UNIVERSITY OF SAN CARLOS

SCHOOL OF LAW
BAR OPERATIONS

WARRIORS' NOTES

TAXATION
LAW 2 0 1 9

Prepared by: Researchers:

Taxation Law Warrior Notes Team Earl Debalucos, CPA
Ron Audrien Enriquez, CPA
Raul Joseph Esparcia, CPA
Senior Advisers:
Atty. Kim M. Aranas, CPA Maria Rebecca Ozaraga, CPA
Atty. Bernardino T. Amago IV, CPA
Proofreader:
Leana Rae D. Rondez

Layout:
Karol Grace G. Oroceo

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 Table of Contents

I. GENERAL PRINCIPLES ................................................................. 3

II.TAX REMEDIES.............................................................................. 5
III. INCOME TAXATION ................................................................ 28
IV. ESTATE TAXATION ................................................................... 41
VI. VALUE-ADDED TAXATION ..................................................... 42
VII. 120+30 Day Period ............................................................... 46
VIII. COURT OF TAX APPEALS ..................................................... 49
IX. LOCAL TAXATION ................................................................... 51
IX. DOCUMENTARY STAMP TAX ................................................. 56
X.DOCTRINES ............................................................................... 59
XI. MISCELLANEOUS .................................................................... 62

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 WARRIORS’ NOTES 2019
collecting taxes should not be higher
I. GENERAL PRINCIPLES than the benefits derived from it.

1. Basic Principles of a Sound Tax 2. Forms of Escape from Taxation

System
i. Shifting, in general – the transfer of the
a. Fiscal Adequacy – The sources of tax burden of a tax by the original payer
revenue should coincide with, and or the one on whom the tax was
approximate the needs of, assessed or imposed to someone
government expenditures. The else. What is transferred is not the
revenue should be elastic or capable payment of the tax but the burden of
of expanding or contracting annually the tax.
in response to variations in public
expenditures. All indirect taxes may be shifted;
direct taxes cannot be shifted.
b. Theoretical Justice or Equity – The tax
burden should be in proportion to the a. Forward shifting – When the
taxpayer’s ability to pay. This is the so- burden of the tax is transferred
called ability to pay principle. from a factor of production
Taxation should be uniform as well as through the factors of
equitable distribution until it finally settles
on the ultimate purchaser or
Note: The non-observance of the consumer. Example: VAT,
above principles will not necessarily percentage tax
render the tax imposed invalid
except to the extent those specific b. Backward shifting – When the
constitutional limitations are violated. burden of the tax is transferred
[De Leon] from the consumer or
purchaser through the factors
c. Administrative Feasibility – Tax laws of distribution to the factor of
should be capable of convenient, production. Example:
just and effective administration. Consumer or purchaser may
Each tax should be capable of shift tax imposed on him to
uniform enforcement by government retailer by purchasing only
officials, convenient as to the time, after the price is reduced, and
place, and manner of payment, and from the latter to the
not unduly burdensome upon, or wholesaler, and finally to the
discouraging to business activity. manufacturer or producer.

d. Economic Efficiency – A combination c. Onward shifting – When the tax

of fiscal adequacy and is shifted two or more times
administrative feasibility. The cost of either forward or backward.

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ii. Capitalization – The reduction in the Example: A person refrains from
price of the taxed object equal to the engaging in some activity or enjoying
capitalized value of future taxes some privilege in order to avoid the
which the purchaser expects to be incidental taxation or to lower his tax
called upon to pay. It occurs when bracket for a taxable year.
the tax falls on an income-producing
property, i.e. commercial building. vi. Tax Evasion (Tax Dodging) – is the use
by the taxpayer of illegal or
iii. Transformation – method of escape in fraudulent means to defeat or lessen
taxation whereby the manufacturer the payment of a tax. It is also known
or producer upon whom the tax has as “tax dodging.” It is punishable by
been imposed pays the tax and law.
endeavors to recoup himself by
improving his process of production Example: Deliberate failure to report a
thereby turning out his units of taxable income or property; deliberate
products at a lower cost. The reduction of income that has been
taxpayer escapes by a received.
transformation of the tax into a gain
through the medium of production. 3. 3. Tests to Determine whether
Income is Earned for Tax Purposes
iv. Exemption – The grant of immunity to
particular persons or corporations or i. Flow of Wealth Test - The determining
to person or corporations of a factor for the imposition of income
particular class from a tax which tax is whether any gain was derived
persons and corporations generally from the transaction. (CIR vs.
within the same state or taxing district Administratrix of the Estate of Echerri)
are obliged to pay. It is an immunity
or privilege; it is freedom from a ii. Realization Test – also known as
financial charge or burden to which "Macomber Test" – unless the income
others are subjected. It is strictly is deemed "realized," there is no
construed against the taxpayer. taxable income. Revenue is generally
recognized when both of the ff.
Taxation is the rule; exemption is the conditions are met: (a) The earning
exception. process is complete or virtually
complete, and (b) An exchange has
v. Tax Avoidance (Tax Minimization) – taken place.
The exploitation by the taxpayer of
legally permissible alternative tax iii. Economic-Benefit Principle, Doctrine
rates or methods of assessing taxable of Proprietary Interest - flow of wealth
property or income in order to avoid realized is taxable only to the extent
or reduce tax liability. It is politely that the taxpayer is economically
called “tax minimization” and is not benefited.
punishable by law.

