal (CIR vs Procter &
Gamble Phil. G.R. No. 66838, 15 April 1988.)

Bureau of Internal Revenue Exceptions:

Powers and Duties The Court ruled in Commissioner of

Internal Revenue vs. C.A., et. al. G.R. No. 117982,
a. Exclusive and original power to 6 Feb 1997 that like other principles of law, the
interpret provisions of the NIRC and non-application of estoppel to the government
other tax laws, subject to review by admits of exceptions in the interest of
the Secretary of Finance;
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justice and fair play, as where injustice will c. Illegal and Void Assessments- This
result to the taxpayer. is an assessment wherein the tax
assessor has no power to act at all
Estoppel Against the Taxpayer (Victorias Milling vs. CTA, L-24213, 13
Mar 1968)
While the principle of estoppel may not be d. Erroneous Assessment This is an
invoked against the government, this is not assessment wherein the assessor has
necessarily true in case of the taxpayer. In CIR vs. the power to assess but errs in the
Suyac, 104 Phil 819, the taxpayer made several exercise of that power (Ibid.)
requests for the reinvestigation of its tax
liabilities such that the government, acceding to
the taxpayers request, postponed the collection Principles Governing Tax Assessments
of its liability. The taxpayer cannot later on be
permitted to raise the defense of prescription 1. Assessments are prima facie
inasmuch as his previous requests for presumed correct and made in good faith.
reinvestigation have the effect of placing him in
estoppel.
The taxpayer has the duty of proving
otherwise (Interprovincial Autobus vs.
CIR, 98 Phil 290)
Nature and Kinds of Assessments In the absence of any proof of any
irregularities in the performance of
An assessment is the official action of official duties, an assessment will not
an administrative officer determining the be disturbed. (Sy Po. Vs. CTA, G.R. No
amount of tax due from a taxpayer, or it 81446, 8 Aug 1988
may be the notice to the effect that the All presumptions are in favor of tax
amount therein stated is due from the assessments (Dayrit vs. Cruz, L-39910,
taxpayer that the payment of the tax or 26 Sept. 1988)
deficiency stated therein. (Bisaya Land Failure to present proof of error in the
Transportation Co. vs CIR, 105 Phil 1338) assessment will justify judicial
affirmation of said assessments. (CIR
Classifications: vs C.C. G.R. No. 104151 and 105563,
10 Mar 1995)
a. Self-assessment- Tax is assessed by A party challenging an appraisers
the taxpayer himself. The amount is finding of value is required to prove
reflected in the tax return that is filed not only that the appraised value is
by him and the tax is paid at the time erroneous but also what the proper
he files his return. (Sec. 56 [A] {1], value is (Caltex vs. C.C. G.R. No.
1997 NIRC) 104781, 10 July 1998)
b. Deficiency Assessment- This is an
assessment made by the tax assessor 2. Assessments should not be based on
whereby the correct amount of the tax presumptions no matter how logical the
is determined after an examination or presumption might be. In order to stand the
investigation is conducted. The liability test of judicial scrutiny it must be based on
is determined and is; therefore, actual facts.
assessed for the following reasons:
1. The amount ascertained
exceeds that which is shown as 3. Assessment is discretionary on the part
tax by the taxpayer in his of the Commissioner. Mandamus will not lie
return; to compel him to assess a tax after
2. No amount is shown in the investigation if he finds no ground to
return or; assess. Mandamus to compel the
3. The taxpayer did not file any Commissioner to assess will result in the
return at all. (Sec. 56 [B] ]1] encroachment on executive functions
and [2] 1997 NIRC) (Meralco Secuirities Corp. vs. Savellano, L-
36181 and L-36748, 23 Oct 1992).
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Except: records, it is necessary to know that these are

confidential in nature and may not be inquired
The BIR Commissioner may be
into in unauthorized cases under pain of penalty
compelled to assess by mandamus if in
of law provided for in Sec 270 of the 1997 NIRC.
the exercise of his discretion there is
evidence of arbitrariness and grave
abuse of discretion as to go beyond The aforesaid rule, however, is subject to
statutory authority (Maceda vs. Macaraig, certain exceptions. In the following cases, inquiry
G.R. No. 8829, 8 June 1993). into the income tax returns of taxpayers may be
authorized:

4. The authority vested in the Commissioner 1. When the inspection of the return is
to assess taxes may be delegated. An authorized upon the written order of
assessment signed by an employee for the President of the Philippines.
and in behalf of the Commissioner of 2. When inspection is authorized under
Internal Revenue is valid. However, it is the Finance Regulation No. 33 of the
settled that the power to make final Secretary of Finance.
assessments cannot be delegated. The 3. When the production of the tax return
person to whom a duty is delegated is material evidence in a criminal case
cannot lawfully delegate that duty to wherein the Government is interested
another. (City Lumber vs. Domingo, L-18611, in the result. (Cu Unjieng, et. al. vs.
30 Jan 1964). Posadas, etc, 58 Phil 360)
4. When the production or inspection
thereof is authorized by the taxpayer
5. Assessments must be directed to the right himself (Vera vs Cusi L-33115, 29 June
party. Hence, if for example, the taxpayer 1979).
being assessed is an estate of a
decedent, the administrator should be
the party to whom the assessment
should be sent (Republic vs. dela Rama, L-
21108, 29 Nov. 1966), and not the heirs of B. Assessment Based on the Best Evidence
the decedent Obtainable

Means Employed in the Assessment of Taxes The law authorizes the Commissioner to
assess taxes on the basis of the best evidence
obtainable in the following cases:
A. Examination of Returns: Confidentiality
Rule 1. if a person fails to file a return or other
document at the time prescribed by
The Tax Code requires that after the return law; or
is filed, the Commissioner or his duly authorized 2. he willfully or otherwise files a false or
representative shall examine the same and fraudulent return or other document.
assess the correct amount of tax. The tax or the
deficiency of the tax so assessed shall be paid When the method is used, the
upon notice and demand from the Commissioner Commissioner makes or amends the return from
or from his duly authorized representative. Any his knowledge and from such information as he
return, statement or declaration filed in any office can obtain through testimony or otherwise.
authorized to receive the same shall not be Assessments made as such are deemed prima
withdrawn. However, within three (3) days from facie correct and sufficient for all legal purposes.
the date of such filing, the same may be (Sec. 6 [B], 1997 NIRC)
modified, changed or amended, provided that no
notice for audit or investigation of such return, Best Evidence Obtainable refers to any
statement or declaration has in the meantime data, record, papers, documents, or any evidence
been actually served upon the taxpayer. (Sec gathered by internal revenue officers from
6[A], 1997 NIRC) government offices or agencies, corporations,
employers, clients or patients, tenants, lessees,
Although Sec. 71 of the 1997 NIRC vendees and from all other sources, with whom
provides that tax returns shall constitute public the taxpayer had previous transactions or from
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whom he received any income, after ascertaining b. That he intends to leave the
that a report required by law as basis for the Philippines or remove his property
assessment of any internal revenue tax has not therefrom;
been filed or when there is reason to believe that c. That the taxpayer hides or conceals his
any such report is false, incomplete or erroneous. property; or
d. That he performs any act tending to
A case in point on the use of the best obstruct the proceedings for the
evidence obtainable is Sy Po vs CTA. In that case, collection of the tax for the past or
there was a demand made by the Commissioner current quarter or year or to render the
on the Silver Cup Wine Company owned by same totally or partly ineffective
petitioners deceased husband Po Bien Seng. The unless such proceedings are begun
demand was for the taxpayer to submit to the BIR immediately.
for examination the factorys books of accounts
and records, so BIR investigators raided the The written decision to terminate the tax
factory and seized different brands of alcoholic period shall be accompanied with a request for
beverages. the immediate payment of the tax for the period
so declared terminated and the tax for the
The investigators, on the basis of the preceding year or quarter, or such portion thereof
wines seized and the sworn statements of the as may be unpaid. Said taxes shall be due and
factorys employees on the quantity of raw payable immediately and shall be subject to all
materials consumed in the manufacture of liquor, the penalties prescribed unless paid within the
assessed the corresponding deficiency income time fixed in the demand made by the
and specific taxes. The Supreme Court, on Commissioner (Sec. 6 [d], 1997 NIRC)
appeal, upheld the legality of the assessment.

C. Inventory-Taking, Surveillance and

Presumptive Gross Sales and Receipts E. Fixing of Real Property Values

The Commissioner is authorized at any time For purposes of computing any internal
during the taxable year to order the revenue tax, the value of the property shall be
inventory-taking of goods of any taxpayer as whichever is the higher of : (1) the fair market
a basis for assessment. value as determined by the Commissioner; or (2)
the fair market value as shown in the schedule of
values of the Provincial and City Assessors for
If there is reason to believe that a person real tax purposes (Sec 6 [E], 1997 NIRC).
is not declaring his correct income, sales or
receipts for internal revenue tax purposes, his
business operation may be placed under F. Inquiry into Bank Deposits
observation or surveillance. The finding made in
the surveillance may be used as a basis for Examination of bank deposits enables the
assessing the taxes for the other months or Commissioner to assess the correct tax liabilities
quarters of the same or different taxable years. of taxpayers. However, bank deposits are
(Sec. 6 [C], 1997 NIRC) confidential under R.A. 1405. Notwithstanding
any contrary provisions of R.A. 1405 and other
general or special laws, the Commissioner is
authorized to inquire into the bank deposits of;
D. Termination of Taxable Period
1. a decedent to determine his gross
The Commissioner shall declare the tax period estate; and
of a taxpayer terminated at any time when it
shall come to his knowledge: 2. any taxpayer who has filed an
application for compromise of his tax liability
a. That the taxpayer is retiring from under Sec. 204 (A) (@) of the Tax Code by reason
business subject to tax; of his financial incapacity to pay his tax liability.
In this case, the application for compromise shall
not be considered unless and until he waives in
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writing his privilege under R.A. 1405, or under Conditions for the use of the method
other general or special laws, and such waiver
shall constitute the authority of the Commissioner
to inquire into bank deposits of the taxpayer (a) That the taxpayer's books of
(Sec. 6[F], 1997 NIRC). accounts do not clearly reflect his
income, or the taxpayer has no
books, or if he has books, he
Net Worth Method in Investigation refuses to produce them
(Inadequate Records).
The basis of using the Net Worth Method
of investigation is Revenue Memorandum
The Government may be
Circular No. 43-72. This method of
forced to resort to the net worth
investigation, otherwise known as inventory
method of proof where the few records
method of income tax verification is a very
of the taxpayer were destroyed; for, to
effective method of determining taxable income
require more would be tantamount to
and deficiency income tax due from a taxpayer.
holding that skillful concealment is an
inevitable barrier to proof.

Basic Concept and Theory (b) That there is evidence of a

possible source or sources of
The method is an extension of the basic income to account for the increase
accounting principle: assets minus liabilities in net worth or the expenditures
equals net worth. The taxpayers net worth is (Need for evidence of the sources
determined both at the beginning and at the end of income).
of the same taxable year. The increase or
decrease in net worth is adjusted by adding all
non-deductible items and subtracting therefrom In all leading cases on this
non-taxable receipts. The theory is that the matter, courts are unanimous in
unexplained increase in net worth of a taxpayer is holding that when the tax case is civil
presumed to be derived from taxable sources. in nature, direct proof of sources of
income is not essential-that the
government is not required to negate
all possible non-taxable sources of the
alleged net worth increases. The
Legal Source of authority for use of burden of proof is upon the taxpayer
the Method to show that his net worth increase
The Commissioners authority to use the was derived from non-taxable sources.
net worth method and other indirect methods of As stated by the Supreme
establishing taxable income is found in Sec. 43, Court, in civil cases, the assessor need
1997 NIRC. This authority has been upheld by the not prove the specific source of
courts in a long line of cases, notable among income. This reasonable on the basic
which is the leading case of Perez vs. CTA, 103 assumption that most assets are
Phil 1167. The method is a practical necessity if a derived from a taxable source and
fair and efficient system of collecting revenue is that when this is not true, the
to be maintained. taxpayer is in a position to explain the
discrepancy. (Perez vs. CTA, supra)

Moreover, Sec. 6[B], 1997 NIRC, provides However, when the taxpayer
for a broad and general investigatory power to is criminally prosecuted for tax
assess the proper tax on the best evidence evasion, the need for evidence of a
obtainable whenever a report required by law as likely source of income becomes a
basis for the assessment of any national internal prerequisite for a successful
revenue tax shall not be forthcoming within the prosecution. The burden of proof is
time fixed by law or regulation, or when there is always with the Government.
reason to believe that any such report is false, Conviction in such cases, as in any
incomplete or erroneous. criminal case, rests on proof beyond
reasonable doubt.
 TAX ATION
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8. non-deductible contributions;
9. gifts to others;
(c) That there is a fixed starting point
10. net capital loss, and the like
or opening net worth, i.e., a date
beginning with a taxable year or
prior to it, at which time the On the other hand, non-taxable
taxpayers financial condition can items should be deducted therefrom.
be affirmatively established with These items are necessary
some definiteness. adjustments to avoid the inclusion of
what otherwise are non-taxable
receipts. They are:
This is an essential
condition, considered to be the
cornerstone of a net worth case. If
1. inheritance, gifts and bequests
the starting point or opening net
received;
worth is proven to be wrong, the
2. non-taxable capital gains;
whole superstructure usually fails.
3. compensation for injuries or
The courts have uniformly stressed
sickness;
that the validity of the result of any
4. proceeds of life insurance
investigation under this method
policies;
will depend entirely upon a correct
5. sweepstakes winnings;
opening net worth.
6. interest on government
securities and the like
(d) That the circumstances are such
that the method does not reflect Increase in net worth are not
the taxpayers income with taxable if they are shown not to be the
reasonable accuracy and certainty result of unreported income but to be
and proper and just additions of the result of the correction of errors in
personal expenses and other non- the taxpayers entries in the books
deductible expenditures were relating to indebtedness to certain
made and correct, fair and creditors, erroneously listed although
equitable credit adjustments were already paid. (Fernandez Hermanos
given by way of eliminating non- Inc. vs. CIR, L-21551, 30 Sept. 1969)
taxable items. (Proper
adjustments to conform to the
income tax laws)
Enforcement of Forfeitures and Penalties
Proper adjustments for non-
deductible items must be made. The
Statutory Offenses and Penalties
following non-deductibles, as the case
may be, must be added to the
increase or decrease in the net worth:
1. Additions to the Tax

1. personal, living or family Additions to the tax are increments

expenses; to the basic tax incident due to the
2. premiums paid on any life taxpayers non-compliance with certain
insurance policy; legal requirements, like the taxpayers
3. losses from sales or exchanges refusal or failure to pay taxes and/or other
of property between members violations of taxing provisions.
of the family;
4. income taxes paid;
5. estate, inheritance and gift Additions to the tax consist of the:
taxes;
6. other non-deductible taxes;
7. election expenses and other (1) civil penalty, otherwise known
expenses against public policy; as surcharge, which may either be 25% or
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50 % of the tax depending upon the penalty (Lim Co Chui vs. Posadas, 47 Phil
nature of the violation; 460)

(2) interest either for a deficiency The Commissioner is not vested

tax or delinquency as to payment; with any authority to waive or dispense
with the collection therof. (CIR vs. CA,
supra). The penalty and interest are not
(3) other civil penalties or penal but compensatory for the
administrative fines such as for failure to concomitant use of the funds by the
file certain information returns and taxpayer beyond the date when he is
violations committed by withholding supposed to have paid them to the
agents. (Secs. 247 to 252, 1997 NIRC) Government.(Philippine Refining Company
vs. C.A., G.R. No. 1188794, 8 May 1996).

General Considerations on the

Addition to tax An extension of time to pay taxes
granted by the Commissioner does not
a. Additions to the tax or deficiency
excuse payment of the surcharge (CIR vs.
tax apply to all taxes, fees, and charges
Cu Unjieng, L-26869, 6 Aug. 1975)
imposed in the Tax Code.

