For revision: It is clear that Congress can only give the guidelines

1) Reformat FATs and limitations on the exercise by the local

2) See red comments below. governments of the power to tax but what was granted
by the fundamental law cannot be withdrawn by
Thank you! Congress.

FAQs: Describe the power of taxation. May a

legislative body enact laws to raise revenues in
FREQUENTLY ASKED BAR EXAM QUESTIONS and the absence of a constitutional provision
TOPICS granting said body the power to tax? (Bar
2003, 2005)
TAXATION LAW
Yes. The legislative body may enact laws
General Principles even in the absence of a constitutional provision
because the power to tax is inherent in the
government and not merely a constitutional grant.
Q: Distinguish direct taxes from indirect taxes,
The power of taxation is an essential and inherent
and giveexample for each one. (Bar 1994,
attribute of sovereignty belonging as a matter fright to
2000, 2001, 2006)
every independent government without being
expressly granted by the people. (Pepsi-Cola Bottling
A DIRECT TAX is one in which the taxpayer who
Company of the Philippines, Inc. vs. Municipality of
paysthe tax is directly liable therefor, that is, the
Tanauan, Leyte, G.R. No. L-31156, February 27,1976)
burden ofpaying the tax falls directly on the person
paying the tax.
Q: From 1991 to 1995, X, who is a
businessman, has not been paying his income
An INDIRECT TAX is one paid by a person who is
taxes. X is now being assessed for the unpaid
notdirectly liable therefor, and who may therefore
income taxes in the total amount
shift orpass on the tax to another person or entity,
ofP150,000.00. X claims his income tax
which ultimately assumes the tax burden. (Maceda v.
liability has already been compensated by the
Macaraig, 197 SCRA 771)
amount of P300.000.00 which the
government owes him for the expropriation of
Income tax, estate and donor's tax are considered as
hisproperty. Decide. (Bar 1996, 2005)
direct taxes. Value-added tax, excise tax, other
percentage taxes, and documentary stamp tax are
The income tax liability of X cannot be
indirect taxes.
compensatedwith the amount owed by the
Government as compensation for his property
Q: May Congress, under the 1987 Constitution,
expropriated. Taxes are of distinct kind, essence and
abolish th epower to tax of local governments?
nature than ordinary obligations. Taxes and debts
(Bar 2001, 2003)
cannot be the subject of compensation because the
Government and X are not mutually creditors and
No. Congress cannot abolish what is expressly
debtors of each other and a claim for taxes is not a
granted bythe fundamental law. The only authority
debt, demand, contract, or judgment asis allowable to
conferred toCongress is to provide the guidelines and
be set off. (Francia vs. IAC. G.R 76749, June28. 1988)
limitations onthe local government's exercise of the
power to tax (Sec.5, Art. X, 1987 Constitution).
Q: X, a lessor of a property, pays real estate
tax on the premises, a real estate dealer's tax
Section 5, Art. X, 1987 Constitution based on rental receipts and income tax on the
Each local government unit shall have the power to rentals. X claims that this is double taxation?
create its own sources of revenues and to levy taxes, Decide. (Bar 1996, 2004)
fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent There is no double taxation. Double
with the basic policy of local autonomy. Such taxes, taxation means taxing for the same tax period the
fees, and charges shall accrue exclusively to the local same thing or activity twice, when it should be taxed
governments. but once, by the same taxing authority for the same
purpose and with the same kind or character of tax.
Alternative Suggested Answer Real estate tax is a tax on property; Real estate
No. The law centralizing the imposition and collection dealer's tax is a tax on the privilege to engage in
of all taxes in the national government would business; while the income tax is a tax on the
contravene the Constitution which mandates that: . . . privilege to earn an income. These taxes are imposed
Section 5, Art. X of the 1987 Constitution provides: by different taxing authorities and are essentially of
different kind and character. (Villanueva vs. City of
"Each local government unit shall have the power to Iloilo, 26 SCRA578)
create their own sources of revenue and to levy taxes,
fees, and charges subject to such guidelines and Q: Does a BIR ruling have a retroactive effect,
limitations as Congress may provide consistent with considering the principle that tax exemptions
the basic policy of local autonomy." should be interpreted strictly against the
taxpayer? (Bar 2004, 2007)

1
 No. A BIR ruling cannot be given retroactive protection clause of the Constitution since
effect if its retroactive application is prejudicial to the complainants were not given same exemption.
taxpayer. (Section 246, NIRC; CIR v. Court of Is the suit meritorious or not? Reason briefly.
Appeals et. Al. 267 SCRA 557 [1997]) (Bar 2004)

Cite the relevant part of Section 246, NIRC Yes. The suit is meritorious. The VAT is
designed for economic efficiency; hence, should be
FATs: Why is the power to tax considered neutral to those who belong to the same class.
inherent in a sovereign State?(Bar 2003) Professionals are a class of taxpayers by themselves
who, in compliance A with the rule of equality of
It is considered inherent in a sovereign State taxation, must be treated alike for tax purposes.
because it is a necessary attribute of sovereignty. Exempting lawyers and doctors from a burden to
Without this power no sovereign State can exist or which other professionals are subjected will make the
endure. The power to tax proceeds upon the theory law discriminatory and violative of the equal
that the existence of a government is a necessity and protection clause of the Constitution. While singling
this power is an essential and inherent attribute of out a class for taxation purposes will not infringe
sovereignty, belonging as a matter of right to every upon this constitutional limitation (Shell v. Vano, 94
independent state or government. No sovereign state Phil. 389 [1954]), singling out a taxpayer from a class
can continue to exist without the means to pay its will no doubt transgress the constitutional limitation
expenses; and that for those means, it has the right to (Ormoc Sugar Co. Inc., v. Treasurer of Ormoc City,
compel all citizens and property within its limits to 22 SCRA 603 [1968]). Treating doctors and lawyers as
contribute, hence, the emergence of the power to tax. a different class of professionals will not comply with
(51 Am. Jur.,Taxation 40). the requirements of a reasonable, hence valid
classification, because the classification is not based
Equality in Taxation upon substantial distinction which makes real
differences. The classification does not comply with
FATs: The City of Makati, in order to solve the the requirement that it should be germane to the
traffic problem in its business districts, purpose of the law either. (Pepsi-Cola Bottling Co.,
decided to impose a tax, to be paid by the Inc. v. City of Butuan, 24 SCRA 789 [1968]).
driver, on all private cars entering the city
during peak hours from 8:00 a.m. to 9:00 a.m. Alternative Suggested Answer
from Mondays to Fridays, but exempts those No. The suit is not meritorious. The equal protection
cars carrying more than two occupants, clause of the Constitution merely requires that all
excluding the driver. Is the ordinance persons subjected to legislation shall be treated alike,
valid?(Bar 2003) under like circumstances and conditions, both in the
privileges conferred and in the liabilities imposed. The
Section 28 (1), Art. VI, 1987 Constitution equality in taxation rule is not violated if
The rule of taxation shall be uniform and equitable. classifications or distinctions are made as long as the
The Congress shall evolve a progressive system of same are based on reasonable and substantial
taxation. differences. {Pepsi-Cola Bottling Co., Inc. v. City of
Butuan, 24 SCRA 789 [1968]).
No. The ordinance is in violation of the Rule
of Uniformity and Equality, which requires that all Refunds and Set Off
subjects or objects of taxation, similarly situated must
be treated alike in equal footing and must not classify FATs: X is the owner of a residential lot
the subjects in an arbitrary manner. In the case at bar, situated at Quirino Avenue, Pasay City. The lot
the ordinance exempts cars carrying more than two has an area of 300 square meters. On June 1,
occupants from coverage of the said ordinance. 1994, 100 square meters of said lot owned by
Furthermore, the ordinance only imposes the tax on X was expropriated by the government to be
private cars and exempts public vehicles from the used in the widening of Quirino Avenue, for
imposition of the tax, although both contribute to the P300.000.00 representing the estimated
traffic problem. There exists no substantial standard assessed value of said portion. From 1991 to
used in the classification by the City of Makati. 1995, X, who is a businessman, has not been
Another issue is the fact that the tax is imposed on the paying his income taxes. X is now being
driver of the vehicle and not on the registered owner assessed for the unpaid income taxes in the
of the same. The tax does not only violate the total amount of P150,000.00. X claims his
requirement of uniformity, but the same is also unjust income tax liability has already been
because it places the burden on someone who has no compensated by the amount of P300.000.00
control over the route of the vehicle. The ordinance is, which the government owes him for the
therefore, invalid for violating the rule of uniformity expropriation of his property. Decide. (Bar
and equality as well as for being unjust. Source? 1996)

FATs: A law was passed exempting doctors The income tax liability of X cannot be
and lawyers from the operation of the value compensated with the amount owed by the
added tax. Other professionals complained Government as compensation for his property
and filed a suit questioning the law for being expropriated, taxes are of distinct kind, essence and
discriminatory and violative of the equal nature than ordinary obligations. Taxes and debts