The following cases, however, show

b. The amount so added to the tax
the instances when the imposition of the
shall be collected at the same time, in
25% surcharge had been waived:
the same manner, and as part of the tax.

c. If the withholding agent is the 1. Where the taxpayer in good faith made
government or any of its agencies, a mistake in the interpretation of the
political subdivisions or instrumentalities, applicable regulations thereby
or a government owned or controlled resulting in delay in the payment of
corporation, the employee thereof taxes. (Connel Bros. Co. vs. CIR, L-
responsible for the withholding and 15470, 26 Dec. 1963)
remittance of the tax shall be personally 2. A Subsequent reversal by the BIR of a
liable for the additions to the tax prior ruling relied upon by the taxpayer
prescribed (Sec. 247[b], 1997 NIRC) such may also be a ground for dispensing
as the 25% surcharge and the 20% with the 25% surcharge. (CIR vs.
interest per annum on the delinquency Republic Cement Corp., L-35677, 10
(Secs. 248 and 249 [C], 1997 NIRC) Aug. 1983)
3. Where a doubt existed on the part of
the Bureau as to whether or not R.A.
5431 abolished the income tax
exemptions of corporations (including
Surcharge
electric power franchise grantees)
The payment of the surcharge is except those exempt under Sec. 27
mandatory and the Commissioner of (now, Sec. 30, 1997 NIRC), the
Internal Revenue is not vested with any imposition of the surcharge may be
authority to waive or dispense with the dispensed with (Cagayan Electreic
collection thereof. In one case, the Power & Light Co. vs CIR, G.R. No.
Supreme Court held that the fact that on 60126, 25 Sept. 1985)
account of riots directed against the 4. In the case of failure to make and file a
Chinese on certain dates, they were return or list within the time prescribed
prevented from paying their internal by law, not due to willful neglect,
revenue taxes on time, does not authorize where such return or list is voluntarily
the Commissioner to extend the time filed by the taxpayer without notice
prescribed for the payment of taxes or to from the CIR or other officers, and it is
accept them without the additional shown that the failure to file it in due
time was due to a reasonable cause,
 TAX ATION
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no surcharge will be added to the fails to pay the tax or any installment thereof, or
amount of tax due on the return. In any part of such amount or installment on or
such case, in order to avoid the before the date prescribed for its payment, or
imposition of the surcharge, the where the Commissioner has authorized an
taxpayer must make a statement extension of time within which to pay a tax or a
showing all the facts alleged as deficiency tax or any part thereof. (Sec. 249[d],
reasonable causes for failure to file the 1997 NIRC)
return on time in the form of an
affidavit, which should be attached to
the return. Administrative Offenses
1. Failure to File Certain Information
Returns
Interest 2. Failure of a Withholding Agent to
Collect and Remit Taxes
This is an increment on any unpaid
amount of tax, assessed at the rate of 3. Failure of a Withholding Agent to
twenty percent (20%) per annum, or such Refund Excess Withholding Tax
higher rate as may be prescribed y rules
and regulations, from the date prescribed
for payment until the amount is fully paid. Sources of revenues:
(Sec. 249 [A], 1997 NIRC) 1.Income tax
2. Estate Tax and donor tax
3. VAT
Interest is classified into: 4. Other percentage taxes
5. Excise tax
1. Deficiency interest
6. Documentary stamp taxes
Any deficiency in the tax due, as the
7.Other as imposed and provided by BIR
term is defined in this code, shall be
subject to the interest of 20% per annum,
REMEDIES OF THE GOVERNMENT
or such higher rate as may be prescribed
by rules and regulations, which shall be
assessed and collected from the date
prescribed for its payment until the full Enumeration of the Remedies
payment thereof (Sec. 249 [B], 1997
NIRC) I. Administrative
1. Distraint of Personal
Property
2. Delinquency interest 2. Levy of Real Property
This kind of interest is imposed in case 3. Tax Lien
of failure to pay: 4. Compromise
5. Forfeiture
(1) The amount of the tax due on 6. Other Administrative
any return required to be filed, Remedies
or
(2) The amount of the tax due for II. Judicial
which no return is required, or 1. Civil Action
(3) A deficiency tax, or any 2. Criminal Action
surcharge or interest thereon
on the due date appearing in Distraint of Personal Property
the notice and demand of the
Commissioner. Distraint- Seizure by the government of
personal property, tangible or intangible, to
enforce the payment of faces, to be followed
by its public sale, if the taxes are not
3. Interest on Extended Payment voluntarily paid.
Imposed when a person required to pay
the tax is qualified and elects to pay the tax on KINDS
installment under the provisions of the Code, but
 TAX ATION
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a. Actual There is taking of possession 1. Service of warrant of distraint upon

of personal property out of the taxpayer or upon person in possession of
taxpayer into that of the government. taxpayers personal property.
In case of intangible property. 2. Posting of notice is not less than two
Taxpayer is also diverted of the power places in the municipality or city and
of control over the property notice to the taxpayer specifying time and
b. Constructive The owner is merely place of sale and the articles distrained.
prohibited from disposing of his 3. Sale at public auction to highest bidder
personal property. 4. Disposition of proceeds of the sale.

Who may effect distraint Amount

Involved
Actual vs. Constructive Distraint 1. commissioner or his due In excess of
Made on the property May be made on the authorized representative P1,000,000.00
only of a delinquent property of any 2. RDO P1,000,000.00
taxpayer. taxpayer whether or less
delinquent or not
There is actual taking or Taxpayer is merely
possession of the prohibited from How Actual Distraint Effected
property. disposing of his
property. 1. In case of Tangible Property:
Effected by having a list Effected by requiring
of the distraint property the taxpayer to sign a a. Copy of an account of the property
or by service or warrant receipt of the property distrained, signed by the officer,
of distraint or or by leaving a list of left either with the owner or person
garnishment. same from whom property was taken, at
An immediate step for Such immediate step is the dwelling or place of business
collection of taxes not necessary; tax due and with someone of suitable age
where amount due is may not be definite or and discretion
definite. it is being questioned. b. Statement of the sum demanded.
c. Time and place of sale.

Requisites: 2. In case of intangible property:

1. Taxpayer is delinquent in the payment of a. Stocks and other securities

tax. Serving a copy of the
2. Subsequent demand for its payment. warrant upon taxpayer and upon
3. Taxpayer must fail to pay delinquent tax at president, manager, treasurer or
time required. other responsible officer of the
4. Period with in to assess or collect has not issuing corporation, company or
yet prescribed. association.
In case of constructive distraint,
requisite no. 1 is not essential (see b. Debts and credits
Sec. 206 TC) 1. Leaving a copy of the warrant
with the person owing the debts
When remedy not available: or having in his possession such
credits or his agent.
Where amount involved does not exceed 2. Warrant shall be sufficient
P100 (Sec. 205 TC). authority for such person to pay
In keeping with the provision on the CIR his credits or debts.
abatement of the collection of tax as the cost of c. Bank Accounts garnishment
same might even be more than P100. 1. Serve warrant upon taxpayer
and president, manager,
Procedure: treasurer or responsible officer
of the bank.
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2. Bank shall turn over to CIR so

much of the bank accounts as Levy of Real Property
may be sufficient.
Levy Act of seizure of real property in order to
How constructive Distraint Effected enforce the payment of taxes. The
property may be sold at public sale, if
1. Require taxpayer or person in possession after seizure; the taxes are not voluntarily
to paid.
a. Sign a receipt covering property The requisites are the same as that of
distrained distraint.
b. Obligate him to preserve the same
properties. Procedure:
c. Prohibit him from disposing the
property from disposing the 1. International Revenue officer shall prepare
property in any manner, with out a duly authenticated certificate showing
the authority of the CIR. a. Name of taxpayer
b. Amount of tax and
2. Where Taxpayer or person in possession c. Penalty due.
refuses to sign: - enforceable through out the Philippines
a. Officer shall prepare list of the 2. Officer shall write upon the certificate a
property distrained. description of the property upon which
b. In the presence of two witnesses of levy is made.
sufficient age and discretion, leave 3. Service of written notice to:
a copy in the premises where a. The taxpayer, and
property is located. b. RD where property is located.
4. Advertisement of the time and place of
Grounds of Constructive Distraint sale.
5. Sale at public auction to highest bidder.
1. Taxpayer is retiring from any business 6. Disposition of proceeds of sale.
subject to tax. The excess shall be turned over to
2. Taxpayer is intending to leave the owner.
Philippines; or
3. To remove his property there from. Redemption of property sold or forfeited
4. Taxpayer hides or conceals his property.
5. Taxpayer acts tending to obstruct a. Person entitled: Taxpayer or anyone for
collection proceedings. him
b. Time to redeem: one year from date of
Note: sale or forfeiture
- Begins from registration of the deed of
1. Bank accounts may be distrained with out sale or declaration of forfeiture.
violating the confidential nature of bank - Cannot be extended by the courts.
accounts for no inquiry is made. BIR c. Possession pending redemption owner
simply seizes so much of the deposit with not deprived of possession
out having to know how much the deposits d. Price: Amount of taxes, penalties and
are or where the money or any part of it interest thereon from date of delinquency
came from. to the date of sale together with interest
2. If at any time prior to the consummation on said purchase price at 15% per annum
of the sale, all proper charges are paid to from date of purchase to date of
the officer conducting the same, the redemption.
goods distrained shall be restored to the
owner.
3. When the amount of the bid for the
property under distraint is not equal to the Distraint and Levy compared
amount of the tax or is very much less
than the actual market value of articles, 1. Both are summary remedies for collection
the CIR or his deputy may purchase the of taxes.
distrained property on behalf of the 2. Both cannot be availed of where amount
national government. involved is not more than P100.
 TAX ATION
San Beda College of LAW ALABANG

3. Distraint personal property In case Nos. 1 and 2, there is no

Levy real property more tax liability. Under nos. 3 and
4. Distraint forfeiture by government, not 4, the taxpayer is still liable.
provided
Levy forfeiture by government Enforcement of Tax Lien vs. Distraint
authorized where there is no bidder or the A tax lien is distinguished from disttraint in
highest bid is not sufficient to pay the that, in distraint the property seized must be that
taxes, penalties and costs. of the taxpayer, although it need not be the
5. Distraint Taxpayer no given the right of property in respect to the tax is assessed. Tax
redemption lien is directed to the property subject to the tax,
Levy Taxpayer can redeem properties regardless of its owner.
levied upon and sold/forfeited to the
government. Note:

Note: 1. This is superior to judgment claim of

1. It is the duty of the Register of Deeds private individuals or parties
concerned upon registration of the 2. Attaches not only from time the warrant
declaration of forfeiture, to transfer the was served but from the time the tax was
title to the property with out of an order due and demandable.
from a competent court
2. The remedy of distraint or levy may be Compromise
repeated if necessary until the full
amount, including all expenses, is Compromise: A contract whereby the parties, by
collected. reciprocal concessions, avoid litigation or put an
end to one already commenced.
Enforcement of Tax Lien
Requisites:
Tax Lien:
A legal claim or charge on property, either 1. Taxpayer must have a tax liability.
real or personal, established by law as a security 2. There must be an offer by taxpayer or CIR,
in default of the payment of taxes. of an amount to be paid by taxpayer.
1. Nature: 3. There must be acceptance of the offer in
A lien in favor of the government of the settlement of the original claim.
Philippines when a person liable to pay a
tax neglects or fails to do so upon When taxes may be compromised:
demand.
2. Duration: 1. A reasonable doubt as to the validity if the
Exists from time assessment is made by claim against the taxpayer exists;
the CIR until paid, with interests, penalties 2. The financial position of the taxpayer
and costs. demonstrates a clear inability to pay the
3. Extent: assessed tax.
Upon all property and rights to property 3. Criminal violations, except:
belonging to the taxpayer. a. Those already filed in court
4. Effectivity against third persons: b. Those involving fraud.
Only when notice of such lien is filed by
the CIR in the Register of Deeds Limitations:
concerned.
1. Minimum compromise rate:
Extinguishment of Tax Lien a. 10% of the basic tax assessed in
case of financial incapacity.
1. Payment or remission of the tax b. 40% of basic tax assessed other
2. Prescription of the right of the government cases.
to assess or collect. 2. Subject to approval of Evaluation Board
3. Failure to file notice of such lien in the a. When basic tax involved exceeds
office of register of Deeds, purchases or P1,000,000.00 or
judgment creditor. b. Where settlement offered is less
4. Destruction of the property subject to the than the prescribed minimum
lien. rates.
 TAX ATION
San Beda College of LAW ALABANG

injurious to the public health or

Delegation of Power to Compromise prejudicial to the enforcement of
the law: (at least 20 days after
GR: The power to compromise or abate shall not seizure)
be delegated by the commissioner. 1. distilled spirits
E: The Regional Evaluation Board may 2. liquors
compromise the assessment issued by the 3. cigars
regional offices involving basic taxes of P 500 K or 4. cigarettes, and other
less. manufactured products of
tobacco
Remedy in case of failure to comply: 5. playing cards
The CIR may either: 6. All apparatus used in or
1. enforce the compromise, or about the illicit production
2. Regard it as rescinded and insists upon of such articles.
the original demand. b. To be sold or destroyed depends
upon the discretion of CIR
Compromise Penalty 1. All other articles subject to
1. It is a certain amount of money which the exercise tax, (wine,
taxpayer pays to compromise a tax automobile, mineral
violation. products, manufactured oils,
2. It is pain in lieu of a criminal prosecution. miscellaneous products,
3. Since it is voluntary in character, the same non-essential items a
may be collected only if the taxpayer is petroleum products)
willing to pay them. manufactured or removed in
violation of the Tax Code.
Enforcement of forfeiture 2. Dies for printing or making
IR stamps, labels and tags,
Forfeiture: Implies a divestiture of property with in imitation of or purport to
out compensation, in consequence of a default or be lawful stamps, labels or
offense. tags.
Includes the idea of not only losing but 5. Where to be sole:
also having the property transferred to another a. Public sale: provided, there is
with out the consent of the owner and wrongdoer. notice of not less than 20 days.
b. Private sale: provided, it is with
1. Effect: Transfer the title to the specific the approval of the Secretary of
thing from the owner to the government. Finance.
2. When available: 6. Right of Redemption:
a. No bidder for the real property a. Personal entitled taxpayer or
exposed for sale. anyone for him
b. If highest bid is for an amount b. Time to redeem with in one (1)
insufficient to pay the taxes, year from forfeiture
penalties and costs. c. Amount to be paid full amount of
- With in two days thereafter, a return of the taxes and penalties, plus
the proceeding is duly made. interest and cost of the sale
3. How enforced: d. To whom paid Commissioner or
a. In case of personal property by the Revenue Collection Officer
seizure and sale or destruction of e. Effect of failure to redeem
the specific forfeited property. forfeiture shall become absolute.
b. In case of real property by a 7. Note:
judgment of condemnation and The Register of Deeds is duty
sale in a legal action or proceeding, bound to transfer the title of property
civil or criminal, as the case may forfeited to the government with our
require. necessity of an order from a competent
4. When forfeited property to be destroyed court.
or sold:
a. To be destroyed by order of the Other Administrative Remedies
CIR when the sale for consumption
or use of the following would be
 TAX ATION
San Beda College of LAW ALABANG

1. Requiring filing of bonds in the a. A deceased person to

following instances: determine gross estate
a. Estate and donors tax b. Any taxpayer who filed
b. Excise taxes application for compromise
c. Exporters bond by reasons of financial
d. Manufacturers and incapacity his tax liability.
importers bond 14. Registration of Taxpayers.
2. Requiring proof of filing income tax
returns Judicial Remedies
Before a license to engage
in trade, business or occupation or Civil and Criminal Actions:
to practice a profession can be 1. Brought in the name of the
issued. Government of the Philippines.
3. Giving reward to informers Sum 2. Conducted by Legal Officer of BIR
equivalent to 10% of revenues, 3. Must be with the approval of the
surcharges or fees recovered CIR, in case of action, for recovery
and/or fine or penalty imposed and of taxes, or enforcement of a fine,
collected or P1, 000,000.00 per penalty or forfeiture.
case, whichever is lower. A. Civil Action
4. Imposition of surcharge and Actions instituted by the
interest. government to collect internal revenue
5. Making arrest, search and seizure taxes in regular courts (RTC or MTCs,
Limited to violations of any depending on the amount involved)
penal law or regulation When assessment made has
administered by the BIR, become final and executory for failure or
committed with in the view of the taxpayer to:
Internal Revenue Officer or EE. a. Dispute same by filing protest with
6. Deportation in case of aliens on CIR
the following grounds b. Appeal adverse decision of CIR to
a. Knowingly and fraudulently CTA
evades payment of IR taxes.
b. Willfully refuses to pay such B. Criminal Action
tax and its accessory A direct mode of collection of
penalties, after decision on taxes, the judgment of which shall not
his tax liability shall have only impose the penalty but also order
become final and executory. payment of taxes.
7. Inspection of books An assessment of a tax deficiency
Books of accounts and other is not necessary to a criminal prosecution
accounting records of taxpayer for tax evasion, provided there is a prima
must be preserved, generally facie showing of willful attempt to evade.
within three years after date the
tax return was due or was filed Effect of Acquittal on Tax Liability:
whichever is later.
8. Use of National Tax Register Does not exonerate taxpayer his civil
9. Obtaining information on tax liability to pay the tax due. Thus, the
liability of any person government may still collect the tax in the same
10. Inventory Taking of stock-in-trade action.
and making surveillance. Reason: Tax is an obligation, does not arise from
11. Prescribing presumptive gross sales a criminal act.
or receipt:
a. Person failed to issue Effect of Satisfaction of Tax Liability on Criminal
receipts and invoices Liability
b. Reason to believe that
records do not correctly Will not operate to extinguish taxpayers
reflect declaration in return. criminal liability since the duty to pay the tax is
12. Prescribing real property values imposed by statute, independent of any attempt
13. Inquiring into bank deposit on past of taxpayers to evade payment.
accounts of
 TAX ATION
San Beda College of LAW ALABANG

This is true in case the criminal action is necessary and required to permit the
based on the act to taxpayer of filing a false and computation and assessment of taxes
fraudulent tax return and failure to pay the tax. (Sinforo Alca vs. Commissioner, Dec. 29,
1964)
Note:
The satisfaction of civil liability is not one of B.) Exceptions: (Sec. 222 ic)
the grounds for the extinction of criminal action.
1. Where no return was filed - within ten (10)
PRESCRIPTIVE PERIODS/STATUTE OF years after the date of discovery of the
LIMITATION omission.
2. Where a return was filed but the same was
Purpose: false or fraudulent within ten (10) years
For purposes of Taxation, statue of from the discovery of falsity or fraud.
limitation is primarily designed to protect the
rights of the taxpayers against unreasonable Note:
investigation of the taxing authority with respect Fraudulent return
to assessment and collection of Internal Revenue vs. False return
Taxes. The filing thereof is intended and
It merely implies a
I. Prescription of Governments Right to Deceitful with the aim of evading the
Assess Taxes: deviation from truth of
A. General Rule: correct tax due.
Internal Revenue Taxes shall be fact whether intentional.
assessed within three (3) years after
the last day prescribed by law for the
filing of the return or from the day the Nature of Fraud:
return was filed, in case it is filed a. Fraud is never presumed and the
beyond the period prescribed thereof. circumstances consisting it must be
(Section 203 of the Tax Code) alleged and proved to exist by
clear & convincing evidence
Note: (Republic vs. Keir, Sept. 30, 1966)
A return filed before the last day b. The fraud contemplated by law is
prescribed by law for the filing thereof actual and not constructive. It
shall be considered as filed on such last must amount to intentional
day. wrongdoing with the sole object of
In case a return is substantially amended, avoiding the tax. A mere mistake
the government right to assess the tax is not a fraudulent intent. (Aznar
shall commence from the filing of the case, Aug. 23, 1974)
amended return (CIR vs. Phoenix, May 20, c. A fraud assessment which has
1965; Kei & Co. vs. Collector, 4 SCRA 872) become final and executory, the
In computing the prescriptive period for fact of fraud shall be judicially
assessment, the latter is deemed made taken cognizance of in the civil or
when notice to this effect is released, criminal action for the collection
mailed or sent by the Commissioner to the thereof. (Sec. 222 paragraph (a))
correct address of the taxpayer. However, Fraud may be established by the following
the law does not require that the : (Badges of Fraud)
demand/notice be received within the a. Intentional and substantial
prescriptive period. (Basilan Estates, Inc. understatement of tax liability of
vs. Commissioner 21, SCRA 17; Republic the taxpayer.
vs. CA April 30, 1987) b. Intentional and substantial
An affidavit executed by a revenue office overstatement of deductions of
indicating the tax liabilities of a taxpayer exemption
and attached to a criminal complaint for c. Recurrence of the foregoing
tax evasion, cannot be deemed an circumstances.
assessment. ( CIR vs. Pascoi Realty Corp. Instances/Circumstances negating fraud:
June 29, 1999) a. When the Commissioner fails
A transcript sheets are not returns, impute fraud in the assessment
because they do not contain information notice/demand for payment.
 TAX ATION
San Beda College of LAW ALABANG

b. When the Commissioner failed to (Carmen vs. Ayala Securities Corp., Nov. 21,
allege in his answer to the 1980)
taxpayers petition for review when 4. Assessment of compensating and
the case is appealed to the CTA. documentary stamp tax.
c. When the Commissioner raised the
question of fraud only for the first II. Prescription of Governments Right to
time in his memorandum which Collect Taxes
was filed the CTA after he had
rested his case. A. General Rule:
d. Where the BIR itself appeared, not 1. Where an assessment was made
sure as to the real amount of the Any internal revenue tax which has
taxpayers net income. been assessed within the period of
e. A mere understatement of income limitation may be collected by
does not prove fraud, unless there distraint or levy or by proceeding in
is a sufficient evidence shaving court within 5 years following the
fraudulent intent. date of assessment.
2. Where no assessment was made
3. Where the commissioner and the and a return was filed and the
taxpayer, before the expiration of the same is not fraudulent or false- the
three (3) year period of limitation have tax should be collected within 3
agree in writing to the extension of said years after the return was due or
period. was filed, whichever is later.

Note: B. Exceptions:
Limitations: 1. Where a fraudulent/false return
a. The agreement extending the period of with intent to evade taxes was filed
prescription should be in writing and a proceeding in court for the
duly signed by the taxpayer and the collection of the tax may be filed
commissioner. without assessment, at anytime
b. The agreement to extend the same within ten years after the discovery
should be mode before the expiration of the falsity or fraud.
of the period previously agreed upon.
Note:
4. Where there is a written waiver or The 10-year prescriptive period for
renunciation of the original 3-year collector thru action does not apply if it
limitation signed by the taxpayer. appears that there was an assessment. In
such case, the ordinary 5-year period (now
Note: 3 years) would apply (Rep. vs. Ret., March
Limitations: 31, 1962)
a. The waiver to be valid must be
executed by the parties before the 2. When the taxpayer omits to file a
lapse of the prescriptive period. return a court proceeding for the
b. A waiver is inefficient I it is executed collection of such tax may be filed
beyond the original three year. without assessment, at anytime
c. The commissioner can not valid agree within 10 years after the discovery
to reduce the prescriptive period to of the omission.
less than that granted by law. 3. Waiver of statute of limitations
any internal revenue tax, which has
C) Imprescriptible Assessments: been assessed within the period
1. Where the law does not provide for any agreed upon, may be collected be
particular period of assessment, the tax distinct or levy of by a proceeding
sought to be assessed becomes in court within the period agreed
imprescriptible. upon in writing before the
2. Where no return is required by law, the expiration of 5-year period.
tax is imprescriptible.
3. Assessment of unpaid taxes, where the Note:
bases of which is not required by law to be Distinction
reported in a return such as excise taxes.
 TAX ATION
San Beda College of LAW ALABANG

a. Agreement to extend period of

vs. b. Agreement
renouncing III. Rules of Prescription In Criminal Cases
Prescription. It must be made before the
period of prescription A. Rule: All violations of any provision of the
Expiration of the period agreed upon to tax code shall prescribe after five (5)
an agreement waiving the defense years.
of
be valid. Note:
Prescription is till binding to the When it should commence? : The five (5)
year prescriptive period shall begin to run
Taxpayer although made beyond from the
such a. Day of the commission of the violation,
prescriptive period. if know.
b. If not known, from the time of
4. Where the government makes discovery and the institution of judicial
another assessment on the basis of proceeding for its investigation and
reinvestigation requested by the punishment.
taxpayer the prescriptive period When it is interrupted:
for collection should be counted a. When a proceeding is instituted
from the last assessment. (Rep. vs. against the guilty person
Lopez, March 30, 1963) b. When the offender is absent from the
Philippines.
When it should run again : When the
proceeding is dismissed for reason not
5. Where the assessment is revised Constituting
because of an amended return jeopardy.
the period for collection is counted When does the defense of prescription
from the last revised assessment.
may be raised:
a. In civil case If not raised in the lower
6. Where a tax obligation is secured
court, it is bailed permanently.
by a surety bond the government
- If can not be raised for the first time on
may proceed thru a court action to
appeal.
forfeit a bond and enforce such
b. In criminal case It can be raised even
contractual obligation within a
if the case has been decided by the
period of ten years.
lower court but pending decision on
appeal.
7. Where the action is brought to
enforce a compromise entered into
IV. Interruption of the Prescriptive Period
between the commission and the
taxpayer the prescriptive period
1. Where before the expiration of the
is ten years.
time prescribed for the assessment
of the tax, both the commissioner
C. When tax is deemed collected for
and the taxpayer have consented in
purposes of the prescriptive period.
writing to its assessment after such
time, the tax may be assessed prior
1. Collection by summary remedies It is
to the expiration of the period agreed
effected by summary methods when
upon.
the government avail of distraint and
2. The running of statute of limitations
levy procedure.
on making an assessment and the
2. Collection by judicial action The
beginning of distraint/levy or a
collection begins by filing the
proceeding in court for collection
complaint with the proper court. (RTC)
shall be suspended for the period.
3. Where assessment of the
commissioner is protected & appealed
a. During which the
to the CTA the collection begin when
Commissioner is prohibited
the government file its answer to
from making the assessment
taxpayers petition for review.
or beginning distraint/levy or
 TAX ATION
San Beda College of LAW ALABANG

a proceeding in court and for the offender is absent from the

60 days thereafter; Philippines.
e.g.
Filing a petition for review in Note:
the CTA from the decision of A petition for reconsideration of a tax
the Commissioner. The assessment does not suspend the criminal
commissioner is prevented action.
from filing an ordinary Reason: No requirement for assessment
action to collect the tax. of the tax before the criminal action may
When CTA suspends the be instituted.
collection of tax liability of
the taxpayer pursuant to Nota Bene:
Section 11 of RA 1125 upon 1. The law on prescription remedial measure
proof that its collection may should be interpreted liberally in order to
jeopardizes the government protect the taxpayer.
and /or the taxpayer. 2. The defense of prescription must be raised
by the taxpayer on time, otherwise it is
b. When the taxpayer requests deemed waived.
for reinvestigation which is 3. The question of prescription is not
granted by commissioner. jurisdictional, and as defense it must be
raised reasonably otherwise it is deemed
Note: waived.
A mere request for 4. The prescriptive provided in the tax code
reinvestigation without any over ride the statute of non-claims in the
action or the part of the settlement of the deceaseds estate.
Commissioner does not interrupt 5. In the event that the collection of the tax
the running of the prescriptive has already prescribed, the government
period. cannot invoke the principle of Equitable
The request must not be a recumbent by setting- off the prescribed
mere pro-former. Substantial tax against a tax refused to which the
issues must be raised. taxpayer is entitled.

c. When the taxpayer cannot be

located in the address given TAXPAYERS REMEDIES
by him in the return.

Note: Administrative
If the taxpayer informs the
Commissioner of any change in (1) Before Payment
address the statute will not be
suspended. a. Filing of a petition or request for
d. When the warrant of distraint reconsideration or
or levy is duly served upon reinvestigation (Administrative
any of the following person: Protest);
1. taxpayer b. Entering into compromise
2. his authorized
representative (2) After Payment
3. Member of his household a. Filing of claim for tax refund;
with sufficient discretion and
and no property could be b. Filing of claim for tax credit
located.

e. When the taxpayer is out of Judicial

the Philippines.
(1) Civil action
3. In criminal cases for violation of tax
code the period shall not run when a. Appeal to the Court of Tax
Appeals
 TAX ATION
San Beda College of LAW ALABANG

b. Action to contest forfeiture of creditable withholding tax for a taxable

chattel; and period was determined to have carried
c. Action for Damages over and automatically applied the
same amount claimed against the
(2) Criminal Action estimated tax liabilities for the taxable
quarter or quarters of the succeeding
a. Filing of complaint against taxable year; or
erring Bureau of Internal d. When the excise tax due on excisable
Revenue officials and articles has not been paid; or
employees. e. When an article locally purchased or
imported by an exempt person, such
as, but not limited to, vehicles, capital
ADMINISTRATIVE PROTEST equipment, machineries, and spare
parts, has been sold, traded or
Request for reconsideration- a plea for the transferred to non-exempt persons.
re-evaluation of an assessment on the basis of
existing records without need of additional If the taxpayer fails to respond within fifteen
evidence. It may involve a question of fact or law (15) days from the date of receipt of the PAN, he
or both. shall be considered in default, in which case, a
formal letter of demand and assessment notice
Request for reinvestigation- a plea for shall be caused to be issued, calling for payment
reinvestigation of an assessment on the basis of of the taxpayers tax liability, inclusive of the
newly-discovered or additional evidence that a applicable penalties (3.1.2. Revenue Regulations
taxpayer intends to present in the No. 12-99 dated Sept. 6, 1999).
reinvestigation. It may also involve question of
fact or law or both.
Issuance of a Formal Letter of Demand and
Assessment Notice issued by the Commissioner
Issuance of Assessment or his duly authorized representative. Shall state
the facts, the laws, rules and regulations, or
jurisprudence on which the assessment is based,
Procedure otherwise, the formal letter of demand and
assessment notice shall be void.

Issuance of written a Preliminary Assessment

Notice (PAN) after review and evaluation by the Formal Letter of Demand and Assessment
Assessment Division or by the Commissioner or Notice shall be sent to the taxpayer only by
his duly authorized representative, as the case registered mail or personal delivery.
may be. A valid PAN shall be in writing stating the
law and facts on which the assessment is made.
(Sec. 228 of the 1997 NIRC) If sent by personal delivery, the taxpayer or
his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy
Under Sec. 228 of the 1997 NIRC a Pre- of the letter of demand showing the following: (a)
Assessment Notice shall not be required in the his name; (b) signature; (c) designation and
following cases: authority to act for and in behalf of the taxpayer;
if acknowledged or received by a person other
than the taxpayer himself; and (d) date of receipt
a. When the finding for the deficiency tax thereof. (3.1.4. Revenue Regulations No. 12-99
is the result of mathematical error in dated Sept. 6, 1999).
the computation of the tax as
appearing on the face of the return; or
b. When a discrepancy has been Disputed Assessment
determined between the tax withheld
and the amount actually remitted by
the withholding agent; or Taxpayer or his duly authorized representative
c. When a taxpayer who opted to claim a may administratively protest against a Formal
refund or tax credit of excess
 TAX ATION
San Beda College of LAW ALABANG

Letter of Demand and Assessment notice within amount should be paid immediately
thirty (30) days from date of receipt thereof. upon the filing of the protest. For this
purpose, the protest shall not be
deemed validly filed unless payment of
If the protest is denied in whole or part, or is the agreed portion of the tax is paid
not acted upon within one hundred eighty (180) first;
days from submission of documents, the taxpayer g. Itemized schedule of the adjustments
adversely affected by the decision or inaction with which the taxpayer does not
may appeal to the CTA within 30 days from agree;
receipt of the said decision, or from lapse of the h. Statement of facts and/or law in
one hundred (180)-day period: otherwise, the support of the protest; and
decision shall become final and executory i. Documentary evidence as it may deem
necessary and relevant to support its
protest to be submitted within sixty
Several issues in the assessment notice but (60) days from the filing of the protest.
taxpayer only disputes/protests validity of some If the taxpayer fails to comply with this
of the issues requirement, the assessment shall
become final (Revenue Regulation No.
Taxpayer required to pay the deficiency
12-85, dated Nov. 27, 1985.)
tax or taxes attributable to the undisputed
A request for reconsideration or
issues.
reinvestigation of an assessment shall be
Collection letter to be issued calling for
accompanied by a waiver of the Statute of
the payment of deficiency tax, including
Limitations in favor of the Government.
applicable surcharge and/or interest.
No action shall be taken on the disputed Effect of taxpayers failure to file an
issues until payment of deficiency taxes administrative protest or to appeal BIRs decision
on undisputed issues to the CTA
Prescriptive period for assessment or
collection of taxes on disputed issues shall
be suspended. As provided in Sec. 228 of the Tax Code, if
the taxpayer fails to file an administrative
protest within the reglementary 30-day
Failure of taxpayer to state the facts, the from receipt of the assessment notice,
applicable law, rules and regulations, or assessment becomes final.
jurisprudence on which his protest is based shall After the lapse of the 30-day period, the
render his protest void and without force and assessment can no longer be disputed
effect. either administratively or judicially
through an appeal in the CTA.
Assessed already tax collectible.
Contents:

a. Name of the taxpayer and address for

the immediate past three taxable
years; Legal Basis
b. Nature of request whether
reinvestigation or reconsideration
specifying newly discovered evidence Legal Principle of quasi-contracts or
that he intends to present it it is a solutio indebiti (see Art. 2142 & 2154 of the Civil
request for reinvestigation; Code). The Government is within the scope of the
c. Taxable periods covered by the principle of solutio indebiti (CIR vs. Firemans
assessment; Fund Insurance Co)
d. Amounts and kind/s of tax involved,
and Assessment Notice Number;
e. Date of receipt of assessment notice or Scope of Claims
letter of demand;
f. Itemized statement of the findings to
which the taxpayer agrees, if any, as a Under Sec. 204 and 209 of the 1997 NIRC
basis for computing the tax due, which the Commissioner may credit or refund taxes:
 TAX ATION
San Beda College of LAW ALABANG