2
cannot be the subject of compensation because the sale or issue and the place of payment of the ticket or
Government and X are not mutually creditors and passage document: Provided, That tickets revalidated,
debtors of each other and a claim for taxes is not a exchanged and/or indorsed to another international
debt, demand, contract, or Judgment as is allowable airline form part of the Gross Philippine Billings if the
to be set off. (Francia vs. IAC. G.R 76749, June) passenger boards a plane in a port or point in the
Incomplete date Philippines: Provided, further, That for a flight which
originates from the Philippines, but transshipment of
FATs: May a taxpayer who has pending claims passenger takes place at any port outside the
for VAT input credit or refund, set-off said Philippines on another airline, only the aliquot
claims against his other tax liabilities? Explain portion of the cost of the ticket corresponding to the
your answer. (Bar 2001) leg flown from the Philippines to the point of
transshipment shall form part of Gross Philippine
No. Set-off is available only if both Billings.
obligations are liquidated and demandable.
Liquidated debts are those where the exact amounts Yes. Income received in the Philippines from the sale
have already been determined. In the instant case, the of tickets by an “off-line” airline is taxable as income from
claim of the taxpayer for VAT refund is still pending whatever source. (Commissioner v. BOAC, GR 65773-74, April
and the amount has still to be determined. A fortiori, 30, 1987)
the liquidated obligation of the taxpayer to the
government can not, therefore, be set-off against the The source of income is the property, activity or
unliquidated claim which the taxpayer conceived to service that produced the income. The sale of tickets in the
exist in his favor. (Philex Mining Corp. v. CIR, GR No. Philippines is the activity that produces the income. The
125704, August 29, 1998). absence of landing rights in the Philippines cannot alter the
fact that revenues were derived from ticket sales within the
Income Taxation Philippines. (Commissioner of Internal Revenue v. Japan Air
Lines, GR 60714, October 4, 1991 reiterating British Overseas
FAQs: In its final adjustment return for the 2010 Airways Corp., Air India and American Arilines, Inc.)
taxable year, ABC Corp. had excess tax credits arising
from its over-withholding of income payments. It Alternative Suggested Answer
opted to carry over the excess tax credits to the No. The origination of the flight is determinative of the sources
following year. Subsequently, ABC Corp. changed its of income of the international carrier. If the flight originated
mind and applied for a refund of the excess tax from the Philippines to foreign destination, the income is an
credits. Will the claim for refund prosper? (Bar 2013, income from within; if it originated in a foreign country to any
2012) destination, the income is from without. In this situation, no
flight will originate from the Philippines. Hence, the income is
Section 76, NIRC not taxable in the Philippines under section 28(A)(3), NIRC.
Once the option to carry-over and apply the excess
quarterly income tax against income tax due for the FAQs: Who are required to file individual income tax
taxable quarters of the succeeding taxable years has return? Who are not required to file individual
been made, such option shall be considered income tax return? (Bar 2001, 2000)
irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit Section 51, NIRC
certificate shall be allowed therefor. (A) Requirements. -
(1) Except as provided in paragraph (2) of this
Carry-over Option is irrevocable Subsection, the following individuals are required to
No. The claim for refund will not prosper. While the law gives file an income tax return:
the taxpayer an option whether to carry-over or claim as refund a) Every Filipino citizen residing in the
the excess tax credits shown on its final adjustment return, Philippines;
once the option to carry-over has been made, such option shall b) Every Filipino citizen residing outside the
be considered irrevocable for that taxable period and no Philippines, on his income from sources
application for cash refund or issuance of a tax credit certificate within the Philippines;
shall be allowed. (Section 76, NIRC; CIR v. PL Management c) Every alien residing in the Philippines, on
International Phils., Inc., April 4, 2011, 647 SCRA 72 (2011) income derived from sources within the
G.R. No. 160949). Philippines; and
d) Every nonresident alien engaged in trade or
FAQs: Are the revenues from tickets reserved by the business or in the exercise of profession in
Philippine office of an off-line international carrier the Philippines.
without any flight operations in the Philippines
subject to tax? (Bar 2007, 2005, 1994) (2) The following individuals shall not be required
(Note: gray area) to file an income tax return;
a) An individual whose gross income does
Section 28 (A) (3), NIRC not exceed his total personal and
(a) International Air Carrier. - 'Gross Philippine additional exemptions for dependents
Billings' refers to the amount of gross revenue derived under Section 35: Provided, That a
from carriage of persons, excess baggage, cargo and citizen of the Philippines and any alien
mail originating from the Philippines in a continuous individual engaged in business or
and uninterrupted flight, irrespective of the place of practice of profession within the

3
 Philippine shall file an income tax income of the GPP during the taxable year whether distributed
return, regardless of the amount of gross or not.[Ton vs. Del Rosario, GR No. 109289, October 1994]
income;
b) An individual with respect to pure FATs: What are the tax implications on income
compensation income, as defined in derived from sources within the Philippines by a non-
Section 32 (A)(1), derived from sources resident alien who stayed in the Philippines for less
within the Philippines, the income tax than 180 days? (Bar 2010)
on which has been correctly withheld
under the provisions of Section 79 of If possible, please cut short the provisions and leave
this Code: Provided, That an individual only the relevant parts.
deriving compensation concurrently
from two or more employers at any time Section 25 (A) in relation to Section 35 (D),
during the taxable year shall file an NIRC
income tax return: Provided, further, Section 25 (A) (1) - A nonresident alien individual
That an individual whose compensation who shall come to the Philippines and stay therein for
income derived from sources within the an aggregate period of more than one hundred eighty
Philippines exceeds Sixty thousand (180) days during any calendar year shall be deemed a
pesos (P60,000) shall also file an 'nonresident alien doing business in the Philippines'.
income tax return;
c) An individual whose sole income has Section 35 (D)Personal Exemption Allowable to
been subjected to final withholding tax Nonresident Alien Individual - A nonresident alien
pursuant to Section 57(A) of this Code; individual engaged in trade, business or in the
and exercise of a profession in the Philippines shall be
d) (d) An individual who is exempt from entitled to a personal exemption in the amount equal
income tax pursuant to the provisions of to the exemptions allowed in the income tax law in the
this Code and other laws, general or country of which he is a subject - or citizen, to citizens
special. of the Philippines not residing in such country, not to
exceed the amount fixed in this Section as exemption
for citizens or resident of the Philippines: Provided,
FAQs: What are the tax implications of the payment to That said nonresident alien should file a true and
a law firm in terms of income taxes? (Bar 2013, Bar accurate return of the total income received by him
1995) Can we reconstruct the question to be from all sources in the Philippines, as required by this
understood easier? Title.

If possible, please give an immediate and simplified Non-resident aliens not engaged in trade or business
answer first to avoid giving the reader a difficult are not allowed personal exemptions. Also, their income from
time finding for an answer from the law quoted. within the Philippines is subject to 25% on such gross income.

Section 26, NIRC Non-resident aliens engaged in trade or business are

Tax Liability of Members of General allowed to avail of the itemized deductions including personal
Professional Partnerships. - A general and additional exemptions but subject to rule on reciprocity on
professional partnership as such shall not be subject the personal exemptions.
to the income tax imposed under this Chapter.
Persons engaging in business as partners in a general FAQs: Taxable or non-taxable? (Bar 2005, Bar
professional partnership shall be liable for income tax 1995)
only in their separate and individual capacities. a) Illegal income (e.g., income from
Jueteng)
For purposes of computing the distributive share of b) Gain arising from Expropriation of
the partners, the net income of the partnership shall property
be computed in the same manner as a corporation. c) Taxes paid and subsequently refunded
d) Recovery of bad debts previously
Each partner shall report as gross income his charged off
distributive share, actually or constructively received, e) Gain on the sale of a car used for
in the net income of the partnership. personal purposes

For income tax purposes, the compensation for a. Taxable. Gross income includes “all income derived
services is part of the gross income of the law partnership. from whatever source” [Section 32(A), NIRC], which
From its total gross income derived within and without, it has was interpreted as all income no expressly excluded
to compute its net income in the same manner as a or exempted from the class of taxable income,
corporation. The net income of the partnership whether irrespective of the voluntary or involuntary action of
distributed or not will be declared by the partners as part of the taxpayer in producing the income. Thus, the
their gross income who are to pay the income tax thereon in income may proceed from a legal or illegal source
their individual capacity. [Section 26, NIRC] such as from jueteng. Unlawful gains, gambling
winnings, etc. Are subject to income tax. (CIR vs.
General Professional Partnerships (GPPs) are non-taxable Manning, GR No. L-28398, August 6, 1975)
entities. What is taxable are the partners comprising the same
and they are obligated to report as income their share in the b. Taxable. Sale exchange or other disposition of
property to the government of real property is taxable.
4
 It includes taking by the government through property or rights belonging to, or the installation
condemnation proceedings. [Gonzales vs CTA, GR or operation of any brand, machinery or other
No. L-14532, May 26, 1965] apparatus purchased from such nonresident
person;
c. Taxable ONLY IF the taxes were paid and claimed as
deduction and which are subsequently refunded or f) Technical advice, assistance or services rendered
credited. It shall be included as part of gross income in connection with technical management or
in the year of receipt to the extent of the income tax administration of any scientific, industrial or
benefit of said deduction. [Section 34(C)(1) NIRC] commercial undertaking, venture, project or
Not taxable if the taxes refunded were not originally scheme; and
claimed as deduction.
g) The use of or the right to use:
d. Taxable under TAX BENEFIT RULE. Recovery of i) Motion picture films;
bad debts previously allowed as deduction in the ii) Films or video tapes for use in
preceding years shall be included as part of the gross connection with television;
income in year of recovery to the extent of income tax iii) (iii) Tapes for use in connection
benefit of said deduction. [Section 34 (E) (1), NIRC] with radio broadcasting.