is made, such payment appears clearly to

have been erroneous. (Sec. 229, 1997
(a) Erroneously or illegally assessed or
NIRC).
collected internal revenue taxes
Taxpayer pays under the mistake of
b. Categorical demand for reimbursement
fact, as for instance in a case where he is not
aware of the existing exemption in his favor at
the time payments were made
c. Claim for refund or tax credit must be
A tax is illegally collected if filed or the suit proceeding thereof must be
payments are made under duress. commenced in court within two (2) years
from date of payment of tax or penalty
(b) Penalties imposed without authority
regardless of any supervening event. (Sec.
(c) Any sum alleged to have been 204 (c) & 229 1997 NIRC)
excessive or in any manner wrongfully collected
The value of internal revenue stamps
Requirement a condition precedent and
when they are returned in good condition by the
non-compliance therewith bars recovery
purchaser may also be redeemed.
(Phil. Acetylene Co. Inc, vs. Commissioner,
CTA Case No. 1321, Nov. 7, 1962).
Refers not only to the administrative
Necessity of Proof for Refund Claims
claim that the taxpayer should file within 2
years from date of payments with the BIR,
but also the judicial claim or the action for
Refund claim partakes of the nature of an refund the taxpayer should commence
exemption which cannot be allowed unless with the CTA (see Gibbs vs.. Collector of
granted in the most explicit and Internal Revenue, 107 Phil 232).
categorical language. (CIR vs. Johnson and Taxpayer may file an action for refund in
Sons the CTA even before the Commissioner
Failure to discharge burden of giving proof decides his pending claim in the BIR
is fatal to claim (Commissioner of Internal Revenue vs.
It must be shown that payment was an Palanca Jr., L-16626, Oct. 29, 1966).
independent single act of voluntary Suspension of the 2-yaer prescriptive
payment of a tax believed to be due, period may be had when:
collectible and accepted by the (1) there is a pending litigation
government, and which therefore, become between the two parties (government
part of the state moneys subject to and taxpayer) as to the proper tax to
expenditure and perhaps already spent or be paid and of the proper
appropriated (CIR vs. Li Yao, L-11875, Dec. interpretation of the taxpayers charter
28, 1963). in relation to the disputed tax; and
TAX REFUND TAX CREDIT
Statutory Requirements for Refund Claims
There is actually a The government
reimbursement of issues a tax credit
a. Written claim for refund or tax credit the tax memo covering the
filed by the taxpayer with the Commissioner amount determined
to be reimbursable
This requirement is mandatory. which can be applied
Reasons: (a) to afford the commissioner after proper
an opportunity to correct the action of verification, against
subordinate officer and (b) to notify the any sum that may be
government that the taxes sought to be due and collectible
refunded are under form the taxpayer
question and that, therefore, such notice (2) the commissioner in that litigated
should then be borne in mind in case agreed to abide by the decision of
estimating the revenue available for the Supreme Court as to the collection
expenditure (Bermejo vs. CIR 87 Phil 96). of taxes relative thereto (Panay
Except: Tax credit or tax refund where on Electric Co., Inc. vs. Collector of
the face of the return upon which payment Internal Revenue 103 Phil. 819)
 TAX ATION
San Beda College of LAW ALABANG

Even if the 2-year period has lapsed the Victorias Milling Corp., Inc. L-19607, Nov. 29,
same is not jurisdictional and may be 1966).
suspended for reasons of equity and other
2. In case of Income Tax withheld on
special circumstances. (CIR vs. Phil.
the wages of employees.
American Life Ins. Co., G.R. No. 105208,
May 29, 1995). Any excess of the taxes withheld over the
2-year prescriptive period for filing of tax tax due from the taxpayer shall be returned or
refund or credit claim computed from date credited within 3 months from the fifteenth (15th)
of payment of tax of penalty except in the day of April. Refund or credit after such time earn
following: interest at the rate of 6% per annum, starting
after the lapse of the 3-month period to the date
the reund or credit is made ( Sec 79 (c) (2) 1997
Corporations
NIRC)
2-year prescriptive period for overpaid
quarterly income tax is counted not from
the date the corporation files its quarterly APPEAL to the CTA
income tax return, but from the date the
final adjusted return is filed after the
taxable year (Commissioner of Internal Adverse decision or ruling rendered by the
Revenue vs. TMX Sales, Inc., G.R. No. Commissioner of Internal Revenue in
83736, Jan. 15, 1992). disputed assessment or claim for tax
refund or credit, taxpayer may appeal the
same within thirty (30) days after receipt.
Taxes payable in installment (Sec. 11, R.A. No. 1125)
Appeal equivalent to a judicial action
2-year period is counted form the
In the absence of appeal, the decision
payment of the last installment (CIR vs
becomes final and executory. But where
Palanca, Jr., supra)
the taxpayer adversely affected has not
received the decision or ruling, he could
not appeal the same to the CTA within 30
Withholding Taxes
days from notice. Hence, it could not
Prescriptive period counted not from become final and executory. (Republic vs.
the date the tax is withheld and remitted De la Rama, 18 SCRA 861)
to the BIR, but from the end of the taxable Motion for reconsideration suspends the
year (Gibbs vs. Commissioner of Internal running of the 30 day period of perfecting
Revenue, supra) an appeal. Must advance new grounds not
previously alleged to toll the reglementary
period; otherwise, it would be merely pro
VAT Registered Person whose sales are zero-rated forma. (Roman Catholic Archbishop vs.
or effectively zero-rated Coll., L-16683, Jan. 31, 1962).
2-year period computed from the end
of the taxable quarter when the sales Requirements for Appeal in Disputed
transactions were made (Sec. 112 (A) Assessment
1997 NIRC).

a. Tax assessed has not been paid;

Interest on Tax Refund b. Taxpayer has filed with the
Commissioner of Internal Revenue a
petition for the reconsideration or
The Government cannot be required to cancellation of the assessment;
pay interest on taxes refunded to the taxpayer c. Final decision or ruling has been
unless: rendered on such petition;
d. Suit or proceeding in the CTA is made
1. The Commissioner acted with within 30 days from receipt of the
patent arbitrariness decision
Arbitrariness presupposes inexcusable or
obstinate disregard of legal provisions (CIR vs. Effect of Failure to Appeal Assessment
 TAX ATION
San Beda College of LAW ALABANG

Revenue officer acting negligently or in bad

faith or with willful oppression would be
a. Taxpayer barred, in an action for
personally liable. He ceases to be an officer of the
collection of the tax by the
law and becomes a private wrongdoer.
government, from using defense of
excessive or illegal assessment.
b. Assessment is considered correct.
FILING OF CRIMINAL COMPLAINT AGAINST
REVENUE OFFICERS
Requirements for Appeal in Refund and Tax
Credit
A taxpayer may file a criminal complaint
against any official, agent or employee of the BIR
a. Tax has been paid; or any other agency charged with the
b. Taxpayer has filed with the CIR a enforcement of the provisions of the Tax Code
written claim for refund or tax credit who commits any of the following offenses:
within 2 years from payment of the tax
or penalty; and
c. Suit or proceeding is instituted in the 1) Extortion or willful oppression through the
CTA also within the same prescriptive use of his office;
period of two years from the date of 2) Willful oppression and harassment of a
payment regardless of any taxpayer who refused, declined, turned
supervening cause. (see Secs. 204, down or rejected any of his offers
229 1997 NIRC). mentioned in no. 5;
3) Knowingly demanding or receiving sums
or compensation not authorized or
ACTION CONTESTING FORFEITURE OF
prescribed by law;
CHATTEL
4) Willfully neglecting to give receipts as by
law required or to perform any other
duties enjoined by law;
In case of seizure of personal property under
5) Offering or undertaking to accomplish, file
claim for forfeiture, the owner desiring to contest
or submit a report or assessment on a
the validity of the forfeiture may bring an action:
txpayer without the appropriate
a. Before sale or destruction of the property examination of the books of account or tax
to recover the property from the person liability, or offering or undertaking to
seizing the property or in possession submit a report or assessment less than
thereof upon filing of the proper bond to the amount due the government for any
enjoin the sale. consideration or compensation; or
b. After the sale and within 6 months to conspiring or colluding with another or
recover the net proceeds realized at the others to defraud the revenues or
sale (see. Sec. 231, 1997 NIRC) otherwise violate the provisions of the tax
Action is partakes of the nature of an ordinary code;
civil action for recovery of personal property or 6) Neglecting or by design permitting the
the net proceeds of its sale which must be violation of the law or any false certificate
brought in the ordinary courts and not the CTA. or return;
7) Making or signing any false entry or
entries in any book, or nay false certificate
ACTION FOR DAMAGES AGAINST REVENUE or return;
OFFICIALS 8) allowing or conspiring or colluding with
another to allow the unauthorized
withdrawal or recall of any return or
Taxpayer may file an action for damages statement after the same has been
against any internal revenue officer by reason of officially received by the BIR;
any act done in the performance of official duty 9) Having knowledge or information of any
or neglect of duty. In case of willful neglect of violation of the Tax Code, failure to report
duty, taxpayers recourse is under Art 27 of the such knowledge or information to their
Civil Code. superior officer, or as otherwise required
by law; ND
 TAX ATION
San Beda College of LAW ALABANG

10) Without the authority of law, demanding a. abandoned articles;

or accepting money or other things of
value fore the compromise or settlement b. articles entered under
of any charge or complaint for any warehousing entry not
violation of the Tax Code. (see. Sec. 269, withdrawn nor the duties and
1997 NIRC) taxes paid thereon within the
Remedies under the period provided under Section
Tariff and Customs Code 1908, TCC;

A. Government Remedies: c. seized property, other than

contraband, after liability to
a. Extrajudicial sale shall have been
established by proper
1. Enforcement or tax lien administrative or judicial
proceedings in conformity with
A tax lien attaches on the goods, the provision of this code: and
regardless of the ownership while
still in the custody or control of the d. Any articles subject to a valid
government lien for customs duties, taxes or
other charges collectible by the
Proceeds of sale are applied to the Bureau of Customs, after the
tax due. Any deficiency or excess is expiration of the period allowed
for the account or credit, for the satisfaction of the same.
respectively of the taxpayer
Note: Goods in the collectors
This is availed of when the possession or of Customs authorities
importation is neither nor pending payment of customs duties
improperly made are beyond the reach of attachment.

b. Judicial Action
2. Seizures
The tax liability of the importer constitutes
Generally applied when the penalty a personal debt to the government,
is fine or forfeiture which is enforceable by action (Sec. 1204, TCC)
imposed when the importation is
unlawful and it may be exercised This is availed of when the tax lien is lost
even where the articles are not or by the release of the goods.
no longer in Customs Custody,
unless the importation is merely
attempted. B. Taxpayers Remedies

In the case of attempted Administrative Recourse

importation, administrative fine or
forfeiture may be affected only; Claim for refunda written claim for
refund may be submitted by the importer:
a. while the goods are still within
the customs jurisdiction, or
1. In abatement uses such as:
b. in the hands or under the
control of the importer or a. on missing packages;
person who is aware thereof.
b. deficiencies in the contents of
3. Sale of Property packages or shortage before arrival
of the goods in the Philippines;
Property in the customs custody shall
be subject to sale under the following c. articles lost or destroyed after such
conditions; arrival,
 TAX ATION
San Beda College of LAW ALABANG

d. articles lost or destroyed

Administrative
e. dead or injured animals; and
1. Distraint of Personal Property
f. for manifest classical errors; (see
section 1701-1708, TCC) 2. Levy of Real Property

2. Judicial relief 3. Tax Lien

In drawback cases where the goods 4. Compromise

are re-exported
5. Forfeiture
a. Protest
6. Other Administrative Remedies
see the earlier discussions on
Customs Protest Cases Judicial

b. In seizure cases 7. Civil Action

see earlier discussion on the 8. Criminal Action

subject
Distraint of Personal Property
c. Settlement of case by the payment
of fine or redemption of forfeited Distraint- Seizure by the government of
property personal property, tangible or intangible, to
enforce the payment of faces, to be followed by
see earlier discussions on the its public sale, if the taxes are not voluntarily
subject paid.

Note: The owner or importer may c. Actual There is taking of possession of

abandon either expressly or By personal property out of the taxpayer into
importation in favor of the Government that of the government. In case of
thus relieving himself of the tax intangible property. Taxpayer is also
liability but not from the possible diverted of the power of control over the
criminal liability. property;

The taxpayer may appeal to the Court d. Constructive The owner is merely
of Appeals which has exclusive prohibited from disposing of his personal
jurisdiction to review decisions of the property.
Commissioner of Custom in cases
involving: Actual Distraint. Constructive Distraint
May be made on the
a) liability for customs duties, fees or Made on the property
property of any
other money charges; only of a delinquent
taxpayer whether
b) seizures, detention or release of taxpayer.
delinquent or not
property affected; Taxpayer is merely
There is actual taking or
prohibited from
c) fines forfeitures or other penalties possession of the
disposing of his
imposed in relation thereto; and property.
property.
Effected by having a list Effected by requiring
d) other matters arising under the of the distraint property the taxpayer to sign a
customs Law or other laws or by service or warrant receipt of the property
administered by the Revenue of of distraint or or by leaving a list of
Customs. garnishment. same
An immediate step for Such immediate step is
Remedies of the Government collection of taxes not necessary; tax due
where amount due is may not be definite or
Enumeration of the Remedies definite. it is being questioned.
 TAX ATION
San Beda College of LAW ALABANG

from whom property was taken, at

the dwelling or place of business
Requisites: and with someone of suitable age
and discretion
5. Taxpayer is delinquent in the payment of
tax. b. Statement of the sum demanded.

6. Subsequent demand for its payment. c. Time and place of sale.

7. Taxpayer must fail to pay delinquent tax at 4. In case of intangible property:

time required.
a. Stocks and other securities
8. Period with in to assess or collect has not
yet prescribed. In case of constructive Serving a copy of the warrant upon
distraint, requisite no. 1 is not essential taxpayer and upon president,
(see Sec. 206 TC) manager, treasurer or other
responsible officer of the issuing
When remedy not available: corporation, company or
association.
Where amount involved does not exceed
P100 (Sec. 205 TC). In keeping with the provision b. Debts and credits
on the abatement of the collection of tax as the
cost of same might even be more than P100. 3. Leaving a copy of the warrant
with the person owing the debts
Procedure: or having in his possession such
credits or his agent.
5. Service of warrant of distraint upon
taxpayer or upon person in possession of 4. Warrant shall be sufficient
taxpayers personal property. authority for such person to pay
CIR his credits or debts.
6. Posting of notice is not less than two
places in the municipality or city and c. Bank Accounts garnishment
notice to the taxpayer specifying time and
place of sale and the articles distrained. 3. Serve warrant upon taxpayer
and president, manager,
7. Sale at public auction to highest bidder treasurer or responsible officer
of the bank.
8. Disposition of proceeds of the sale.
4. Bank shall turn over to CIR so
much of the bank accounts as
may be sufficient.

Amount How constructive Distraint Effected

Who may effect distraint
Involved
3. commissioner or his due In excess of 3. Require taxpayer or person in possession
authorized representative P1,000,000.00 to
P1,000,000.00
4. RDO or less a. Sign a receipt covering property
distrained

b. Obligate him to preserve the same

How Actual Distraint Effected properties.

3. In case of Tangible Property: c. Prohibit him from disposing the

property from disposing the property in
a. Copy of an account of the property any manner, with out the authority of
distrained, signed by the officer, the CIR.
left either with the owner or person
 TAX ATION
San Beda College of LAW ALABANG

4. Where Taxpayer or person in possession Procedure:

refuses to sign:
7. International Revenue officer shall prepare
a. Officer shall prepare list of the a duly authenticated certificate showing
property distrained.
a. Name of taxpayer
b. In the presence of two witnesses of
sufficient age and discretion, leave a b. Amount of tax and
copy in the premises where property is
located. c. Penalty due.

Grounds of Constructive Distraint

- enforceable through out the Philippines
6. Taxpayer is retiring from any business
subject to tax. 8. Officer shall write upon the certificate a
description of the property upon which
7. Taxpayer is intending to leave the levy is made.
Philippines; or
9. Service of written notice to:
8. To remove his property there from.
c. The taxpayer, and
9. Taxpayer hides or conceals his property.
d. RD where property is located.
10. Taxpayer acts tending to obstruct
collection proceedings. 10. Advertisement of the time and place of
sale.
Note:
11. Sale at public auction to highest bidder.
4. Bank accounts may be distrained with out
violating the confidential nature of bank 12. Disposition of proceeds of sale.
accounts for no inquiry is made. BIR
simply seizes so much of the deposit with The excess shall be turned over to owner.
out having to know how much the deposits
are or where the money or any part of it Redemption of property sold or forfeited
came from.
e. Person entitled: Taxpayer or anyone for
5. If at any time prior to the consummation him
of the sale, all proper charges are paid to
the officer conducting the same, the f. Time to redeem: one year from date of
goods distrained shall be restored to the sale or forfeiture
owner.
- Begins from registration of the deed of
6. When the amount of the bid for the sale or declaration of forfeiture.
property under distraint is not equal to the
amount of the tax or is very much less - Cannot be extended by the courts.
than the actual market value of articles,
the CIR or his deputy may purchase the g. Possession pending redemption owner
distrained property on behalf of the not deprived of possession
national government.
h. Price: Amount of taxes, penalties and
Levy of Real Property interest thereon from date of delinquency
to the date of sale together with interest
Levy Act of seizure of real property in on said purchase price at 15% per annum
order to enforce the payment of taxes. The from date of purchase to date of
property may be sold at public sale, if after redemption.
seizure; the taxes are not voluntarily paid. The
requisites are the same as that of distraint.
Distraint and Levy compared
 TAX ATION
San Beda College of LAW ALABANG

7. Extent:
6. Both are summary remedies for collection
of taxes. Upon all property and rights to property
belonging to the taxpayer.
7. Both cannot be availed of where amount
involved is not more than P100. 8. Effectivity against third persons:

8. Distraint personal property Only when notice of such lien is filed by

the CIR in the Register of Deeds
Levy real property concerned.

9. Distraint forfeiture by government, not Extinguishment of Tax Lien

provided
5. Payment or remission of the tax
Levy forfeiture by government
authorized where there is no bidder or the 6. Prescription of the right of the government
highest bid is not sufficient to pay the to assess or collect.
taxes, penalties and costs. 7. Failure to file notice of such lien in the
office of register of Deeds, purchases or
10. Distraint Taxpayer no given the right of judgment creditor.
redemption
8. Destruction of the property subject to the
Levy Taxpayer can redeem properties lien.
levied upon and sold/forfeited to the
government. In case Nos. 1 and 2, there is no more tax
liability. Under nos. 3 and 4, the taxpayer
Note: is still liable.

5. It is the duty of the Register of Deeds Enforcement of Tax Lien vs. Distraint
concerned upon registration of the
declaration of forfeiture, to transfer the A tax lien is distinguished from disttraint in
title to the property with out of an order that, in distraint the property seized must be that
from a competent court of the taxpayer, although it need not be the
6. The remedy of distraint or levy may be property in respect to the tax is assessed. Tax
repeated if necessary until the full lien is directed to the property subject to the tax,
amount, including all expenses, is regardless of its owner.
collected.
Note:
Enforcement of Tax Lien
3. This is superior to judgment claim of
Tax Liena legal claim or charge on private individuals or parties
property, either real or personal, established by
law as a security in default of the payment of 4. Attaches not only from time the warrant
taxes. was served but from the time the tax was
due and demandable.
2. Nature:
Compromise
A lien in favor of the government of the
Philippines when a person liable to pay a Compromisea contract whereby the
tax neglects or fails to do so upon parties, by reciprocal concessions, avoid litigation
demand.\ or put an end to one already commenced.

3. Duration: Requisites:

Exists from time assessment is made by 4. Taxpayer must have a tax liability.
the CIR until paid, with interests, penalties
and costs. 5. There must be an offer by taxpayer or CIR,
of an amount to be paid by taxpayer.
 TAX ATION
San Beda College of LAW ALABANG

6. There must be acceptance of the offer in Compromise Penalty

settlement of the original claim.
4. It is a certain amount of money which the
When taxes may be compromised: taxpayer pays to compromise a tax
violation.
4. A reasonable doubt as to the validity if the
claim against the taxpayer exists; 5. It is pain in lieu of a criminal prosecution.

5. The financial position of the taxpayer 6. Since it is voluntary in character, the same
demonstrates a clear inability to pay the may be collected only if the taxpayer is
assessed tax. willing to pay them.

6. Criminal violations, except: Enforcement of forfeiture

a. Those already filed in court Forfeitureimplies a divestiture of

property with out compensation, in consequence
b. Those involving fraud. of a default or offense. It includes the idea of not
only losing but also having the property
transferred to another with out the consent of the
Limitations: owner and wrongdoer.

3. Minimum compromise rate: 8. Effect: Transfer the title to the specific

thing from the owner to the government.
a. 10% of the basic tax assessed in
case of financial incapacity. 9. When available:
a. No bidder for the real property
b. 40% of basic tax assessed other exposed for sale.
cases.
b. If highest bid is for an amount
4. Subject to approval of Evaluation Board insufficient to pay the taxes,
penalties and costs.
c. When basic tax involved exceeds
P1,000,000.00 or - With in two days thereafter, a return of
the proceeding is duly made.
d. Where settlement offered is less
than the prescribed minimum 10. How enforced:
rates.
c. In case of personal property by
Delegation of Power to Compromise seizure and sale or destruction of
the specific forfeited property.
General Rule: The power to compromise
or abate shall not be delegated by the d. In case of real property by a
commissioner. judgment of condemnation and
sale in a legal action or proceeding,
Exception: The Regional Evaluation Board civil or criminal, as the case may
may compromise the assessment issued by the require.
regional offices involving basic taxes of P 500 K or
less.
11. When forfeited property to be destroyed
Remedy in case of failure to comply: or sold:

The CIR may either: c. To be destroyed by order of the

CIR when the sale for consumption
3. enforce the compromise, or or use of the following would be
injurious to the public health or
4. Regard it as rescinded and insists upon prejudicial to the enforcement of
the original demand.
 TAX ATION
San Beda College of LAW ALABANG

the law: (at least 20 days after i. To whom paid Commissioner or

seizure) the Revenue Collection Officer

1. distilled spirits j. Effect of failure to redeem

forfeiture shall become absolute.
2. liquors

3. cigars Note: The Register of Deeds is duty bound to

transfer the title of property forfeited to the
4. cigarettes, and other government with our necessity of an order from a
manufactured products of competent court.
tobacco
Other Administrative Remedies
5. playing cards
4. Requiring filing of bonds in the following
6. All apparatus used in or about instances:
the illicit production of such
articles. a. Estate and donors tax

b. Excise taxes
d. To be sold or destroyed depends
upon the discretion of CIR c. Exporters bond

3. All other articles subject to d. Manufacturers and importers bond

exercise tax, (wine, automobile,
mineral products, manufactured 5. Requiring proof of filing income tax returns
oils, miscellaneous products,
non-essential items a petroleum Before a license to engage in trade,
products) manufactured or business or occupation or to practice a
removed in violation of the Tax profession can be issued.
Code.
4. Dies for printing or making IR 6. Giving reward to informers Sum
stamps, labels and tags, in equivalent to 10% of revenues, surcharges
imitation of or purport to be or fees recovered and/or fine or penalty
lawful stamps, labels or tags. imposed and collected or P1, 000,000.00
per case, whichever is lower.

12. Where to be sold: 7. Imposition of surcharge and interest.

c. Public sale: provided, there is 8. Making arrest, search and seizure

notice of not less than 20 days.
Limited to violations of any penal law or
d. Private sale: provided, it is with regulation administered by the BIR,
the approval of the Secretary of committed with in the view of the Internal
Finance. Revenue Officer or EE.

13. Right of Redemption: 9. Deportation in case of aliens on the

following grounds
f. Personal entitled taxpayer or
anyone for him c. Knowingly and fraudulently evades
payment of IR taxes.
g. Time to redeem with in one (1)
year from forfeiture d. Willfully refuses to pay such tax and its
accessory penalties, after decision on
h. Amount to be paid full amount of his tax liability shall have become final
the taxes and penalties, plus and executory.
interest and cost of the sale
10. Inspection of books
 TAX ATION
San Beda College of LAW ALABANG

courts (RTC or MTCs, depending on the

Books of accounts and other accounting amount involved)
records of taxpayer must be preserved,
generally within three years after date the When assessment made has become final
tax return was due or was filed whichever and executory for failure or taxpayer to:
is later.
c. Dispute same by filing protest with CIR
11. Use of National Tax Register
d. Appeal adverse decision of CIR to CTA
12. Obtaining information on tax liability of
any person D. Criminal Action

A direct mode of collection of taxes, the

13. Inventory Taking of stock-in-trade and judgment of which shall not only impose
making surveillance. the penalty but also order payment of
taxes.
14. Prescribing presumptive gross sales or
receipt: An assessment of a tax deficiency is not
necessary to a criminal prosecution for
tax evasion, provided there is a prima
c. Person failed to issue receipts and facie showing of willful attempt to evade.
invoices
Effect of Acquittal on Tax Liability:
d. Reason to believe that records do not
correctly reflect declaration in return.\ Does not exonerate taxpayer his civil
liability to pay the tax due. Thus, the
15. Prescribing real property values government may still collect the tax in the same
action.
16. Inquiring into bank deposit accounts of Reason: Tax is an obligation, does not arise from
a criminal act.
c. A deceased person to determine gross
estate Effect of Satisfaction of Tax Liability on
Criminal Liability
d. Any taxpayer who filed application for
compromise by reasons of financial Will not operate to extinguish taxpayers
incapacity his tax liability. criminal liability since the duty to pay the tax is
imposed by statute, independent of any attempt
17. Registration of Taxpayers. on past of taxpayers to evade payment.

Judicial Remedies This is true in case the criminal action is

based on the act to taxpayer of filing a false and
Civil and Criminal Actions: fraudulent tax return and failure to pay the tax.

1. Brought in the name of the Government of Note: The satisfaction of civil liability is not one of
the Philippines. the grounds for the extinction of criminal action.

2. Conducted by Legal Officer of BIR

3. Must be with the approval of the CIR, in

case of action, for recovery of taxes, or
enforcement of a fine, penalty or Prescriptive Periods /
forfeiture. Statute Of Limitation

Purpose:
C. Civil Action
For purposes of Taxation, statue of limitation
Actions instituted by the government to is primarily designed to protect the rights of the
collect internal revenue taxes in regular taxpayers against unreasonable investigation of
 TAX ATION
San Beda College of LAW ALABANG

the taxing authority with respect to assessment

and collection of Internal Revenue Taxes. 6. Where a return was filed but the same was
false or fraudulent within ten (10) years
Prescription of Governments Right to from the discovery of falsity or fraud.
Assess Taxes:
Nature of Fraud:
General Rule: Internal Revenue Taxes shall be
assessed within three (3) years after the last day a. Fraud is never presumed and the
prescribed by law for the filing of the return or circumstances consisting it must be
from the day the return was filed, in case it is alleged and proved to exist by clear &
filed beyond the period prescribed thereof. convincing evidence (Republic vs. Keir,
(Section 203 of the Tax Code) Sept. 30, 1966)

Note: b. The fraud contemplated by law is

actual and not constructive. It must
1. A return filed before the last day amount to intentional wrongdoing with
prescribed by law for the filing thereof the sole object of avoiding the tax. A
shall be considered as filed on such last mere mistake is not a fraudulent
day. intent. (Aznar case, Aug. 23, 1974)

2. In case a return is substantially amended, c. A fraud assessment which has become

the government right to assess the tax final and executory, the fact of fraud
shall commence from the filing of the shall be judicially taken cognizance of
amended return (CIR vs. Phoenix, May 20, in the civil or criminal action for the
1965; Kei & Co. vs. Collector, 4 SCRA 872) collection thereof. (Sec. 222
paragraph (a))
3. In computing the prescriptive period for
assessment, the latter is deemed made
when notice to this effect is released, Fraud may be established by the
mailed or sent by the Commissioner to the following : (Badges of Fraud)
correct address of the taxpayer. However,
the law does not require that the d. Intentional and substantial
demand/notice be received within the understatement of tax liability of the
prescriptive period. (Basilan Estates, Inc. taxpayer.
vs. Commissioner 21, SCRA 17; Republic
vs. CA April 30, 1987) e. Intentional and substantial
overstatement of deductions of
4. An affidavit executed by a revenue office exemption
indicating the tax liabilities of a taxpayer
and attached to a criminal complaint for f. Recurrence of the foregoing
tax evasion, cannot be deemed an circumstances.
assessment. ( CIR vs. Pascoi Realty Corp.
June 29, 1999) Instances/Circumstances negating
fraud:
5. A transcript sheets are not returns,
because they do not contain information a. When the Commissioner fails impute
necessary and required to permit the fraud in the assessment
computation and assessment of taxes notice/demand for payment.
(Sinforo Alca vs. Commissioner, Dec. 29,
1964) b. When the Commissioner failed to
allege in his answer to the taxpayers
petition for review when the case is
appealed to the CTA.
Exceptions: (Sec. 222 ic)
c. When the Commissioner raised the
5. Where no return was filed - within ten (10) question of fraud only for the first time
years after the date of discovery of the in his memorandum which was filed
omission. the CTA after he had rested his case.
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reported in a return such as excise taxes.

d. Where the BIR itself appeared, not (Carmen vs. Ayala Securities Corp., Nov.
sure as to the real amount of the 21, 1980)
taxpayers net income.
4. Assessment of compensating and
e. A mere understatement of income documentary stamp tax.
does not prove fraud, unless there is a
sufficient evidence shaving fraudulent
intent.

7. Where the commissioner and the

taxpayer, before the expiration of the Prescription of Governments
three (3) year period of limitation have Right to Collect Taxes
agreed in writing to the extension of said
period. D. General Rule:

Note: Limitations: 1. Where an assessment was made Any

internal revenue tax which has been
c. The agreement extending the period of assessed within the period of limitation
prescription should be in writing and may be collected by distraint or levy or
duly signed by the taxpayer and the by proceeding in court within 5 years
commissioner. following the date of assessment.

d. The agreement to extend the same 2. Where no assessment was made and a
should be mode before the expiration return was filed and the same is not
of the period previously agreed upon. fraudulent or false- the tax should be
collected within 3 years after the
8. Where there is a written waiver or return was due or was filed, whichever
renunciation of the original 3-year is later.
limitation signed by the taxpayer.
E. Exceptions:
Note: Limitations:
8. Where a fraudulent/false return with
d. The waiver to be valid must be intent to evade taxes was filed a
executed by the parties before the proceeding in court for the collection of
lapse of the prescriptive period. the tax may be filed without
assessment, at anytime within ten
e. A waiver is inefficient I it is executed years after the discovery of the falsity
beyond the original three year. or fraud.

f. The commissioner can not valid agree Note: The 10-year prescriptive period
to reduce the prescriptive period to for collector thru action does not apply
less than that granted by law. if it appears that there was an
assessment. In such case, the
ordinary 5-year period (now 3 years)
Imprescriptible Assessments: would apply (Rep. vs. Ret., March 31,
1962)
1. Where the law does not provide for any
particular period of assessment, the tax 9. When the taxpayer omits to file a
sought to be assessed becomes return a court proceeding for the
imprescriptible. collection of such tax may be filed
without assessment, at anytime within
2. Where no return is required by law, the tax 10 years after the discovery of the
is imprescriptible. omission.

10. Waiver of statute of limitations any

3. Assessment of unpaid taxes, where the internal revenue tax, which has been
bases of which is not required by law to be assessed within the period agreed
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upon, may be collected be distinct or The five (5) year prescriptive period shall
levy of by a proceeding in court within begin to run from the:
the period agreed upon in writing
before the expiration of 5-year period. c. Day of the commission of the violation, if
know.
11. Where the government makes another
assessment on the basis of d. If not known, from the time of discovery
reinvestigation requested by the and the institution of judicial proceeding
taxpayer the prescriptive period for for its investigation and punishment.
collection should be counted from the
last assessment. (Rep. vs. Lopez, When it is interrupted:
March 30, 1963)
c. When a proceeding is instituted against
12. Where the assessment is revised the guilty person
because of an amended return the
period for collection is counted from d. When the offender is absent from the
the last revised assessment. Philippines.

13. Where a tax obligation is secured by a

surety bond the government may When it should run again:
proceed thru a court action to forfeit a
bond and enforce such contractual When the proceeding is dismissed for
obligation within a period of ten years. reason not Constituting jeopardy.