e. Taxable.Since the car is used for personal The royalties paid to the non-resident foreign
purposes, it is considered as capital asset corporation is subject to 30% final withholding tax, unless a
hence the gain is considered income. lower tax rate is prescribed under an existing tax treaty.
[Section 32 (A) (3) and Section 39 (A) (1), [Section 28 (B) (1), NIRC]
NIRC]
The income of a domestic corporation subject
FAQs: What are activities considered as royalties? considered as royalty is subject to the 20% final withholding
What are the tax implications on royalties paid by a tax. [Section 24 (B) (1), NIRC]
domestic corporation to a non-resident foreign
corporation? What is the tax treatment on income of
a domestic corporation considered as royalty? (Bar Deductions, Exemptions, Exclusions &
2010, 2002) Inclusions

Please itemize the answer through an enumeration FAQs: What is the all-events test? (Bar 2009,
from a case or book, or through coming up with your 2010)
own enumeration; put a caption in each enumeration
(ex. Activities considered as royalties). If AAA Corporation rendered services to BBB
Corporation in 2007, but AAA billed BBB only
in 2008 and collected the payment in the same
Section 42 (A) in relation to Section 28 (B)(1) year 2008, is BBB allowed to claim the
and Section 24 (B)(1), NIRC expense as a deduction?
Section 42 (A) (4) Rentals and royalties. -
Rentals and royalties from property located in the The all-events test is a test applied in the
Philippines or from any interest in such property, realization of income and expense by accrual-basis
including rentals or royalties for – taxpayer. The test requires:
1) the fixing of a right to the income or liability
a) The use of or the right or privilege to use in the to pay; and
Philippines any copyright, patent, design or 2) the availability of reasonably accurate
model, plan, secret formula or process, goodwill, determination of such income or liability, to
trademark, trade brand or other like property or warrant the inclusion of the income or
right; expense in the gross income or deductions
during the taxable year. (CIR vs. Isabela
b) The use of, or the right to use in the Philippines Cultural Corporation, GR No. 172231,
any industrial, commercial or scientific February 12, 2007)
equipment;
No. The expense is deductible in the year it
c) The supply of scientific, technical, industrial or complies with the all-events test. The test is
commercial knowledge or information; considered met if the liability is fixed, and the amount
of such liability to pay is already fixed in 2007 when
d) The supply of any assistance that is ancillary and the services were rendered, and the amount of such
subsidiary to, and is furnished as a means of liability is determinable with reasonable accuracy in
enabling the application or enjoyment of, any the same year. Hence, the deduction should have
such property or right as is mentioned in been claimed in 2007 and not in 2008.
paragraph (a), any such equipment as is
mentioned in paragraph (b) or any such FAQs: In order to facilitate the processing of its
knowledge or information as is mentioned in application for a license from a government office,
paragraph (c); Corporation A found it necessary to pay the amount of
Php100,000 as a bribe to the approving official. Is the
e) The supply of services by a nonresident person or Php100,000 deductible from the gross income of
his employee in connection with the use of
5
Corporation A? On the other hand, is the Php100,000 offered to resign would be given separation pay
taxable income of the approving official? (Bar 1998, equivalent to his three month’s basic salary for every
2001) year of service. Mr. Jacobo accepted the offer and
received Php400,000 as separation pay under the
Section 34 (A) (1) (c) Bribes, Kickbacks and program.
other Similar Payments
No deduction from gross income shall be allowed After all the employees who accepted the offer were
under Subsection (A) hereof for any payment made, paid, the firm found its overhead still excessive.
directly or indirectly, to an official or employee of the Hence, various unprofitable departments were closed
national government, or to an official or employee of pursuant to a retrenchment program. As a result, Mr.
any local government unit, or to an official or Kintanar was separated from the service and received
employee of a government-owned or controlled Php400,000 as a separation pay.(Bar 1994, 1995,
corporation, or to an official or employee or 1999, 2005)
representative of a foreign government, or to a private
corporation, general professional partnership, or a 1) Did Mr. Jacobo derive income when he
similar entity, if the payment constitutes a bribe or received his separation pay?
kickback. 2) Did Me. Kintanar derive income when he
received his separation pay?
Section 32 (A) Gross Income; General
Definition Section 32 (B) (6) (b) Exclusions from Gross
Except when otherwise provided in this Title, gross Income - Retirement Benefits, Pensions,
income means all income derived from whatever Gratuities, etc
source xxx Any amount received by an official or employee or by
his heirs from the employer as a consequence of
Since the Php100,000 constitutes a bribe, it is not separation of such official or employee from the
allowed as a deduction from the gross income of Corporation service of the employer because of death, sickness or
A. However, to the recipient government official, the same other physical disability or for any cause beyond
constitutes a taxable income. All income from legal or illegal the control of the said official or employee.
sources are taxable absent any clear provision of law exempting
the same. This is the reason why gross income had been 1) Yes, Mr. Jacobo derived a taxable income when he
defined to include income from whatever source derived. received his separation pay because his separation
Please cite your source (if taken from the from employment was voluntary on his part in view of
internet/case/book) his offer to resign. What is excluded from gross
income is any amount received by an official or
FAQs: Company A decides to close its operations due employee from the service of the employer for any
to continuing losses and to terminate the services of cause beyond the control of the said official or
its employees. Under the Labor Code, employees who employee. Please cite your source (if taken
are separated from service for such cause are entitled from the internet/case/book)
to a minimum of one-half month pay for every year of
service. Company A paid the equivalent of one month 2) No, Mr. Kintanar did not derive any income when he
pay for every year of service and the cash equivalent of received his separation pay because his separation
unused vacation and sick leaves as separation from employment is due to causes beyond his control.
benefits. Are such benefits taxable and subject to The separation was involuntary as it was a
withholding tax under the Tax Code? (Bar 1994, 1995, consequence of the closure of various unprofitable
1999, 2005) departments pursuant to the retrenchment program.
Please cite your source (if taken from the
Section 32 (B) (6) (b) Exclusions from Gross internet/case/book)
Income - Retirement Benefits, Pensions,
Gratuities, etc FAQs: XYZ Colleges is a non-stock, non-profit
Any amount received by an official or employee or by educational institution run by the Archdiocese of BP
his heirs from the employer as a consequence of City. It collected and received the following:
separation of such official or employee from the a) Tuition fees
service of the employer because of death, sickness or b) Dormitory fees
other physical disability or for any cause beyond the c) Rentals from canteen concessionaires
control of the said official or employee. d) Interest from money-market placements of
the tuition fees
All of the benefits are not taxable, hence, they are not e) Donation of a lot and building by school
subject to withholding tax under the Tax Code. Benefits alumni
received as a consequence of separation for any cause beyond
the control of the employees such as closure of business are Which of these above cited income and donation
excluded from gross income. Please cite your source (if would not be exempt from taxation? (Bar 1994, 2004)
taken from the internet/case/book)
Section 4 (3) Art XIV 1987 Constitution
FAQs: Mr. Jacobo worked for a manufacturing firm. All revenues and assets of non-stock, non-profit
Due to business reverses, the firm offered voluntary educational institutions used actually, directly, and
redundancy program in order to reduce overhead exclusively for educational purposes shall be exempt
expenses. Under the program, an employee who from taxes and duties. xxx

6
 heirs or beneficiaries upon the death of the insured,
Section 101 (A) (3) Exemption of Certain Gifts whether in a single sum or otherwise, but if such
Gifts in favour of an educational xxx institution or amounts are held by the insurer under an agreement
organization: Provided, however, That not more than to
thirty percent (30%) of said gifts shall be used by such pay interest thereon, the interest payments shall be
done for administration purposes. xxx included in gross income.

All of the income derived by XYZ Colleges will be Section 36 (A) (4) Items not Deductible -
exempt from taxation provided they are used actually, directly, Premiums of Life Insurance
and exclusively for educational purposes. The donation is Premiums paid on any life insurance policy covering
likewise exempt from donor’s tax if it is actually, directly, and the life of any officer or employee, or of any person
exclusively used for educational purposes, provided not more financially interested in any trade or business carried
than 30% of the donation is used by the done for on by the taxpayer, individual or corporate, when the
administration purposes. Please cite your source (if taxpayer is directly or indirectly a beneficiary under
taken from the internet/case/book) such policy.