14. Where the action is brought to enforce When does the defense of
a compromise entered into between prescription may be raised:
the commission and the taxpayer the
prescriptive period is ten years. c. In civil case If not raised in the lower
court, it is bailed permanently; if can not
F. When tax is deemed collected for be raised for the first time on appeal.
purposes of the prescriptive period.
d. In criminal case It can be raised even if
4. Collection by summary remedies It is the case has been decided by the lower
effected by summary methods when court but pending decision on appeal.
the government avail of distraint and
levy procedure.
Interruption of the Prescriptive Period
5. Collection by judicial action The
collection begins by filing the 4. Where before the expiration of the time
complaint with the proper court. (RTC) prescribed for the assessment of the tax,
both the commissioner and the taxpayer
6. Where assessment of the have consented in writing to its
commissioner is protected & appealed assessment after such time, the tax may
to the CTA the collection begin when be assessed prior to the expiration of the
the government file its answer to period agreed upon.
taxpayers petition for review.
5. The running of statute of limitations on
making an assessment and the beginning
of distraint/levy or a proceeding in court
Rules of Prescription in Criminal Cases for collection shall be suspended for the
period.
Rule: All violations of any provision of the
tax code shall prescribe after five (5) years. During which the Commissioner is
prohibited from making the assessment or
Note: beginning distraint/levy or a proceeding in
court and for 60 days thereafter; e.g.
When it should commence?
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a. Filing a petition for review in the CTA

from the decision of the Commissioner. Nota Bene:
The commissioner is prevented from
filing an ordinary action to collect the 6. The law on prescription remedial measure
tax. should be interpreted liberally in order to
protect the taxpayer.
b. When CTA suspends the collection of
tax liability of the taxpayer pursuant to 7. The defense of prescription must be raised
Section 11 of RA 1125 upon proof that by the taxpayer on time, otherwise it is
its collection may jeopardizes the deemed waived.
government and /or the taxpayer. 8. The question of prescription is not
jurisdictional, and as defense it must be
c. When the taxpayer requests for raised reasonably otherwise it is deemed
reinvestigation which is granted by waived.
commissioner.
9. The prescriptive provided in the tax code
Note: A mere request for over ride the statute of non-claims in the
reinvestigation without any action settlement of the deceaseds estate.
or the part of the Commissioner
does not interrupt the running of 10. In the event that the collection of the tax
the prescriptive period. The request has already prescribed, the government
must not be a mere pro-former. cannot invoke the principle of Equitable
Substantial issues must be raised. recumbent by setting- off the prescribed
tax against a tax refused to which the
d. When the taxpayer cannot be taxpayer is entitled.
located in the address given by him
in the return. __________________________________________________
_____SOME IMPORTANT PROVISIONS ON THE TAX
Note: If the taxpayer informs the REFORM ACT OF 1997
Commissioner of any change in
address the statute will not be SEC. 2. Powers and Duties of the
suspended. Bureau of Internal Revenue. - The
Bureau of Internal Revenue shall be under
e. When the warrant of distraint or the supervision and control of the
levy is duly served upon any of the Department of Finance and its powers and
following person: duties shall comprehend the assessment
and collection of all national internal
4. taxpayer revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties,
5. his authorized representative and fines connected therewith, including
the execution of judgments in all cases
6. Member of his household with decided in its favor by the Court of Tax
sufficient discretion and no Appeals and the ordinary courts. The
property could be located. Bureau shall give effect to and administer
the supervisory and police powers
f. When the taxpayer is out of the conferred to it by this Code or other laws.
Philippines. SEC. 3. Chief Officials of the Bureau
of Internal Revenue. - The Bureau of
g. In criminal cases for violation of tax Internal Revenue shall have a chief to be
code the period shall not run known as Commissioner of Internal
when the offender is absent from Revenue, hereinafter referred to as the
the Philippines. Commissioner and four (4) assistant chiefs
to be known as Deputy Commissioners.
Note: A petition for reconsideration of a SEC. 4. Power of the Commissioner to
tax assessment does not suspend the Interpret Tax Laws and to Decide Tax
criminal action. Reason: No requirement Cases. - The power to interpret the
for assessment of the tax before the provisions of this Code and other tax laws
criminal action may be instituted. shall be under the exclusive and original
 TAX ATION
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jurisdiction of the Commissioner, subject person, or any person having

to review by the Secretary of Finance. possession, custody, or care of the
books of accounts and other
The power to decide disputed accounting records containing
assessments, refunds of internal revenue entries relating to the business of
taxes, fees or other charges, penalties the person liable for tax, or any
imposed in relation thereto, or other other person, to appear before the
matters arising under this Code or other Commissioner or his duly
laws or portions thereof administered by authorized representative at a time
the Bureau of Internal Revenue is vested and place specified in the
in the Commissioner, subject to the summons and to produce such
exclusive appellate jurisdiction of the books, papers, records, or other
Court of Tax Appeals. data, and to give testimony;

SEC. 5. Power of the Commissioner to (D) To take such testimony of the

Obtain Information, and to Summon, person concerned, under oath, as
Examine, and Take Testimony of may be relevant or material to such
Persons. - In ascertaining the correctness inquiry; and
of any return, or in making a return when
none has been made, or in determining (E) To cause revenue officers and
the liability of any person for any internal employees to make a canvass from
revenue tax, or in collecting any such time to time of any revenue district
liability, or in evaluating tax compliance, or region and inquire after and
the Commissioner is authorized: concerning all persons therein who
(A) To examine any book, paper, may be liable to pay any internal
record, or other data which may be revenue tax, and all persons
relevant or material to such owning or having the care,
inquiry; management or possession of any
object with respect to which a tax
(B) To obtain on a regular basis is imposed.
from any person other than the
person whose internal revenue tax The provisions of the foregoing
liability is subject to audit or paragraphs notwithstanding,
investigation, or from any office or nothing in this Section shall be
officer of the national and local construed as granting the
governments, government Commissioner the authority to
agencies and instrumentalities, inquire into bank deposits other
including the Bangko Sentral ng than as provided for in Section 6(F)
Pilipinas and government-owned or of this Code.
-controlled corporations, any
information such as, but not limited SEC. 6. Power of the Commissioner to
to, costs and volume of production, Make assessments and Prescribe
receipts or sales and gross additional Requirements for Tax
incomes of taxpayers, and the Administration and Enforcement. -
names, addresses, and financial (A) Examination of Returns and
statements of corporations, mutual Determination of Tax Due. - After a
fund companies, insurance return has been filed as required
companies, regional operating under the provisions of this Code,
headquarters of multinational the Commissioner or his duly
companies, joint accounts, authorized representative may
associations, joint ventures of authorize the examination of any
consortia and registered taxpayer and the assessment of
partnerships, and their members; the correct amount of tax:
Provided, however; That failure to
(C) To summon the person liable for file a return shall not prevent the
tax or required to file a return, or Commissioner from authorizing the
any officer or employee of such examination of any taxpayer.
 TAX ATION
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Any return, statement of declaration and such assessment shall be

filed in any office authorized to deemed prima facie correct.
receive the same shall not be When it is found that a person has
withdrawn: Provided, That within failed to issue receipts and invoices
three (3) years from the date of such in violation of the requirements of
filing, the same may be modified, Sections 113 and 237 of this Code,
changed, or amended: Provided, or when there is reason to believe
further, That no notice for audit or that the books of accounts or other
investigation of such return, records do not correctly reflect the
statement or declaration has in the declarations made or to be made in
meantime been actually served a return required to be filed under
upon the taxpayer. the provisions of this Code, the
(B) Failure to Submit Required Commissioner, after taking into
Returns, Statements, Reports and account the sales, receipts, income
other Documents. - When a report or other taxable base of other
required by law as a basis for the persons engaged in similar
assessment of any national internal businesses under similar situations
revenue tax shall not be or circumstances or after
forthcoming within the time fixed considering other relevant
by laws or rules and regulations or information may prescribe a
when there is reason to believe minimum amount of such gross
that any such report is false, receipts, sales and taxable base,
incomplete or erroneous, the and such amount so prescribed shall
Commissioner shall assess the be prima facie correct for purposes
proper tax on the best evidence of determining the internal revenue
obtainable. tax liabilities of such person.
In case a person fails to file a
required return or other document at (D) Authority to Terminate Taxable
the time prescribed by law, or Period. - When it shall come to the
willfully or otherwise files a false or knowledge of the Commissioner that
fraudulent return or other document, a taxpayer is retiring from business
the Commissioner shall make or subject to tax, or is intending to
amend the return from his own leave the Philippines or to remove
knowledge and from such his property therefrom or to hide or
information as he can obtain conceal his property, or is
through testimony or otherwise, performing any act tending to
which shall be prima facie correct obstruct the proceedings for the
and sufficient for all legal purposes. collection of the tax for the past or
current quarter or year or to render
(C) Authority to Conduct Inventory- the same totally or partly ineffective
taking, surveillance and to Prescribe unless such proceedings are begun
Presumptive Gross Sales and immediately, the Commissioner
Receipts. - The Commissioner may, shall declare the tax period of such
at any time during the taxable year, taxpayer terminated at any time and
order inventory-taking of goods of shall send the taxpayer a notice of
any taxpayer as a basis for such decision, together with a
determining his internal revenue tax request for the immediate payment
liabilities, or may place the business of the tax for the period so declared
operations of any person, natural or terminated and the tax for the
juridical, under observation or preceding year or quarter, or such
surveillance if there is reason to portion thereof as may be unpaid,
believe that such person is not and said taxes shall be due and
declaring his correct income, sales payable immediately and shall be
or receipts for internal revenue tax subject to all the penalties hereafter
purposes. The findings may be used prescribed, unless paid within the
as the basis for assessing the taxes time fixed in the demand made by
for the other months or quarters of the Commissioner.
the same or different taxable years
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(E) Authority of the Commissioner to and their representatives who

Prescribe Real Property Values. - The prepare and file tax returns,
Commissioner is hereby authorized statements, reports, protests, and
to divide the Philippines into other papers with or who appear
different zones or areas and shall, before, the Bureau for taxpayers.
upon consultation with competent Within one hundred twenty (120)
appraisers both from the private and days from January 1, 1998, the
public sectors, determine the fair Commissioner shall create national
market value of real properties and regional accreditation boards,
located in each zone or area. For the members of which shall serve
purposes of computing any internal for three (3) years, and shall
revenue tax, the value of the designate from among the senior
property shall be, whichever is the officials of the Bureau, one (1)
higher of: chairman and two (2) members for
each board, subject to such rules
(1) the fair market value as and regulations as the Secretary of
determined by the Finance shall promulgate upon the
Commissioner, or recommendation of the
(2) the fair market value as Commissioner.
shown in the schedule of Individuals and general professional
values of the Provincial and partnerships and their
City Assessors. representatives who are denied
accreditation by the Commissioner
(F) Authority of the Commissioner and/or the national and regional
to inquire into Bank Deposit accreditation boards may appeal
Accounts. - Notwithstanding any such denial to the Secretary of
contrary provision of Republic Act Finance, who shall rule on the
No. 1405 and other general or appeal within sixty (60) days from
special laws, the Commissioner is receipt of such appeal. Failure of the
hereby authorized to inquire into Secretary of Finance to rule on the
the bank deposits of: Appeal within the prescribed period
shall be deemed as approval of the
(1) a decedent to determine application for accreditation of the
his gross estate; and appellant.
(2) any taxpayer who has
filed an application for (H) Authority of the Commissioner to
compromise of his tax Prescribe Additional Procedural or
liability under Sec. 204 (A) Documentary Requirements. - The
(2) of this Code by reason of Commissioner may prescribe the
financial incapacity to pay manner of compliance with any
his tax liability. documentary or procedural
In case a taxpayer files an application to requirement in connection with the
compromise the payment of his tax liabilities on submission or preparation of
his claim that his financial position demonstrates financial statements accompanying
a clear inability to pay the tax assessed, his the tax returns.
application shall not be considered unless and SEC. 7. Authority of the
until he waives in writing his privilege under Commissioner to Delegate Power. -
Republic Act No. 1405 or under other general or The Commissioner may delegate the
special laws, and such waiver shall constitute the powers vested in him under the pertinent
authority of the Commissioner to inquire into the provisions of this Code to any or such
bank deposits of the taxpayer. subordinate officials with the rank
(G) Authority to Accredit and equivalent to a division chief or higher,
Register Tax Agents. - The subject to such limitations and restrictions
Commissioner shall accredit and as may be imposed under rules and
register, based on their regulations to be promulgated by the
professional competence, integrity Secretary of finance, upon
and moral fitness, individuals and recommendation of the Commissioner:
general professional partnerships Provided, however, That the following
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powers of the Commissioner shall not be Compromise, Abate and Refund or Credit
delegated: Taxes. - The Commissioner may -
(a) The power to recommend the
promulgation of rules and (A) Compromise the Payment of any
regulations by the Secretary of Internal Revenue Tax, when:
Finance;
(b) The power to issue rulings of (1) A reasonable doubt as to the validity
first impression or to reverse, of the claim against the taxpayer exists; or
revoke or modify any existing (2) The financial position of the taxpayer
ruling of the Bureau; demonstrates a clear inability to pay the
(c) The power to compromise or assessed tax.
abate, under Sec. 204 (A) and (B)
of this Code, any tax liability:
Provided, however, That The compromise settlement of any tax
assessments issued by the regional liability shall be subject to the following
offices involving basic deficiency minimum amounts:
taxes of Five hundred thousand
pesos (P500,000) or less, and For cases of financial incapacity, a
minor criminal violations, as may minimum compromise rate
be determined by rules and equivalent to ten percent (10%) of
regulations to be promulgated by the basic assessed tax; and
the Secretary of finance, upon For other cases, a minimum
recommendation of the compromise rate equivalent to
Commissioner, discovered by forty percent (40%) of the basic
regional and district officials, may assessed tax.
be compromised by a regional Where the basic tax involved exceeds One million
evaluation board which shall be pesos (P1,000.000) or where the settlement
composed of the Regional Director offered is less than the prescribed minimum
as Chairman, the Assistant rates, the compromise shall be subject to the
Regional Director, the heads of the approval of the Evaluation Board which shall be
Legal, Assessment and Collection composed of the Commissioner and the four (4)
Divisions and the Revenue District Deputy Commissioners.
Officer having jurisdiction over the
taxpayer, as members; and (B) Abate or Cancel a Tax Liability, when:
(d) The power to assign or reassign
internal revenue officers to (1) The tax or any portion thereof appears
establishments where articles to be unjustly or excessively assessed; or
subject to excise tax are produced (2) The administration and collection
or kept. costs involved do not justify the collection
of the
SEC. 203. Period of Limitation Upon amount due.
Assessment and Collection. - Except as
provided in Section 222, internal revenue taxes All criminal violations may be
shall be assessed within three (3) years after the compromised except: (a) those already
last day prescribed by law for the filing of the filed in court, or (b) those involving fraud.
return, and no proceeding in court without
assessment for the collection of such taxes shall (C) Credit or refund taxes erroneously or illegally
be begun after the expiration of such period: received or penalties imposed without authority,
Provided, That in a case where a return is filed refund the value of internal revenue stamps when
beyond the period prescribed by law, the three they are returned in good condition by the
(3)-year period shall be counted from the day the purchaser, and, in his discretion, redeem or
return was filed. For purposes of this Section, a change unused stamps that have been rendered
return filed before the last day prescribed by law unfit for use and refund their value upon proof of
for the filing thereof shall be considered as filed destruction. No credit or refund of taxes or
on such last day. penalties shall be allowed unless the taxpayer
files in writing with the Commissioner a claim for
SEC. 204. Authority of the Commissioner to credit or refund within two (2) years after the
payment of the tax or penalty: Provided,
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however, That a return filed showing an Either of these remedies or both

overpayment shall be considered as a written simultaneously may be pursued in the
claim for credit or refund. discretion of the authorities charged with
the collection of such taxes: Provided,
A Tax Credit Certificate validly issued under the however, That the remedies of distraint
provisions of this Code may be applied against and levy shall not be availed of where the
any internal revenue tax, excluding withholding amount of tax involve is not more than
taxes, for which the taxpayer is directly liable. One hundred pesos (P100).
Any request for conversion into refund of
unutilized tax credits may be allowed, subject to The judgment in the criminal case shall
the provisions of Section 230 of this Code: not only impose the penalty but shall also
Provided, That the original copy of the Tax Credit order payment of the taxes subject of the
Certificate showing a creditable balance is criminal case as finally decided by the
surrendered to the appropriate revenue officer for Commissioner.
verification and cancellation: Provided, further,
That in no case shall a tax refund be given The Bureau of Internal Revenue shall
resulting from availment of incentives granted advance the amounts needed to defray
pursuant to special laws for which no actual costs of collection by means of civil or
payment was made. criminal action, including the preservation
or transportation of personal property
The Commissioner shall submit to the Chairmen distrained and the advertisement and sale
of the Committee on Ways and Means of both the thereof, as well as of real property and
Senate and House of Representatives, every six improvements thereon.
(6) months, a report on the exercise of his powers
under this Section, stating therein the following SEC. 206. Constructive Distraint of the
facts and information, among others: names and Property of a Taxpayer. - To safeguard the
addresses of taxpayers whose cases have been interest of the Government, the Commissioner
the subject of abatement or compromise; amount may place under constructive distraint the
involved; amount compromised or abated; and property of a delinquent taxpayer or any
reasons for the exercise of power: Provided, That taxpayer who, in his opinion, is retiring from any
the said report shall be presented to the business subject to tax, or is intending to leave
Oversight Committee in Congress that shall be the Philippines or to remove his property
constituted to determine that said powers are therefrom or to hide or conceal his property or to
reasonably exercised and that the government is perform any act tending to obstruct the
not unduly deprived of revenues. proceedings for collecting the tax due or which
CHAPTER II may be due from him.
CIVIL REMEDIES FOR COLLECTION OF TAXES
The constructive distraint of personal property
shall be affected by requiring the taxpayer or any
SEC. 205. Remedies for the Collection of person having possession or control of such
Delinquent Taxes. - The civil remedies for the property to sign a receipt covering the property
collection of internal revenue taxes, fees or distrained and obligate himself to preserve the
charges, and any increment thereto resulting same intact and unaltered and not to dispose of
from delinquency shall be: the same ;in any manner whatever, without the
express authority of the Commissioner.
(a) By distraint of goods, chattels, or
effects, and other personal property of In case the taxpayer or the person having the
whatever character, including stocks and possession and control of the property sought to
other securities, debts, credits, bank be placed under constructive distraint refuses or
accounts and interest in and rights to fails to sign the receipt herein referred to, the
personal property, and by levy upon real revenue officer effecting the constructive
property and interest in rights to real distraint shall proceed to prepare a list of such
property; and property and, in the presence of two (2)
witnessed, leave a copy thereof in the premises
(b) By civil or criminal action. where the property distrained is located, after
which the said property shall be deemed to have
been placed under constructive distraint.
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Philippines, to his agent or the manager of the