FAQs: The Roman Catholic Church owns a 2-hectare 1) No. The proceeds of life insurance policies paid to the
lot in a town in Tarlac. The southern side and middle heirs of beneficiaries upon the death of the insured
part are occupied by the Church and a convent, the are not included as part of the gross income of the
eastern side by a school run by the Church itself, the recipient. There is no income realized because nothing
southeastern side by some commercial flows to Noel’s parents other than a mere return of
establishments, while the rest of the property, in capital, the capital being the life of the insured.
particular the northwestern side, is idle or
unoccupied. May the Church claim tax exemption on 2) Yes. The premiums paid are ordinary and necessary
the entire land? (Bar 1996, 2002, 2005) business expenses of the company. They are allowed
as a deduction from gross income so long as the
Section 28 (3) Art VI 1987 Constitution employer is not a direct or indirect beneficiary under
Charitable institutions, churches and parsonages or the policy of insurance. Since the parents of the
convents appurtenant thereto, mosques, non-profit employee were made the beneficiaries, the prohibition
cemeteries, and all lands, buildings, and for their deduction does not exist.
improvements, actually, directly, and exclusively used
for religious, charitable, or educational purposes shall FAQs: JR was a passenger of an airline that crashed.
be exempt from taxation. He survived the accident but sustained serious
physical injuries which required hospitalization for 3
No. The Church cannot claim tax exemption on the months. Following negotiations with the airline and
entire land. Only the southern, middle, and eastern sides its insurer, an agreement was reached under the
occupied by the Church, convent, school, respectively, are terms of which JR was paid the following amounts:
exempt because these areas are being used actually, directly, Php500,000 for hospitalization; Php250,000 as
and exclusively for religious and educational purposes. moral damages; and P300,000 for loss of income
during the period of his treatment and recuperation.
The southeastern side occupied by some commercial Which, if any, of the amounts he received are subject
establishment is not tax exempt. It is not exclusively used for to income tax? (Bar 1995, 2003, 2005, 2007)
the exempted purpose but it is subject to taxation. The
property must be exclusively (solely) used for religious or Section 32 (B) (4) Exclusions from Gross
educational purposes. (Lung Center of the Phils. V. Quezon Income - Compensation for Injuries or
City; GR No. 144104; June 29, 2004) The northwestern side, Sickness
which is idle or unoccupied, is also not exempt from taxation Amounts received, through Accidentor Health
since it is not actually, directly, and exclusively used for Insurance or under Workmen's Compensation Acts,
religious or educational purposes. as compensation for personal injuries or sickness,
plus the amounts of any damages received, whether
FAQs:Noel Santos is a very bright computer science by suit or agreement, on account of such injuries or
graduate. He was hired by Hewlett Packard. To entice sickness.
him to accept the offer of employment, he was offered
the arrangement that part of his compensation would All the amounts received from the airline company are
be an insurance policy with a face value of P20 excluded from gross income. Since the amounts received from
Million. The parents of Noel are made the the airline company were received as damages by agreement on
beneficiaries of the insurance policy. account of personal injuries, all shall be excluded from JR’s
1) Will the proceeds of the insurance form part gross income. The amounts having been received on account of
of the income of the parents of Noel and be the injuries suffered by JR, is compensatory in nature, hence, is
subject to income tax? not considered as an income but a mere return of capital.
2) Can the company deduct from its gross Income is any wealth which flows to the taxpayer other than a
income the amount of the premium? (Bar mere return of capital. Please cite your source (if taken
2004, 2007) from the internet/case/book)