SEC. 207. Summary Remedies. - business in respect to which the liability arose, or
if there be none, to the occupant of the property
(A) Distraint of Personal Property. - Upon the in question.
failure of the person owing any delinquent tax or
delinquent revenue to pay the same at the time In case the warrant of levy on real property is not
required, the Commissioner or his duly authorized issued before or simultaneously with the warrant
representative, if the amount involved is in of distraint on personal property, and the
excess of One million pesos (P1,000,000), or the personal property of the taxpayer is not sufficient
Revenue District Officer, if the amount involved is to satisfy his tax delinquency, the Commissioner
One million pesos (P1,000,000) or less, shall seize or his duly authorized representative shall, within
and distraint any goods, chattels or effects, and thirty (30) days after execution of the distraint,
the personal property, including stocks and other proceed with the levy on the taxpayer's real
securities, debts, credits, bank accounts, and property.
interests in and rights to personal property of
such persons ;in sufficient quantity to satisfy the Within ten (10) days after receipt of the warrant,
tax, or charge, together with any increment a report on any levy shall be submitted by the
thereto incident to delinquency, and the levying officer to the Commissioner or his duly
expenses of the distraint and the cost of the authorized representative: Provided, however,
subsequent sale. That a consolidated report by the Revenue
Regional Director may be required by the
A report on the distraint shall, within ten (10) Commissioner as often as necessary: Provided,
days from receipt of the warrant, be submitted by further, That the Commissioner or his duly
the distraining officer to the Revenue District authorized representative, subject to rules and
Officer, and to the Revenue Regional Director: regulations promulgated by the Secretary of
Provided, That the Commissioner or his duly Finance, upon recommendation of the
authorized representative shall, subject to rules Commissioner, shall have the authority to lift
and regulations promulgated by the Secretary of warrants of levy issued in accordance with the
Finance, upon recommendation of the provisions hereof.
Commissioner, have the power to lift such order
of distraint: Provided, further, That a consolidated SEC. 208. Procedure for Distraint and
report by the Revenue Regional Director may be Garnishment. - The officer serving the warrant
required by the Commissioner as often as of distraint shall make or cause to be made an
necessary. account of the goods, chattels, effects or other
personal property distrained, a copy of which,
(B) Levy on Real Property. - After the signed by himself, shall be left either with the
expiration of the time required to pay the owner or person from whose possession such
delinquent tax or delinquent revenue as goods, chattels, or effects or other personal
prescribed in this Section, real property may be property were taken, or at the dwelling or place
levied upon, before simultaneously or after the of business of such person and with someone of
distraint of personal property belonging to the suitable age and discretion, to which list shall be
delinquent. To this end, any internal revenue added a statement of the sum demanded and
officer designated by the Commissioner or his note of the time and place of sale.
duly authorized representative shall prepare a
duly authenticated certificate showing the name Stocks and other securities shall be distrained by
of the taxpayer and the amounts of the tax and serving a copy of the warrant of distraint upon
penalty due from him. Said certificate shall the taxpayer and upon the president, manager,
operate with the force of a legal execution treasurer or other responsible officer of the
throughout the Philippines. corporation, company or association, which
issued the said stocks or securities.
Levy shall be affected by writing upon said
certificate a description of the property upon Debts and credits shall be distrained by leaving
which levy is made. At the same time, written with the person owing the debts or having in his
notice of the levy shall be mailed to or served possession or under his control such credits, or
upon the Register of Deeds for the province or with his agent, a copy of the warrant of distraint.
city where the property is located and upon the The warrant of distraint shall be sufficient
delinquent taxpayer, or if he be absent from the authority to the person owning the debts or
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San Beda College of LAW ALABANG

having in his possession or under his control any and preservation of the property pending ;the
credits belonging to the taxpayer to pay to the sale, and no charge shall be imposed for the
Commissioner the amount of such debts or services of the local internal revenue officer or his
credits. deputy.

Bank accounts shall be garnished by serving a SEC. 210. Release of Distrained Property
warrant of garnishment upon the taxpayer and Upon Payment Prior to Sale. - If at any time
upon the president, manager, treasurer or other prior to the consummation of the sale all proper
responsible officer of the bank. Upon receipt of charges are paid to the officer conducting the
the warrant of garnishment, the bank shall tun sale, the goods or effects distrained shall be
over to the Commissioner so much of the bank restored to the owner.
accounts as may be sufficient to satisfy the claim
of the Government. SEC. 211. Report of Sale to Bureau of
Internal Revenue. - Within two (2) days after
SEC. 209. Sale of Property Distrained and the sale, the officer making the same shall make
Disposition of Proceeds. - The Revenue District a report of his proceedings in writing to the
Officer or his duly authorized representative, Commissioner and shall himself preserve a copy
other than the officer referred to in Section 208 of of such report as an official record.
this Code shall, according to rules and regulations
prescribed by the Secretary of Finance, upon SEC. 212. Purchase by Government at Sale
recommendation of the Commissioner, forthwith Upon Distraint. - When the amount bid for the
cause a notification to be exhibited in not less property under distraint is not equal to the
than two (2) public places in the municipality or amount of the tax or is very much less than the
city where the distraint is made, specifying; the actual market value of the articles offered for
time and place of sale and the articles distrained. sale, the Commissioner or his deputy may
The time of sale shall not be less than twenty (20) purchase the same in behalf of the national
days after notice. One place for the posting of Government for the amount of taxes, penalties
such notice shall be at the Office of the Mayor of and costs due thereon.
the city or municipality in which the property is
distrained. Property so purchased may be resold by the
Commissioner or his deputy, subject to the rules
At the time and place fixed in such notice, the and regulations prescribed by the Secretary of
said revenue officer shall sell the goods, chattels, Finance, the net proceeds therefrom shall be
or effects, or other personal property, including remitted to the National Treasury and accounted
stocks and other securities so distrained, at for as internal revenue.
public auction, to the highest bidder for cash, or
with the approval of the Commissioner, through SEC. 213. Advertisement and Sale. - Within
duly licensed commodity or stock exchanges. twenty (20) days after levy, the officer
conducting the proceedings shall proceed to
In the case of Stocks and other securities, the advertise the property or a usable portion thereof
officer making the sale shall execute a bill of sale as may be necessary to satisfy the claim and cost
which he shall deliver to the buyer, and a copy of sale; and such advertisement shall cover a
thereof furnished the corporation, company or period of a least thirty (30) days. It shall be
association which issued the stocks or other effectuated by posting a notice at the main
securities. Upon receipt of the copy of the bill of entrance of the municipal building or city hall and
sale, the corporation, company or association in public and conspicuous place in the barrio or
shall make the corresponding entry in its books, district in which the real estate lies and ;by
transfer the stocks or other securities sold in the publication once a week for three (3) weeks in a
name of the buyer, and issue, if required to do so, newspaper of general circulation in the
the corresponding certificates of stock or other municipality or city where the property is located.
securities. The advertisement shall contain a statement of
the amount of taxes and penalties so due and the
time and place of sale, the name of the taxpayer
Any residue over and above what is required to against whom taxes are levied, and a short
pay the entire claim, including expenses, shall be description of the property to be sold. At any time
returned to the owner of the property sold. The before the day fixed for the sale, the taxpayer
expenses chargeable upon each seizure and sale may discontinue all proceedings by paying the
shall embrace only the actual expenses of seizure taxes, penalties and interest. If he does not do so,
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the sale shall proceed and shall be held either at until the expiration of the time allowed for its
the main entrance of the municipal building or redemption.
city hall, or on the premises to be sold, as the
officer conducting the proceedings shall SEC. 215. Forfeiture to Government for
determine and as the notice of sale shall specify. Want of Bidder. - In case there is no bidder for
real property exposed for sale as herein above
Within five (5) days after the sale, a return by the provided or if the highest bid is for an amount
distraining or levying officer of the proceedings insufficient to pay the taxes, penalties and costs,
shall be entered upon the records of the Revenue the Internal Revenue Officer conducting the sale
Collection Officer, the Revenue District officer and shall declare the property forfeited to the
the Revenue Regional Director. The Revenue Government in satisfaction of the claim in
Collection Officer, in consultation with the question and within two (2) days thereafter, shall
Revenue district Officer, shall then make out and make a return of his proceedings and the
deliver to the purchaser a certificate from his forfeiture which shall be spread upon the records
records, showing the proceedings of the sale, of his office. It shall be the duty of the Register of
describing the property sold stating the name of Deeds concerned, upon registration with his
the purchaser and setting out the exact amount office of any such declaration of forfeiture, to
of all taxes, penalties and interest: Provided, transfer the title of the property forfeited to the
however, That in case the proceeds of the sale Government without the necessity of an order
exceeds the claim and cost of sale, the excess from a competent court.
shall be turned over to the owner of the property.
Within one (1) year from the date of such
The Revenue Collection Officer, upon approval by forfeiture, the taxpayer, or any one for him may
the Revenue District Officer may, out of his redeem said property by paying to the
collection, advance an amount sufficient to Commissioner or the latter's Revenue Collection
defray the costs of collection by means of the Officer the full amount of the taxes and penalties,
summary remedies provided for in this Code, together with interest thereon and the costs of
including ;the preservation or transportation in sale, but if the property be not thus redeemed,
case of personal property, and the advertisement the forfeiture shall become absolute.
and subsequent sale, both in cases of personal
and real property including improvements found SEC. 216. Resale of Real Estate Taken for
on the latter. In his monthly collection reports, Taxes. - The Commissioner shall have charge of
such advances shall be reflected and supported any real estate obtained by the Government of
by receipts. the Philippines in payment or satisfaction of
taxes, penalties or costs arising under this Code
SEC. 214. Redemption of Property Sold. - or in compromise or adjustment of any claim
Within one (1) year from the date of sale, the therefore, and said Commissioner may, upon the
delinquent taxpayer, or any one for him, shall giving of not less than twenty (20) days notice,
have the right of paying to the Revenue District sell and dispose of the same of public auction or
Officer the amount of the public taxes, penalties, with prior approval of the Secretary of Finance,
and interest thereon from the date of delinquency dispose of the same at private sale. In either
to the date of sale, together with interest on said case, the proceeds of the sale shall be deposited
purchase price at the rate of fifteen percent with the National Treasury, and an accounting of
(15%) per annum from the date of purchase to the same shall rendered to the Chairman of the
the date of redemption, and such payment shall Commission on Audit.
entitle the person paying to the delivery of the
certificate issued to the purchaser and a SEC. 217. Further Distraint or Levy. - The
certificate from the said Revenue District Officer remedy by distraint of personal property and levy
that he has thus redeemed the property, and the on realty may be repeated if necessary until the
Revenue District Officer shall forthwith pay over full amount due, including all expenses, is
to the purchaser the amount by which such collected.
property has thus been redeemed, and said
property thereafter shall be free form the lien of SEC. 218. Injunction not Available to
such taxes and penalties. Restrain Collection of Tax. - No court shall
have the authority to grant an injunction to
The owner shall not, however, be deprived of the restrain the collection of any national internal
possession of the said property and shall be revenue tax, fee or charge imposed by this Code.
entitled to the rents and other income thereof
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SEC. 219. Nature and Extent of Tax Lien. - If assessment of the tax, both the
any person, corporation, partnership, joint- Commissioner and the taxpayer have
account (cuentas en participacion), association or agreed in writing to its assessment after
insurance company liable to pay an internal such time, the tax may be assessed within
revenue tax, neglects or refuses to pay the same the period agreed upon. The period so
after demand, the amount shall be a lien in favor agreed upon may be extended by
of the Government of the Philippines from the subsequent written agreement made
time when the assessment was made by the before the expiration of the period
Commissioner until paid, with interests, penalties, previously agreed upon.
and costs that may accrue in addition thereto (c) Any internal revenue tax which has
upon all property and rights to property belonging been assessed within the period of
to the taxpayer: Provided, That this lien shall not limitation as prescribed in paragraph (a)
be valid against any mortgagee purchaser or hereof may be collected by distraint or
judgment creditor until notice of such lien shall be levy or by a proceeding in court within five
filed by the Commissioner in the office of the (5) years following the assessment of the
Register of Deeds of the province or city where tax.
the property of the taxpayer is situated or (d) Any internal revenue tax, which has
located. been assessed within the period agreed
upon as provided in paragraph (b)
SEC. 220. Form and Mode of Proceeding in hereinabove, may be collected by distraint
Actions Arising under this Code. - Civil and or levy or by a proceeding in court within
criminal actions and proceedings instituted in the period agreed upon in writing before
behalf of the Government under the authority of the expiration of the five (5) -year period.
this Code or other law enforced by the Bureau of The period so agreed upon may be
Internal Revenue shall be brought in the name of extended by subsequent written
the Government of the Philippines and shall be agreements made before the expiration of
conducted by legal officers of the Bureau of the period previously agreed upon.
Internal Revenue but no civil or criminal action for (e) Provided, however, That nothing in the
the recovery of taxes or the enforcement of any immediately preceding and paragraph (a)
fine, penalty or forfeiture under this Code shall be hereof shall be construed to authorize the
filed in court without the approval of the examination and investigation or inquiry
Commissioner. into any tax return filed in accordance with
the provisions of any tax amnesty law or
SEC. 221. Remedy for Enforcement of decree.
Statutory Penal Provisions. - The remedy for SEC. 223. Suspension of Running of Statute
enforcement of statutory penalties of all sorts of Limitations. - The running of the Statute of
shall be by criminal or civil action, as the Limitations provided in Sections 203 and 222 on
particular situation may require, subject to the the making of assessment and the beginning of
approval of the Commissioner. distraint or levy a proceeding in court for
collection, in respect of any deficiency, shall be
SEC. 222. Exceptions as to Period of suspended for the period during which the
Limitation of Assessment and Collection of Commissioner is prohibited from making the
Taxes. - assessment or beginning distraint or levy or a
proceeding in court and for sixty (60) days
(a) In the case of a false or fraudulent thereafter; when the taxpayer requests for a
return with intent to evade tax or of failure reinvestigation which is granted by the
to file a return, the tax may be assessed, Commissioner; when the taxpayer cannot be
or a proceeding in court for the collection located in the address given by him in the return
of such tax may be filed without filed upon which a tax is being assessed or
assessment, at any time within ten (10) collected: Provided, that, if the taxpayer informs
years after the discovery of the falsity, the Commissioner of any change in address, the
fraud or omission: Provided, That in a running of the Statute of Limitations will not be
fraud assessment which has become final suspended; when the warrant of distraint or levy
and executory, the fact of fraud shall be is duly served upon the taxpayer, his authorized
judicially taken cognizance of in the civil or representative, or a member of his household
criminal action for the collection thereof. with sufficient discretion, and no property could
(b) If before the expiration of the time be located; and when the taxpayer is out of the
prescribed in Section 203 for the Philippines.
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judgment, damages or costs recovered in such

SEC. 224. Remedy for Enforcement of action shall be satisfied by the Commissioner,
Forfeitures. - The forfeiture of chattels and upon approval of the Secretary of Finance, or if
removable fixtures of any sort shall be enforced the same be paid by the person used shall be
by the seizure and sale, or destruction, of the repaid or reimbursed to him.
specific forfeited property. The forfeiture of real
property shall be enforced by a judgment of No such judgment, damages, or costs shall be
condemnation and sale in a legal action or paid or reimbursed in behalf of a person who has
proceeding, civil or criminal, as the case may acted negligently or in bad faith, or with willful
require. oppression.