Section 32 (B) (1) Exclusions from Gross FAQs: Mr. Javier is a non-resident senior citizen. He
Income - Life Insurance receives monthly pension from the GSIS which he
The proceeds of life insurance policies paid to the deposits with the PNB. Is he exempt from income tax
7
and therefore not required to file an income tax actually, directly and exclusively used for religious,
return? (Bar 2007, 2000) charitable or social welfare purposes. It does not cover
exemption from the imposition of the income tax
Section 32 (B) (6) (c), NIRC which is within the context of Section 30 of the Tax
Exclusions from Gross Income. Code. As a rule, non-stock nonprofit corporations
(c) The provisions of any existing law to the contrary organized for religious, charitable or social welfare
notwithstanding, social security benefits, retirement purposes are exempt from income tax on their income
gratuities, pensions and other similar benefits received by them as such. However, if these religious,
received by resident or non-resident citizens of the charitable or social welfare corporations derive
Philippines or aliens who come to reside permanently income from their properties or any of their activities
in the Philippines from foreign government agencies conducted for profit, the income tax shall be imposed
an other institutions, private or public. on said items of income irrespective of their
disposition. [YMCA, GR No. 124043, 1998]
Mr. Javier is exempt from income tax on his monthly
GSIS pension [Section 32 (B) (6) (c), NIRC] but not on the FATs: The Roman Catholic Church owns a 2-hectare
interest income that might accrue on the pensions deposited lot, in a town in Tarlac province. The southern side
with PNB which are subject to final withholding tax. and middle part are occupied by the Church and a
Consequently, since Mr. Javier’s sole taxable income would convent, the eastern side by a school run by the
have been subject to a final withholding tax, he is not required Church itself, the southeastern side by some
anymore to file an income tax return [Section 51 (A) (2) (c)]. commercial establishments, while the rest of the
property, in particular the northwestern side, is idle
Tax Exemptions and Tax Exempt Entities or unoccupied. May the Church claim tax exemption
on the entire land? Decide with reasons.(Bar 2004)
FATs: XYZ Foundation is a non-stock, non-profit
No. The Church cannot claim tax exemption on the
association duly organized for religious, charitable
entire land. Only the southern side and middle part that are
and social welfare purposes. Last January 3, 2000 it
sold a portion of its lot used for religious purposes occupied by the Church and a convent and the eastern side
and utilized the entire proceeds for the construction occupied by a school run by the Church itself are exempt,
because such parts of the 2-hectare lot are actually, directly and
of a building to house its free Day and Night Care
exclusively used for religious and educational purposes. (Sec.
Center for children of single parents. In order to
subsidize the expenses of the Day and Night Care 28[3], Art. VI, 1987 Constitution; Sec. 234, Local Government
Center and to support its religious, charitable and Code). The southeastern side occupied by some commercial
social welfare projects, the Foundation leased the establishment is not tax exempt. If real property is used for one
or more commercial purposes, it is not exclusively used for the
300square meter area of the second and third floors
exempted purpose but is subject to taxation. 'Solely' is
of the building for use as a boarding house. The
Foundation also operates a canteen and a gift shop synonymous with 'exclusively.' (Lung Center of the Philippines
within the premises, all the income from which is v. Quezon City, G.R. No. 144104, June 29, 2004) The property
must be exclusively (solely) used for religious or educational
used actually, directly, and exclusively for the
purposes. Of course, it is apparent that the northwestern side,
purposes for which the Foundation was organized.
which is idle or unoccupied is not "actually, directly and
Considering the constitutional provision granting tax exclusively" used for religious or educational purposes, hence
exemption to non-stock corporations such as those not exempt from taxation.
formed exclusively for religious, charitable or social
welfare purposes, explain the meaning of the last Tax Evasion vs Tax Avoidance
paragraph of said Sec. 30 of the 1997 Tax Code which
states that “Income of whatever kind and character of FATs: Distinguish tax evasion from tax avoidance.
the foregoing organizations from any of their (Bar 1996)
properties, real or personal, or from any of their
activities conducted for profit regardless of the Please reformat the answer from paragraph to table
disposition made of such income shall be subject to to better emphasize the difference
tax imposed under this Code." (Bar 2002)
Tax evasion is a scheme used outside of those lawful means to
Sec. 30, NIRC escape tax liability and, when availed of, it usually subjects the
Exemptions from tax on corporations. The taxpayer to further or additional civil or criminal liabilities. Tax
following organizations shall not be taxed under this avoidance, on the other hand, is a tax saving device within the
Title in respect to income received by them as means sanctioned by law, hence legal.
such:(E) Nonstock corporation or association
organized and operated exclusively for religious, Tax avoidance and tax evasion are the two most common ways
charitable, scientific, athletic, or cultural purposes, or used by taxpayers in escaping from taxation. Tax avoidance is
for the rehabilitation of veterans, no part of its net the tax saving device within the means sanctioned by law. This
income or asset shall belong to or inures to the benefit method should be used by the taxpayer in good faith and at
of any member, organizer, officer or any specific arms length. Tax evasion, on the other hand, is a scheme used
person; outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal
liabilities. (CIR vs. Estate of Benigno Toda, G.R. No. 147188,
The exemption contemplated in the September 14, 2004)
Constitution covers real estate tax on real properties
8
FATs: Mr. Pascual's income from leasing his property trusts: Provided, That the tax liability, if any, on gains
reaches the maximum rate of tax under the law. He from sales or other dispositions of real property to the
donated one-half of his said property to a non-stock, government or any of its political subdivisions or
non-profit educational institution whose income and agencies or to government-owned or controlled
assets are actually, directly and exclusively used for corporations shall be determined either under Section
educational purposes, and therefore qualified for tax 24 (A) or under this Subsection, at the option of the
exemption under Article XIV, Section 4 (3) of the taxpayer.
Constitution and Section 30 (h) of the Tax Code.
Having thus transferred a portion of his said asset, Yes. The income from sale of land is subject to
Mr. Pascual succeeded in paying a lesser tax on the capital gains tax of 6% of the higher value between the selling
rental income derived from his property. Is there tax price and fair market value of the real property (land).
avoidance or tax evasion? Explain. (Bar 2000)
The income from sale of shares of stock is subject to
There is tax avoidance. Tax avoidance and tax evasion 5% on first P100,000 net capital gain, and 10% for any amount
are the two most common ways used by taxpayers in escaping in excess of P100,000 net capital gain.
from taxation. Tax avoidance is the tax saving device within the
means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the Properties Exempt From Real Property Taxes
other hand, is a scheme used outside of those lawful means and Under the Local Government Code
when availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities [Jose C. Vitug and FATs: Under the Local Government Code, what
Ernesto D. Acosta, Tax Law and Jurisprudence 44 (2nd ed., properties are exempt from real property taxes? (Bar
2000)]. Thus, Mr. Pascual has exploited a fully permissive 2002)
alternative method to reduce his income tax by transferring
part of his rental income to a tax exempt entity through a The following properties are exempt from real
donation of one-half of the income producing property. The property taxes:
donation is likewise exempt from the donor's tax. The donation 1) Real property owned by the Republic of the
is the legal means employed to transfer the incidence of income Philippines or any of its political subdivisions
tax on the rental income. except when the beneficial use thereof has been
granted, for consideration or otherwise, to a
taxable person;
Capital Gains Tax 2) All lands, buildings and improvements actually,
directly, and exclusively used for religious,
charitable or educational purposes by charitable
FAQs: A, a Filipino citizen residing in Makati and a institutions, churches, parsonages or convents
pure compensation incomeearner, sold the following appurtenant thereto, mosques, nonprofit or
properties which he owns to B: religious cemeteries;
1) Land located in Batangas 3) All machineries and equipment that are actually,
2) Shares of stock in a domestic corporation not directly and exclusively used by local water
traded in the local stock exchange districts and government-owned or controlled
corporations engaged in the supply and
Is A liable for Philippine Income tax? If so, what is the distribution of water and/or generation and
tax base and tax rate? (Bar 2010, Bar 2008) transmission of electric power;
4) All real property owned by duly registered
Section 24 (C) and (D) (1), NIRC cooperatives as provided for under R.A. No.
(C) Capital Gains from Sale of Shares of Stock not 6938; and
Traded in the Stock Exchange. - The provisions of 5) Machinery and equipment used for pollution
Section 39(B) notwithstanding, a final tax at the rates control and environmental protection. (Sec. 234,
prescribed below is hereby imposed upon the net LGC)
capital gains realized during the taxable year from the
sale, barter, exchange or other disposition of shares of FATs: The Constitution provides "charitable
stock in a domestic corporation, except shares sold, or institutions, churches, parsonages or convents
disposed of through the stock exchange. appurtenant thereto, mosques, and non- profit
Not over P100,000…………………………….. 5% cemeteries and all lands, buildings, and
On any amount in excess of P100,000………… improvements actually, directly and exclusively used
10% for religious, charitable or educational purposes shall
(D) Capital Gains from Sale of Real Property. - be exempt from taxation." This provision exempts
(1) In General. - The provisions of Section 39(B) charitable institutions and religious institutions from
notwithstanding, a final tax of six percent (6%) based what kind of taxes? Choose the best answer. Explain.
on the gross selling price or current fair market value (Bar 2006)
as determined in accordance with Section 6(E) of this
Code, whichever is higher, is hereby imposed upon a) from all kinds of taxes, i.e., income, VAT,
capital gains presumed to have been realized from the customs duties, local taxes and real property
sale, exchange, or other disposition of real property tax
located in the Philippines, classified as capital assets, b) from income tax only
including pacto de retro sales and other forms of c) from value-added tax only
conditional sales, by individuals, including estates and d) from real property tax only
9
 e) from capital gains tax only. execution of a final judgment only. They are considered as real
property for real property tax purposes as "other
The provision exemptions charitable institutions and improvements to affixed or attached real property under the
religious institutions from (d) REAL PROPERTY TAXES Assessment Law and the Real Property Tax Code. Please cite
only. Section 28 (3), Art. VI of the 1987 Constitution your source (if taken from the internet/case/book)
provides:
“Charitable institutions, churches and personages or
convents appurtenant thereto, mosques, non-profit Tax on Idle Lands in Subdivisions
cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used
for religious, charitable, or educational purposes shall Q: Aside from the basic real estate tax, give three (3)
be exempt from taxation.” other taxes which may be imposed by provincial and
city governments as well as by municipalities in the
The exemption is only for taxes assessed as property taxes, as Metro Manila area. (Bar 2002)
distinguished from excise taxes (CIR v. CA, CTA & YMCA, G.R.
No. 124043, October 14, 1998; Lladoc v. Commissioner of The following real property taxes aside from the basic
Internal Revenue, L-19201, June 16, 1965). real property tax may be imposed by provincial and city
governments as well as by municipalities in the Metro Manila
area:
Real Property Tax of Machinery & Equipment 1) Additional levy on real property for the Special
Installed by Lessee Education Fund (Sec. 235, LGC);
2) Additional Ad-valorem tax on Idle lands (Sec.
FATs: Under Article 415 of the Civil Code, in order for 23§, LGC); and
machinery and equipment to be considered real 3) Special levy (Sec. 240, LGC).
property, they must be placed by the owner of the land
and, in addition, must tend to directly meet the needs
of the industry or works carried on by the owner. Oil FATs: A city outside of Metro Manila plans to enact an
companies, such as Caltex and Shell, install ordinance that will impose a special levy on idle lands
underground tanks in the gasoline stations located on located in residential subdivisions within its
land leased by the oil companies from others. Are territorial jurisdiction in addition to the basic real
those underground tanks which were not placed there property tax. If the lot owners of a subdivision located
by the owner of the land but which were instead in the said city seek your legal advice on the matter,
placed there by the lessee of the land, considered real what would your advice be? Discuss. (Bar 2005)
property for purposes of real property taxation under
the Local Government Code? Explain your answer. I would advise the lot owners that a city, even if it is
(Bar 2001) outside Metro Manila, may levy an annual tax on idle lands at
the rate not exceeding five percent (5%) of the assessed value of
Yes. The underground tanks although installed by the the property which shall be in addition to the basic real
lessee, Shell and Caltex, are considered as real property for property tax. (Sec. 236, Local Government Code)
purposes of the imposition of real property taxes. It is only for
purposes of executing a final judgment that these machinery I would likewise advise them that the levy may apply
and equipment, installed by the lessee on a leased land, would to residential lots, regardless of land area, in subdivisions duly
not be considered as real property. But in the imposition of the approved by proper authorities, the ownership of which has
real property tax, the underground tanks are taxable as been transferred to individual owners who shall be liable for
necessary fixtures of the gasoline station without which the the additional tax. (Last par., Sec. 237). The term "Idle Lands"
gasoline station would not be operational. (Caltex Phils., Inc v. means, land not devoted directly to any crop or to any definite
CBAA, 114 SCRA. 296). purpose for at least one year prior to the notice of
expropriation, except for reasons other than force majeure or
FATs: Under Article 415 of the Civil Code, in order for any fortuitous event, but used to be devoted or is suitable to
machinery and equipment to be considered real such crop or is contiguous to land devoted directly to any crop
property, the pieces must be placed by the owner of and does not include land devoted permanently or regularly to
the land and, in addition, must tend to directly meet other essential and more productive purpose. (Philippine Legal
the needs of the industry or works carried on by the Encyclopedia, by Sibal, 1986 Ed.)
owner. Oil companies install underground tanks in
the gasoline stations located on land leased by the oil Finally, I would advise them to construct or place
companies from the owners of the land where the improvements on their idle lands by making valuable additions
gasoline stations [are] located. Are those to the property or ameliorations in the land's conditions so the
underground tanks, which were not placed there by lands would not be considered as idle. (Sec. 199[m]) In this
the owner of the land but which were instead placed manner their properties would not be subject to the ad valorem
there by the lessee of the land, considered real tax on idle lands.
property for purposes of real property taxation under
the local Government Code? Explain. (Bar 2003)
Imposition of Real Property Tax Rate
Yes. The properties are considered as necessary
fixtures of the gasoline station, without which the gasoline FATs: An Ordinance was passed by the Provincial
station would be useless. Machinery and equipment installed Board of a Province in the North, increasing the rate
by the lessee of leased land is not real property for purposes of of basic real property tax from 0.006% to 1 % of the
10
assessed value of the real property effective January 1, 3) Appraisal and assessment must be equitable. (Sec.
2000. Residents of the municipalities of the said 198, Local Government Code)
province protested the Ordinance on the ground that
no public hearing was conducted and, therefore, any
increase in the rate of real property tax is void. Is VAT on Sale of Services and Use or Lease of
there merit in the protest? Explain your answer. (Bar Properties
2002)
FATs: What are the characteristics of the Value-Added
The protest is devoid of merit. No public hearing is Tax? (Bar 1996)
required before the enactment of a local tax ordinance levying
the basic real property tax (Art. 324, LGC Regulations). Sec. 1, R.A. No. 7716
SECTION 1. Section 99 of the National Internal
Alternative Suggested Answer Revenue Code, as amended, is hereby further
Yes. There is merit in the protest provided that sufficient proof amended to read as follows:
could be introduced for the non-observance of public hearing.
By implication, the Supreme Court recognized that public "Sec. 99. Persons Liable. — Any person who, in the
hearings are required to be conducted prior to the enactment of course of trade or business, sells, barters, exchanges,
an ordinance imposing real property taxes. Although it was leases goods or properties, renders services, and any
concluded by the highest tribunal that presumption of validity person who imports goods shall be liable to the value-
of a tax ordinance can not be overcome by bare assertions of added tax (VAT) imposed in Sections 100 to 102 of
procedural defects on its enactment, it would seem that if the this Code.
taxpayer had presented evidence to support the allegation that
no public hearing was conducted, the Court should have ruled "The value-added tax is an indirect tax and the
that the tax ordinance is invalid. (Belen Figuerres v. Court of amount of tax may be shifted or passed on to the
Appeals, GRNo. 119172, March 25, 1999). buyer, transferee or lessee of the goods, properties or
services. This rules likewise apply to existing contracts
of sale or lease of goods, properties or services at the
Fundamental Principles Governing Real time of the effectivity of this Act.
Property Taxation
The value-added tax is an indirect tax and the amount
FATs: State the fundamental principles underlying of tax may be shifted or passed on to the buyer, transferee or
real property taxation in the Philippines. (Bar 1997) lessee of the goods, properties or services.

The following are the fundamental principles governing real Alternative Suggested Answer
property taxation: The value-added tax has the following characteristics:
1) Real property shall be appraised at its current and fair 1) It is an indirect tax where tax shifting is always
market value; presumed;
2) Real property shall be classified for assessment 2) It is consumption-based;
purposes on the basis of its actual use: 3) It is imposed on the value-added in each stage of
3) Real property shall be assessed on the basis of a distribution;
uniform classification within each local government 4) It is a credit-invoice method value-added tax; and
unit; 5) It is not a cascading tax. (UP Law Complex and
4) The appraisal, assessment, levy, and collection of real Philippine Association of Law Schools)
property tax shall not be let to any private person; and
5) The appraisal and assessment of real property shall be FATs: Who are liable for the payment of Value-Added
equitable. (Sec. 198, Real Property Tax Code) Tax? (Bar 1996)

FATs: Give at least two (2) fundamental principles The persons liable for the value-added tax are sellers of goods
governing real property taxation, which are and properties in the course of trade or business; sellers of
limitations on the taxing power of local governments services in the course of trade or business, including lessors of
insofar as the levying of the realty tax is goods and properties; and importers of taxable goods, whether
concerned.(Bar 2000) in the course of business or not. Please cite your source (if
taken from the internet/case/book)
Two (2) fundamental principles governing real property
taxation are:
1) The appraisal must be at the current and fair market VAT on Leased Properties
value; and
2) Classification for assessment must be on the basis of
FATs: What is the basis of the Value-Added Tax on
actual use. (Sec. 198, Local Government Code) taxable sales of real property? (Bar 1996)
Alternative Suggested Answer
If possible, please cut short the provision and leave
The examinee should be given credit if he chooses the above
only the relevant parts.
two (2) or any two (2) of those enumerated below:
1) Assessment must be on the basis of uniform
Section 106 (A), NIRC
classification;
(A) Rate and Base of Tax. - There shall be levied,
2) Appraisal, assessment, levy and collection shall not be
assessed and collected on every sale, barter or
let to private persons; and
exchange of goods or properties, value-added tax
11
 equivalent to ten percent (10%) of the gross selling VAT taxpayer. As such, it is exempt from payment of
price or gross value in money of the goods or all local and national internal revenue taxes. During
properties sold, bartered or exchanged, such tax to be its operations, it purchased various supplies and
paid by the seller or transferor. materials necessary in the conduct of its
manufacturing business. The suppliers of these goods
(1) The term "goods" or "properties" shall mean all shifted to Lily's Fashion, Inc. the 10% VAT on the
tangible and intangible objects which are capable of purchased items amounting to P 500,000.00. Lily's
pecuniary estimation and shall include: (a) Real Fashion, Inc. filed with the BIR a claim for refund for
properties held primarily for sale to customers or held the input tax shifted to it by the suppliers. If you were
for lease in the ordinary course of trade or business; the Commissioner of Internal Revenue, will you allow
(b) The right or the privilege to use patent, copyright, the refund? (Bar 2006)
design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like If possible, please cut short the provisions and leave
property or right; (c) The right or the privilege to use only the relevant parts.
in the Philippines of any industrial, commercial or
scientific equipment; (d) The right or the privilege to Sec. 112 [A], Tax Reform Act of 1997
use motion picture films, tapes and discs; and (e) Refunds or Tax Credits of Input Tax. (A) Zero-rated
Radio, television, satellite transmission and cable or Effectively Zero-rated Sales. - any VAT-registered
television time. person, whose sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of the taxable
The term "gross selling price" means the total amount quarter when the sales were made, apply for the issuance of
of money or its equivalent which the purchaser pays a tax credit certificate or refund of creditable input tax due
or is obligated to pay to the seller in consideration of or paid attributable to such sales, except transitional input
the sale, barter or exchange of the goods or properties, tax, to the extent that such input tax has not been applied
excluding the value-added tax. against output tax: Provided, however, That in the case of
zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B)
The excise tax, if any, on such goods or properties and Section 108 (B)(1) and (2), the acceptable foreign
shall form part of the gross selling price. currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP): Provided, further,
The basis of the Value-Added Tax on taxable sale of That where the taxpayer is engaged in zero-rated or
real property is "GROSS SELLING PRICE" which is either effectively zero-rated sale and also in taxable or exempt sale
selling price stated in the sale document or the "Zonal Value", of goods of properties or services, and the amount of
whichever is higher. In the absence of zonal values, the gross creditable input tax due or paid cannot be directly and
selling price shall refer to the market value as shown in the entirely attributed to any one of the transactions, it shall be
latest tax declaration or the consideration, whichever is higher. allocated proportionately on the basis of the volume of
sales.

VAT Refund
No. I will not allow the refund. Only VAT-Registered
FATs: May a taxpayer who has pending claims for VAT taxpayers are entitled to a refund of their unapplied/unused
input credit or refund, set-off said claims against his Input VAT (Tax Reform Act, Section 112[A] [1997]).
other tax liabilities? (Bar 2001)
Alternative Suggested Answer
No. Set-off is available only if both obligations are No. The exemption of Lily's Fashion, Inc. is only for taxes for
liquidated and demandable. Liquidated debts are those where which it is directly liable. Hence, it cannot claim exemption for
the exact amounts have already been determined. In the a tax shifted to it, which is not at all considered a tax to the
instant case, the claim of the taxpayer for VAT refund is still buyer but a part of the purchase price. Lily's fashion is not the
pending and the amount has still to be determined. A fortiori, taxpayer in so far as the passed-on tax is concerned and
the liquidated obligation of the taxpayer to the government can therefore, it cannot claim for a refund of a tax merely shifted to
not, therefore, be set-off against the unliquidated claim which it (Phil. Acetylene Co., Inc. v. CIR, L-19707,Aug. 17, 1987).
the taxpayer conceived to exist in his favor. (Philex Mining
Corp. v. CIR, GR No. 125704, August 29, 1998).
Compromise
Alternative Suggested Answer
No. Taxes and claims for refund cannot be the subject of set- FAQs: Under what conditions the Commissioner of
off for the simple reason that the government and the taxpayer Internal Revenue:
are not creditors and debtors of each other. There is a material A. May be authorized to compromise the
distinction between a tax and a claim for refund. Claims for payment of any internal revenue tax?
refunds just like debts are due from the government in its B. Abate or cancel a tax liability? (Bar 1998,
corporate capacity, while taxes are due to the government in its 2000, 2002, 2004, 2005, 2009, 2010)
sovereign capacity. (Philex Mining Corp. v. CIR, GR No.
125704, August 29, 1998). A. Under Section 204 (A) of NIRC,the
Commissioner of Internal Revenue may be
FATs: Lily's Fashion, Inc. is a garment manufacturer authorized to compromise the payment of any
located and registered as a Subic Bay Freeport internal revenue tax where:
Enterprise under Republic Act No. 7227 and a non-
12
  A reasonable doubt as to the validity of jurisdiction of the BIR. (CIR v. Citytrust Banking Corporation,
the claim against the taxpayer exists; or 22 August 2006)
 The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax. FAQs: X’s filed his income tax return on 15 April 2006.
On 15 April 2008, he filed a Petition for Review with
B. The Commissioner of Internal Revenue may the CTA asking the tax court to grant to him his claim
abate or cancel a tax liability when: for refund, considering that as of the said date, he has
 The tax or any portion thereof appears not yet received any action from the BIR regarding his
to be unjustly or excessively assessed; or claim. The CTA denied the claim for refund on the
 The administration and collection costs ground of prescription, considering that the two-year
involved do not justify the collection of period of X to file a claim for refund ended on 14 April
the amount due. [Sec. 204 (B), NIRC of 2008, in view of the fact that during the year 2008, the
1997] month of February consisted of 29 days (in view of the
leap year). According to the CTA, since one year, as
FAQs: Distinguish abatement of tax liabilities with per Civil Code provision, is equivalent to 365 days
compromise. (Bar 1998, 2000, 2002, 2004, 2005, only, the two year period would thus have 730 days;
2009, 2010) thus, the filing of the case for refund on15 April 2008
was one day late. Is the CTA correct? (Bar 2000, 2002,
Abatement of tax liabilities is allowed if the tax appears to have 2004, 2005, 2008, 2009, 2010, 2013, 2014)
been unjustly or excessively assessed, or when the
administration and collection costs involved do not justify the No. The CTA is not correct. It is true that under the Civil Code,
collection of the amount due. On the other hand, a taxpayer a year is equivalent to 365 days whether it be a regular year or a
asks for a compromise based on reasonable doubt as to the tax leap year. However, Under Section 31, Chapter VIII, Book I of
liability of a taxpayer, or when he is financially incapable of the Administrative Code of 1987, a year is composed of 12
paying the tax. In abatement, there is no minimum payment calendar months, regardless of the number of days. There
required. This is unlike compromise where certain minimum obviously exists a manifest incompatibility in the manner of
payments are required by the NIRC, depending on the ground computing legal periods under the Civil Code and the
availed of by the taxpayer. (People v. Tan, GR No.152532, 16 Administrative Code of 1987.
August 2005)
For this reason, Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law,
governs the computation of legal periods. Lex posteriori
Tax Refund
derogat priori. Applying Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 to this case, the two-year
FAQs: State the conditions required by the Tax Code prescriptive period (reckoned from the time of the filing of the
before the Commissioner of Internal Revenue could final adjusted return on April 15, 2006) consisted of 24
authorize the refund or credit of taxes erroneously or calendar months, ending on April 15, 2008. Thus, the Petition
illegally received. (Bar 2000, 2002, 2004, 2005, 2008, was filed within the period allowed by law. (CIR v. Primetown
2009, 2010, 2013, 2014) Property Group, GR No. 162155, 28 August 2007).
Under Sec. 204(C), NIRC, the following conditions must be
met:
Jurisdiction of the CTA
a) There must be a written claim for refund filed by the
taxpayer with the Commissioner.
b) The claim for refund must be a categorical demand for FAQs: Congress passed a law amending certain
reimbursement. provisions of the NIRC. Pursuant to the said law, the
c) The claim for refund must be filed within two (2) Secretary of Finance issued the implementing revenue
years from date of payment of the tax or penalty regulation thereof. Marian, a taxpayer aggrieved by
regardless of any supervening cause. the amendment and its implementing rules, filed a
petition for prohibition and/or injunction before the
FAQs: X Corporation was able to secure a favorable Regional Trial Court, Cebu City, seeking to prohibit
judgment from the courts granting its claim for and/or enjoin the enforcement of the said law and its
refund. The judgment became final. At the time the implementing rules. In her Petition, Marian advanced
judgment was to be executed, the BIR refused to grant the argument that the said law and its implementing
the refund on the ground that the corporation is rules are violative of certain provisions of the
presently subject of an audit by the BIR, which might Constitution. The Solicitor General, on the other
result to potential tax liabilities. Is the action of the hand, moved to dismiss the case due to lack of
BIR proper? (Bar 2000, 2002, 2004, 2005, 2008, jurisdiction on the ground that the case should have
2009, 2010, 2013, 2014) been filed before the Court of Tax Appeals. If you were
the judge who will resolve the motion, would you
No. While the general rule is that claims for refund and grant it? (Bar1999, 2001, 2002, 2004, 2005, 2006,
proceedings regarding the determination of the liability of a 2009, 2010)
taxpayer for deficiency taxes must, as far as practicable, be
settled only under one proceedings to avoid multiplicity of No. I would not grant the motion. While the CTA has the
suits, the said rule is not applicable in the present case since jurisdiction to resolve tax disputes in general, where what is
the entitlement of the taxpayer to the refund was already assailed is the validity or constitutionality of a law, or a rule or
determined with finality; hence, was removed already from the regulation issued by the administrative agency in the