SEC. 225. When Property to be Sold or

Destroyed. - Sales of forfeited chattels and TITLE X
removable fixtures shall be effected, so far as STATUTORY OFFENSES AND PENALTIES
practicable, in the same manner and under the
same conditions as the public notice and the time CHAPTER I
and manner of sale as are prescribed for sales of ADDITIONS TO TAX
personal property distrained for the non-payment
of taxes.
SEC. 247. General Provisions. -
Distilled spirits, liquors, cigars, cigarettes, other
manufactured products of tobacco, and all (a) The additions to the tax or deficiency
apparatus used I or about the illicit production of
tax prescribed in this Chapter shall apply
such articles may, upon forfeiture, be destroyed to all taxes, fees and charges imposed in
by order of the Commissioner, when the sale of
this Code. The Amount so added to the tax
the same for consumption or use would be shall be collected at the same time, in the
injurious to public health or prejudicial to the
same manner and as part of the tax.
enforcement of the law. (b) If the withholding agent is the
Government or any of its agencies,
All other articles subject to excise tax, which have political subdivisions or instrumentalities,
been manufactured or removed in violation of this or a government-owned or controlled
Code, as well as dies for the printing or making of corporation, the employee thereof
internal revenue stamps and labels which are in responsible for the withholding and
imitation of or purport to be lawful stamps, or remittance of the tax shall be personally
labels may, upon forfeiture, be sold or destroyed liable for the additions to the tax
in the discretion of the Commissioner. prescribed herein.
(c) the term "person", as used in this
Forfeited property shall not be destroyed until at Chapter, includes an officer or employee
least twenty (20) days after seizure. of a corporation who as such officer,
employee or member is under a duty to
SEC. 226. Disposition of funds Recovered in perform the act in respect of which the
Legal Proceedings or Obtained from violation occurs.
Forfeitures. - all judgments and monies SEC. 248. Civil Penalties. -
recovered and received for taxes, costs, (A) There shall be imposed, in addition to
forfeitures, fines and penalties shall be paid to the tax required to be paid, a penalty
the Commissioner or his authorized deputies as equivalent to twenty-five percent (25%) of
the taxes themselves are required to be paid, and the amount due, in the following cases:
except as specially provided, shall be accounted (1) Failure to file any return and
for and dealt with the same way. pay the tax due thereon as
required under the provisions of
SEC. 227. Satisfaction of Judgment this Code or rules and regulations
Recovered Against any Internal Revenue on the date prescribed; or
Officer. - When an action is brought against any (2) Unless otherwise authorized by
Internal Revenue officer to recover damages by the Commissioner, filing a return
reason of any act done in the performance of with an internal revenue officer
official duty, and the Commissioner is notified of other than those with whom the
such action in time to make defense against the return is required to be filed; or
same, through the Solicitor General, any
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San Beda College of LAW ALABANG

(3) Failure to pay the deficiency tax (1) The amount of the tax due on any
within the time prescribed for its return to be filed, or
payment in the notice of (2) The amount of the tax due for which
assessment; or no return is required, or
(4) Failure to pay the full or part of (3) A deficiency tax, or any surcharge or
the amount of tax shown on any interest thereon on the due date
return required to be filed under appearing in the notice and demand of the
the provisions of this Code or rules Commissioner, there shall be assessed
and regulations, or the full amount and collected on the unpaid amount,
of tax due for which no return is interest at the rate prescribed in
required to be filed, on or before Subsection (A) hereof until the amount is
the date prescribed for its fully paid, which interest shall form part of
payment. the tax.
(B) In case of willful neglect to file the (D) Interest on Extended Payment. - If any
return within the period prescribed by this person required to pay the tax is qualified and
Code or by rules and regulations, or in elects to pay the tax on installment under the
case a false or fraudulent return is willfully provisions of this Code, but fails to pay the tax or
made, the penalty to be imposed shall be any installment hereof, or any part of such
fifty percent (50%) of the tax or of the amount or installment on or before the date
deficiency tax, in case, any payment has prescribed for its payment, or where the
been made on the basis of such return Commissioner has authorized an extension of
before the discovery of the falsity or fraud: time within which to pay a tax or a deficiency tax
Provided, That a substantial or any part thereof, there shall be assessed and
underdeclaration of taxable sales, receipts collected interest at the rate hereinabove
or income, or a substantial overstatement prescribed on the tax or deficiency tax or any
of deductions, as determined by the part thereof unpaid from the date of notice and
Commissioner pursuant to the rules and demand until it is paid.
regulations to be promulgated by the
Secretary of Finance, shall constitute SEC. 250. Failure to File Certain Information
prima facie evidence of a false or Returns. - In the case of each failure to file an
fraudulent return: Provided, further, That information return, statement or list, or keep any
failure to report sales, receipts or income record, or supply any information required by this
in an amount exceeding thirty percent Code or by the Commissioner on the date
(30%) of that declared per return, and a prescribed therefor, unless it is shown that such
claim of deductions in an amount failure is due to reasonable cause and not to
exceeding (30%) of actual deductions, willful neglect, there shall, upon notice and
shall render the taxpayer liable for demand by the Commissioner, be paid by the
substantial underdeclaration of sales, person failing to file, keep or supply the same,
receipts or income or for overstatement of One thousand pesos (1,000) for each failure:
deductions, as mentioned herein. Provided, however, That the aggregate amount to
SEC. 249. Interest. - be imposed for all such failures during a calendar
year shall not exceed Twenty-five thousand pesos
(A) In General. - There shall be assessed and (P25,000).
collected on any unpaid amount of tax, interest at
the rate of twenty percent (20%) per annum, or SEC. 251. Failure of a Withholding Agent to
such higher rate as may be prescribed by rules Collect and Remit Tax. - Any person required to
and regulations, from the date prescribed for withhold, account for, and remit any tax imposed
payment until the amount is fully paid. by this Code or who willfully fails to withhold such
tax, or account for and remit such tax, or aids or
(B) Deficiency Interest. - Any deficiency in the abets in any manner to evade any such tax or the
tax due, as the term is defined in this Code, shall payment thereof, shall, in addition to other
be subject to the interest prescribed in penalties provided for under this Chapter, be
Subsection (A) hereof, which interest shall be liable upon conviction to a penalty equal to the
assessed and collected from the date prescribed total amount of the tax not withheld, or not
for its payment until the full payment thereof. accounted for and remitted.

SEC. 252. Failure of a Withholding Agent to

(C) Delinquency Interest. - In case of failure to refund Excess Withholding Tax. - Any
pay:
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employer/withholding agent who fails or refuses (American Bible Society vs. City of Manila
to refund excess withholding tax shall, in addition 101 PHIL 386)
to the penalties provided in this Title, be liable to
a penalty to the total amount of refunds which It was contended that said ordinances imposing
was not refunded to the employee resulting from license fee on the distribution and sale of bibles
any excess of the amount withheld over the tax and other religious literature, impair the free
actually due on their return exercise of religion, specifically the right to
disseminate religious information. As between
CASES and DOCTRINES taxation and religion, the latter prevails.

(Lutz vs Araneta 98 Phil 148) (Lladoc vs. Commissioner of Internal

If objective and methods are alike constitutionally Revenue 14 SCRA 292)
valid, no reason is seen why the state may not
levy taxes to raise funds for their prosecution and The exemption under Sec. 22(3) Art. VI of the
attainment. Taxation may be made the Constitution only covers taxes assessed on
implement of the state's police power. It is cemeteries, churches, and parsonages or
inherent in the power to tax that a State be free convents, appurtenant thereto and all lands,
to select the subjects of taxation and it has been buildings and improvements used exclusively for
repeatedly held that irregularities which result religious purposes. These taxes are property
from a singling out of one particular class for taxes as contra-distinguished from excise taxes.
taxation or exemption infringe no Constitutional In the case at bar, whats being assessed was a
limitation. donees gift tax not on the properties themselves.
The gift tax was an excise tax upon the use made
The sugar industrys promotion, protection and of the properties, upon the exercise of the
advancement therefore redound greatly to the privilege of receiving the properties. This kind of
general welfare. Thus, the contention of plaintiff tax is not within the exempting provision of the
that the Act was promulgated not for public constitution. Therefore, the petitioner as
purpose cannot be upheld. substituted by the Head of the Diocese, is liable
to pay the said gift tax.
(CIR vs Algue 158 SCRA 9)
The exemption under Sec. 22(3) Art. VI of the
Constitution only covers property taxes assessed
It is said that taxes are what we pay for on cemeteries, churches, and parsonages or
civilized society. Without taxes, the government convents, appurtenant thereto and all lands,
would be paralyzed for lack of the motive power buildings and improvements used exclusively for
to activate and operate it. Hence, despite the religious purposes.
natural reluctance to surrender part of one's hard
earned income to the taxing authorities, every (Abra Valley College vs. Aquino 162 SCRA
person who is able to must contribute his share in 106)
the running of the government. The government
for its part, is expected to respond in the form of The phrase used exclusively for educational
tangible and intangible benefits intended to purposes is not limited to property actually
improve the lives of the people and enhance their indispensable therefor but extends to facilities,
moral and material values. This symbiotic which are incidental to and reasonably necessary
relationship is the rationale of taxation and to the accomplishment of said purposes
should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat
of power. (Bishop of Nueva Segovia vs. Province of
Ilocos Norte 51 PHIL 352

Exemption from payment of land tax, which refers

to lots used as home of the priest who preside
over the church must include not only the lot
actually occupied by the church but also the
adjacent ground destined to meet the ordinary
incidental uses of man.
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(San Miguel Brewery, Inc. vs. City of he CTA. The CA sustained the CTA decision and
Cebu/Cebu Portland Cement Co. vs. Naga, dismissed the petition.
Cebu February 20, 1973)
Issues:
This is because double taxation is not
prohibited by the Constitution. Furthermore,
1. Whether or not the criminal complaint for
there is double taxation only when the same
tax evasion can be construed as an
person is taxed by the same jurisdiction for the
assessment.
same purpose. In the first case, the annual
2. Whether or not an assessment is
business tax is a license tax to engage in the
necessary before criminal charges for tax
business of wholesale liquor in Cebu City. Such
evasion may be instituted.
license tax constitutes a regulatory measure in
the exercise of police power, whereas that which
Held:
is imposed by the ordinance is a typical tax or
The filing of the criminal complaint with
revenue measure.
the DOJ cannot be construed as a formal
assessment. Neither the Tax Code nor the
revenue regulations governing the protest
assessments provide a specific definition or form
Subject Matter: Criminal Action; Tax
of an assessment.
Assessment
An assessment must be sent to and
received by the taxpayer, and must demand
payment of the taxes described therein within a
CIR V PASCOR REALTY & DEVT CORP et. al.
specific period. The revenue officers affidavit
(GR No. 128315, June 29, 1999)
merely contained a computation of respondents
tax liability. It did not state a demand or period
Facts:
for payment. It was addressed to the Secretary of
The CIR authorized certain BIR officers to
Justice not to the taxpayer. They joint affidavit
examine the books of accounts and other
was meant to support the criminal complaint for
accounting records of Pascor Realty and
tax evasion; it was not meant to be a notice of
Development Corp. (PRDC) for 1986, 1987 and
tax due and a demand to private respondents for
1988. The examination resulted in
the payment thereof. The fact that the complaint
recommendation for the issuance of an
was sent to the DOJ, and not to private
assessment of P7,498,434.65 and P3,015,236.35
respondent, shows that commissioner intended to
for 1986 and 1987, respectively.
file a criminal complaint for tax evasion, not to
On March 1, 1995, Commissioner filed a
issue an assessment.
criminal complaint for tax evasion against PRDC,
An assessment is not necessary before
its president and treasurer before the DOJ. Private
criminal charges can be filed. A criminal charge
respondents filed immediately an urgent request
need not only be supported by a prima facie
for reconsideration on reinvestigation disputing
showing of failure to file a required return. The
the tax assessment and tax liability.
CIR had, in such tax evasion cases, discretion on
On March 23, 1995, private respondents
whether to issue an assessment, or to file a
received a subpoena from the DOJ in connection
criminal case against the taxpayer, or to do both.
with the criminal complaint. In a letter dated, May
17, 1995, the Commissioner denied private
Subject Matter: Criminal Action
respondents request for reconsideration
(reinvestigation on the ground that no formal
assessment has been issued which the latter
CIR V CA
elevated to the CTA on a petition for review. The
G.R. No. 119322, June 4, 1996
Commissioners motion to dismiss on the ground
of the CTAs lack of jurisdiction inasmuch as no
Facts:
formal assessment was issued against private
A task force was created on June 1, 1993
respondent was denied by CTA and ordered the
to investigate tax liabilities of manufacturers
Commissioner to file an answer but did not
engaged in tax evasion schemes. On July 1, 1993,
instead filed a petition with the CA alleging grave
the CIR issued Rev. Memo Circ. No. 37-93 which
abuse of discretion and lack of jurisdiction on the
reclassified certain cigarette brands
part of CTA for considering the affidavit/report of
manufactured by private respondent Fortune
the revenue officers and the endorsement of said
Tobacco Corp. (Fortune) as foreign brands subject
report as assessment which may be appealed to
to a higher tax rate. On August 3, 1993, Fortune
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questioned the validity of said reclassification as correct taxes were paid. But there is no
being violative of the right to due process and allegation, much less evidence, of BIR personnels
equal protection of laws. The CTA, on September malfeasance at the very least, there is the
8, 1993 resolved that said reclassification was of presumption that BIR personnel performed their
doubtful legality and enjoined its enforcement. duties in the regular course in ensuring that the
In the meantime, on August 3, 1993, correct taxes were paid by Fortune.
Fortune was assessed deficiency income, ad Before the tax liabilities of Fortune are
valorem and VAT for 1992 with payment due finally determined, it cannot be correctly asserted
within 30 days from receipt. On September 12, that private respondents have willfully attempted
1993, private respondent moved for to evade or defeat any tax under Secs. 254 and
reconsideration of said assessment. Meanwhile 256, 1997 NIRC, the fact that a tax is due must
on September 7, 1993, the Commissioner filed a first be proved.
complaint with the DOJ against private
respondent Fortune, its corporate officers and 9
other corporations and their respective corporate
officers for alleged fraudulent tax evasion for AZNAR CASE (August 23, 1974)
non-payment of the correct income, ad valorem
and VAT for 1992. The complaint was referred to Facts:
the DOJ Task Force on revenue cases which found Matias Aznar died on May 15, 1958. His
sufficient basis to further investigate the charges income tax returns from 1945 to 1951 were
against Fortune. examined by the BIR. Doubting the truth of the
A subpoena was issued on September 8, income that he had reported, the Commissioner
1993 directing private respondent to submit their ordered the investigation of the case on the basis
counter-affidavits. But it filed a verified motion to of the net worth method. Substantial under-
dismiss or alternatively, a motion to suspend but declarations of income were discovered. On
was denied and thus treated as their counter- November 28, 1952, the BIR notified AZNAR of a
affidavit. All motions filed thereafter were denied. tax delinquency of P723,032.66 which was later
January 4, 1994, private respondents filed reduced to P381,096.07 upon reinvestigation.
a petition for certiorari and prohibition with On February 20, 1953, AZNARs properties
prayer for preliminary injunction praying the CIRs were placed under distraint and levy. On April 1,
complaint and prosecutors orders be 1955, AZNAR appealed to the CTA. The CTA found
dismissed/set aside or alternatively, that the that AZNAR made substantial under-declarations
preliminary investigation be suspended pending of his income as follows: he under-declared his
determination by CIR of Fortunes motion for income for 1946 by 227%; 564% for 1947; 95%
reconsideration/reinvestigation of the August 13, for 1948; 486% for 1949; 946% 1950; 490%
1993 assessment of taxes due. 1951.
The trial court granted the petition for a
writ of preliminary injunction to enjoin the Issues:
preliminary investigation on the complaint for tax Whether or not the right of the
evasion pending before the DOJ, ruling that the Commissioner to assess AZNARs deficiency
tax liability of private respondents first be settled income taxes for 1946, 1947 and 1948 had
before any complaint for fraudulent tax evasion prescribed at the time the assessment was made.
can be initiated.
Held:
Issue: On the issue of prescription the count
Whether the basis of private respondents applied the 10-year prescriptive period and ruled
tax liability first be settled before any complaint that prescription had not set in. the court opined
for fraudulent tax evasion can be initiated. that AZNARs returns were false because the
under-declaration of income constituted a
Held: deviation from the truth. The court stated that
Fraud cannot be presumed. If there was the ordinary prescriptive period of 5 years (now 3
fraud on willful attempt to evade payment of ad years) would apply under normal circumstances
valorem taxes by private respondent through the but whenever the government is placed at a
manipulation of the registered wholesale price of disadvantage as to prevent its lawful agent from
the cigarettes, it must have been with the making a proper assessment of tax liabilities due
connivance of cooperation of certain BIR officials to false or fraudulent returns intended to evade
and employees who supervised and monitored payment of taxes or failure to the returns, the
Fortunes production activities to see to it that the period of 10 years provided for in the law from
 TAX ATION
San Beda College of LAW ALABANG

the discovery of the falsity, fraud or omission

even seems to be inadequate and should be the
one enforced.