13
performance of its quasi-legislative function, the regular courts
and the not the CTA have jurisdiction to pass upon the same.
(British American Tobacco v. Camacho, et al., G.R. No. 163583 FAQs: A waiver of the statute of limitations to assess
dated August 20, 2008). and collect internal revenue taxes worth more than
P1M was signed by the comptroller of a corporate
FAQs: Does the Court of Tax Appeals have jurisdiction taxpayer. The waiver did not specify a definite agreed
to determine the validity of a warrant of distraint and date between the BIR and the taxpayer, within which
levy issued by the BIR and to rule if a Waiver of the former may assess and collect revenue taxes. The
Statute of Limitations was validly effected? (Bar1999, said waiver bore the acceptance of the Revenue
2001, 2002, 2004, 2005, 2006, 2009, 2010) District Officer of the tax district where the principal
place of business of the taxpayer was located. Is the
Yes. The appellate jurisdiction of the CTA is not limited to waiver valid?(Bar1999, 2002, 2008, 2010, 2012, 2013,
cases which involve decisions of theCommissioner of Internal 2014)
Revenue on matters relating to assessments or refunds. The
law also covers other matters or cases that arise out of the No.The waiver is not valid. The NIRC, under Sections 203 and
NIRC or related laws administered by the Bureau of Internal 222, provides for a statute of limitations on the assessment and
Revenue. The wording of the provision is clear and simple. It collection of internal revenue taxes in order to safeguard the
gives the CTA the jurisdiction to determine if the warrant of interest of the taxpayer against unreasonable investigation.
distraint and levy issued by the BIR is valid and to rule if the Unreasonable investigation contemplates cases where the
Waiver of Statute of Limitations was validly effected. period for assessment extends indefinitely because this
(Philippine Journalists, Inc. v. CIR, G.R. No. 162852, deprives the taxpayer of the assurance that it will no longer be
December 16, 2004) subjected to further investigation for taxes after the expiration
of a reasonable period of time. The waiver subject of this case
was unlimited in time, hence violating Section 222 (b) of the
Assessment and Pre-Assessment Notice, Final NIRC.
Assessment Notice
The waiver is also defective from the government side because
FAQs: During the lifetime of a decedent, her business it was signed only by a revenue district officer, not the
affairs were conducted by a trustee. Two days after the Commissioner, as mandated by the NIRC and RMO No. 20-90.
death of the decedent on April 3, 1979, the trustee filed The waiver is not a unilateral act by the taxpayer or the BIR,
the decedent’s income tax return for the taxable year but is a bilateral agreement between two parties to extend the
1978, without indicating therein that the decedent had period to a date certain. The conformity of the BIR must be
died. Subsequently, the BIR found a deficiency income made by either the Commissioner or the Revenue District
tax by the decedent for the taxable year 1977. Thus, it Officer. This case involves taxes amounting to more than One
sent by registered mail a demand letter and Million Pesos (P1,000,000.00) and executed almost seven
assessment notice addressed to the decedent “c/o the months before the expiration of the three-year prescription
trustee.” The assessment was actually sent to the period. For this, RMO No. 20-90 requires the Commissioner of
trustee’s address, which was the address indicated in Internal Revenue to sign for the BIR. (Philippine Journalists,
the return filed by the trustee for the decedent for the Inc. v. CIR, G.R. No. 162852, December 16, 2004)
taxable year 1978. Was there valid service of the
assessment? Did the assessment lapse into finality? FAQs: What are the circumstances that would warrant
(Bar1999, 2002, 2008, 2010, 2012, 2013, 2014) the suspension of the period to assess and collect?
(Bar1999, 2002, 2008, 2010, 2012, 2013, 2014)
There was no valid service of assessment. The first point to be
considered is that the relationship between the decedent and The running of the Statute of Limitations provided in Sections
trustee was one of agency, which is a personal relationship 203 and 222 on the making of assessment and the beginning of
between agent and principal. Under Article 1919 (3) of the Civil distraint or levy or a proceeding in court for collection, in
Code, death of the agent or principal automatically terminates respect of any deficiency, shall be suspended for the period
the agency. In this instance, the death of the decedent on April during which the Commissioner is prohibited from making the
3, 1979 automatically severed the legal relationship between assessment or beginning distraint or levy or a proceeding in
her and the trustee, and such could not be revived by the mere court and for sixty (60) days thereafter; when the taxpayer
fact that the trustee continued to act as her agent when, on requests for a reinvestigation which is granted by the
April 5, 1979, it filed her Income Tax Return for the year 1978. Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is
Since the relationship between the trustee and the decedent being assessed or collected: Provided, That, if the taxpayer
was automatically severed at the moment of the Taxpayer's informs the Commissioner of any change in address, the
death, none of the trustee’s acts or omissions could bind the running of the Statute of Limitations will not be suspended;
estate of the Taxpayer. Service on the trustee of the demand when the warrant of distraint or levy is duly served upon the
letter and assessment notice was therefore improperly done. taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be
Since there was never any valid notice of this assessment, it located; and when the taxpayer is out of the Philippines.
could not have become final, executory and incontestable, and, Source?
for failure to make the assessment within the three-year period
provided in Section 203 of the NIRC, respondent's claim FAQs: Distinguish the different forms of
against the petitioner Estate is barred. (Estate of the Late administratively protesting an assessment. (Bar 1999,
Juliana Diez Vda. De Gabriel v. CIR, G.R. No. 155541, January 2002, 2008, 2010, 2012, 2013, 2014)
27, 2004.)

14
The taxpayer may protest administratively an assessment by penalty due thereon. The taxpayer, however, was not
filing a written request for reconsideration or reinvestigation: provided with the written basis of the law and facts on
which the assessment is based. Revenue authorities
a) Request for reconsideration — refers to a plea for a did not explain how it arrived at such an assessment
re-evaluation of an assessment on the basis of existing and also failed to mention the specific provision of the
records without need of additional evidence. It may NIRC or rules and regulations which were not
involve both a question of fact or of law or both. complied with by the taxpayer. The revenue officers,
b) Request for reinvestigation — refers to a plea for re- however, justified its action by stating that the basis of
evaluation of an assessment on the basis of newly the assessment was advised upon the taxpayer during
discovered evidence or additional evidence that a the pre-assessment stage. Is the assessment valid?
taxpayer intends to present in the investigation. It (Bar 1999, 2002, 2008, 2010, 2012, 2013, 2014)
may also involve a question of fact or law or both.
No. The law requires that the assessment itself should contain
The main difference between these two types of protests lies in the facts and the law upon which the assessment is based.
the records or evidence to be examined by internal revenue Advice of tax deficiency given to the taxpayer’s employee
officers, whether these are existing records or newly discovered during the pre-assessment stage, as well as other preliminary
or additional evidence. A reevaluation of existing records which stages, were not valid substitutes for the mandatory notice in
results from a request for reconsideration does not toll the writing of the legal and factual bases of the assessment. (CIR
running of the prescription period for the collection of an vs. Enron Subic Power Corporation, G.R. No. 166387 dated
assessed tax. Section 223 of the NIRC distinctly limits the January 19, 2009)
suspension of the running of the statute of limitations to
instances when reinvestigation is requested by a taxpayer and FAQs: Will the failure to serve a Pre-Assessment
is granted (given due course) by the CIR. (CIR v. Philippine Notice upon a taxpayer prior to a formal assessment
Global Communication, GR No. 167146, 31 October 2006) be considered as a denial of due process? (Bar 1999,
2002, 2008, 2010, 2012, 2013, 2014)
FAQs: A taxpayer requested for reinvestigation of his
tax liability. Did it suspend the period to assess and No. The failure to serve a pre-assessment notice is not, in
collect? (Bar 1999, 2002, 2008, 2010, 2012, 2013, itself, amounting to a denial of due process. For as long as the
2014) formal assessment is issued and served upon a taxpayer, the
requirement of due process had been complied with. After all,
No. A mere request for reinvestigation does not suspend the the taxpayer is still afforded ample administrative remedies
period to assess and collect. Section 223 of the NIRC provides such as protesting the assessment. (CIR v. Menguito, 17
that the period shall be suspended “when the taxpayer requests September 2008)
for a reinvestigation which is granted by the Commissioner.”
Thus, it is not only the request for reinvestigation which will FAQs: In the investigation of the withholding tax
toll the period. There must be a showing that the same was returns of AZ Medina Security Agency (AZ Medina)
granted by the CIR. (BPI v. CIR, GR No. 139736, 17 October for the taxable years 1997 and 1998, a discrepancy
2005) between the taxes withheld from its employees and
the amounts actually remitted to the government was
FAQs: After an audit by BIR examiners, a taxpayer found. Accordingly, before the period of prescription
received a notice from the BIR stating as follows: commenced to run, the BIR issued an assessment and
a demand letter calling for the immediate payment of
“Please be notified that after investigation by our the deficiency withholding taxes in the total amount of
examiners, you have an outstanding internal revenue P250,000.00. Counsel for AZ Medina protested the
tax liability amounting to Php750,000.00, computed assessment for being null and void on the ground that
as follows: no pre-assessment notice had been issued. However,
the protest was denied. Counsel then filed a petition
Basic Income Tax P500,000.00 for prohibition with the Court of Tax Appeals to
Surcharge 125,000.00 restrain the collection of the tax. Is the contention of
Interest 100,000.00 the counsel tenable? Explain(Bar1999, 2002, 2008,
Compromise Penalty 25,000.00 2010, 2012, 2013, 2014)
TOTAL P750,000.00
No. The contention of the counsel is untenable. Section 228 of
Please settle the foregoing amount on or before 30 the Tax Code expressly provides that no pre-assessment notice
August 2006 to avoid further surcharges and penalty.” is required when a discrepancy has been determined between
the tax withheld and the amount actually remitted by the
Is the above notice considered a valid assessment? withholding agent. Since the amount assessed relates to
(Bar 1999, 2002, 2008, 2010, 2012, 2013, 2014) deficiency withholding taxes, the BIR is correct in issuing the
assessment and demand letter calling for the immediate
No. Under Section 228 of the NIRC, an assessment, to be payment of the deficiency withholding taxes. (Sec. 228, NIRC).
valid, must contain the factual and legal bases upon which the Please quote this law provision
assessment was based. The above notice merely contained a
computation of the tax liability of the taxpayer, without any
discussion on the factual and legal bases thereof. Prescription

FAQs: Internal Revenue Authorities issued a formal FAQs: On August 5, 1997, Adamson Co., Inc.
assessment against a taxpayer and indicated therein (Adamson) filed a request for reconsideration of the
the supposed tax, surcharge, interest and compromise
15
deficiency withholding tax assessment on July 10, commenced to run on March 30, 1996 when the pre-
1997, covering the taxable year 1994. After assessment was issued. How will you resolve the
administrative hearings, the original assessment of motion? Explain your answer. (Bar 2001, 2002, 2006,
P150,000.00 was reduced to P75.000.00 and a 2009, 2010, 2014)
modified assessment was thereafter issued on August
05, 1999. Despite repeated demands, Adamson failed The motion to dismiss should not be granted. It is only when
and refused to pay the modified assessment. the assessment has become final and unappealable that the 5-
Consequently, the BIR brought an action for collection year period to file a criminal action commences to run (Tupaz
in the Regional Trial Court on September 15, 2000. v. Ulop, 316 SCRA 118 [1999]). The pre-assessment notice
Adamson moved to dismiss the action on the ground issued on March 30, 1996 is not a final assessment which is
that the government's right to collect the tax by enforceable by the BIR. It is the issuance of the final notice and
judicial action has prescribed. Decide the case. (Bar demand letter dated April 15, 1997 and the failure of the
2001, 2002, 2006, 2009, 2010, 2014) taxpayer to protest within 30 days from receipt thereof that
made the assessment final and unappealable. The earliest date
The right of the Government to collect by judicial action has that the assessment has become final is May 16, 1997 and since
not prescribed. The filing of the request for reconsideration the criminal charge was instituted on January 10, 2002, the
suspended the running of the prescriptive period and same was timely filed.
commenced to run again when a decision on the protest was
made on August 5, 1999. It must be noted that in all cases FAQs: Mr. Reyes, a Filipino citizen engaged in the real
covered by an assessment, the period to collect shall be five (5) estate business, filed his 1994 income tax return on
years from the date of the assessment but this period is March 20, 1995. On December 15, 1995, he left the
suspended by the filing of a request for reconsideration which Philippines as an immigrant to join his family in
was acted upon by the Commissioner of Internal Revenue (CIR Canada. After the investigation of said return/the BIR
v. Wyeth Suaco Laboratories, Inc., 202 SCRA 125 [1991]). issued a notice of deficiency income tax assessment on
April 15, 1998. Mr. Reyes returned to the Philippines
FAQs: A Co., a Philippine Corporation, filed its 1995 as a balikbayan on December 8, 1998. Finding his
Income Tax Return (ITR) on April 15, 1996 showing a name to be in the list of delinquent taxpayers, he filed
net loss. On November 10, 1996, it amended its 1995 a protest against the assessment on the ground that he
ITR to show more losses. After a tax investigation, the did not receive the notice of assessment and that the
BIR disallowed certain deductions claimed by A Co., assessment had prescribed. Will the protest prosper?
putting A Co. in a net income position. As a result, on Explain. (Bar 2001, 2002, 2006, 2009, 2010, 2014)
August 5, 1999, the BIR issued a deficiency income
assessment against A Co. A Co. protested the No. Prescription has not set in because the period of
assessment on the ground that it has prescribed: limitations for the Bureau of Internal Revenue to issue an
Decide. (Bar 2001, 2002, 2006, 2009, 2010, 2014) assessment was SUSPENDED during the time that Mr. Reyes
was out of the Philippines or from the period December 15,
The right of the BIR to assess the tax has not prescribed. The 1995 up to December 8, 1998. (Sec. 223 in relation to Sec. 203,
rule is that internal revenue taxes shall be assessed within both of the NIRC of 1997) Please quote the relevant
three years after the last day prescribed by law for the filing of portions of these laws
the return. (Section 203, NIRC)
FAQs: On March 12, 2001, REN paid his taxes. Ten
However, if the return originally filed is amended substantially, months later, he realized that he had overpaid and so
the counting of the three-year period starts from the date the he immediately filed a claim for refund with the
amended return was filed. (CIR v. Phoenix Assurance Co., Commissioner of Internal Revenue. On February 27,
Ltd., 14 SCRA 52). 2003, he received the decision of the Commissioner
denying REN's claim for refund. On March 24, 2003,
There is a substantial amendment in this case because a new REN filed an appeal with the Court of Tax Appeals.
return was filed declaring more losses, which can only be done Was his appeal filed on time or not? (Bar 2001, 2002,
either: 2006, 2009, 2010, 2014)
1) in reducing gross income or
2) in increasing the items of deductions, claimed. The appeal was not filed on time. The two-year period of
limitation for filing a claim for refund is not only a limitation
FAQs: TY Corporation filed its final adjusted income for pursuing the claim at the administrative level but also a
tax return for 1993 on April 12, 1994 showing a net limitation for appealing the case to the Court of Tax Appeals.
loss from operations. After investigation, the BIR The law provides that "no suit or proceeding shall be filed after
issued a pre-assessment notice on March 30, 1996. A the expiration of two years from the date of the payment of the
final notice and demand letter dated April 15, 1997 tax or penalty regardless of any supervening cause that may
was issued, personally delivered to and received by arise after payment (Section 229, JVZRCJ) What is
the company's chief accountant. For willful refusal JVZRCJ). Since the appeal was only made on March 24,
and failure of TY Corporation to pay the tax, warrants 2003, more than two years had already elapsed from the time
of distraint and levy on its properties were issued and the taxes were paid on March 12, 2003. Accordingly, REN had
served upon it. On January 10, 2002, a criminal lost his judicial remedy because of prescription.
charge for violation of the Tax Code was instituted in
the Regional Trial Court with the approval of the
Commissioner. The company moved to dismiss the Tax Deficiency
criminal complaint on the ground that an act for
violation of any provision of the Tax Code prescribes
after five (5) years and, in this case, the period
16
FAQs: Is a deficiency tax assessment a bar to a claim
for tax refund or tax credit? Explain. (Bar 2002, 2005)

Yes. The deficiency tax assessment is a bar to a tax refund or

credit. The Taxpayer cannot be entitled to a refund and at the
same time liable for a tax deficiency assessment for the same
year. The deficiency assessment creates a doubt as to the truth
and accuracy of the Tax Return. Said Return cannot therefore
be the basis of the refund. (CIR v. Alltel [2002], citing CIR v.
CA, City Trust Banking Corporation and CTA G.R. No. 106611,
July 21, 1994)

17