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iv. Net Effect Test - The substance of the 5. Flexible Tariff Clause
whole transaction, not the form,
usually controls the tax – Delegation of Tariff powers to the
consequences. President under the flexible tariff clause
[Art VI, Sec 28(2), 1987 Constitution]
v. Claim of right doctrine (or Doctrine of
Ownership, command, or control) - The authority given to the President,
doctrine of ownership, command or upon the recommendation of NEDA, to
control (embezzled funds-there is no adjust the tariff rates under Sec. 401 of
consensual agreement to return, the Code in the interest of national
hence taxable as an income) economy, general welfare and/or
national security.
vi. Severance Test – Under the doctrine
of severance test of income, in order
that income may exist, is necessary II. TAX REMEDIES
that there be a separation from
capital of something of 6. Constructive methods of income
exchangeable value. The income determination
required a realization of gain.
Expenditure Method – It proceeds on the
vii. All Events Test – Under the accrual theory that where the amount of money
method of accounting, expenses are which a taxpayer spends during a given
deductible in the taxable year in year exceeds his reported income, and
which: (1) all events have occurred the source of such money is otherwise
which determine the liability; and (2) unexplained, it may be inferred that such
the amount of liability can be expenditures represent unreported
determined with reasonable income.
accuracy.
Percentage Method – This method is a
“All events test” requires: computation whereby determinations
are made by the use of percentages or
(a) Fixing a right to income or liability ratios considered typical of the business
to pay; and under investigation. By reference to
similar business or situations, percentage
(b) The availability of reasonably computations are secured to determine
accurate determination of such sales, gross profit or even net profit.
income or liability.
Unit and Value Method – The
4. Doctrine of Equitable Recoupment determination of gross receipts may be
computed by applying price and profit
A claim for refund barred by prescription figures to the known ascertainable
may be allowed to offset unsettled tax quality of business done by taxpayer.
liabilities. The doctrine finds no
application in this jurisdiction. 7. Jeopardy Assessment

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– A tax assessment made by an by the Bureau from the other party in the
authorized Revenue Officer (RO) without contract or from the other government
the benefit of complete or partial audit, agency involved.
in light of the RO’s belief that the
assessment and collection of the The CIR shall assess the proper tax on the
deficiency tax will be jeopardized by best evidence obtainable when:
delay caused by the taxpayer’s failure
to: i) comply with audit and investigation (a) the taxpayer fails to submit the
requirements to present his books of required returns, statements
accounts and/or pertinent records or ii.) reports and other documents
Substantiate all or any of the deductions,
exemptions or credits claimed in his (b) there is a reason to believe that
return. any such report is false,
incomplete or erroneous
It is usually issued when statutory
prescriptive periods for the assessment or 10. Prima-facie evidence of false or
collection of taxes are about to lapse fraudulent return
due principally to the taxpayer’s fault.
(i) substantial under declaration
8. Taxpayer’s suit of taxable sales, receipts or
income (failure to report sales,
A "taxpayer's suit" refers to a case where receipts or income in an
the act complained of directly involves amount exceeding 30% of
the illegal disbursement of public funds that declared per return); or
derived from taxation. (Kilosbayan v.
Guingona, Jr. (1994)) (ii) substantial overstatement of
deductions (a claim of
Distinguished from citizen’s suit deduction in an amount
exceeding 30% of actual
The plaintiff in a taxpayer's suit is in a deductions)
different category from the plaintiff in a
citizen's suit. In the former, the plaintiff is 11. Deficiency Interest
affected by the expenditure of public
funds, while in the latter, he is but the The interest due on any amount of tax
mere instrument of the public concern. due or installment thereof which is not
[De Castro v. Judicial and Bar Council paid on or before the date prescribed for
(2010)] its payment [Mamalateo, 2008]

9. Best evidence obtainable – 12. Delinquency Interest

Means that the CIR is not just limited on The interest required to be paid in case
the returns filed by the taxpayer because of failure to pay: tax due on any return
when it involves evasion which involves required to be filed, or tax due for which
hiding of information, this may be taken no return is required, or a deficiency tax,
or any surcharge or interest thereon on

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the due date appearing in the notice object of avoiding the tax. [Aznar v. CTA
and demand of the Commissioner, there (1974)]
shall be assessed and collected on the
unpaid amount, interest at the rate 16. Tax refund vis-à-vis tax credit
prescribed until the amount is fully paid,
which interest shall form part of the tax. REFUND takes place when there is actual
reimbursement while TAX CREDIT takes
13. Compromise penalty v. Compromise place upon the issuance of a tax
certificate or tax credit memo, which
Compromise penalty – an amount of can be applied against any sum that
money paid by a taxpayer to may be due and collected from the
compromise a tax violation that he has taxpayer.
committed, which may be the subject of
criminal prosecution. The basis of the 17. Letter of Authority (LOA) versus Letter
amount paid is the gross sales or receipts Notice (LN)
during the year or the tax due.
First, an LOA addressed to a revenue
Compromise – an amount of money officer is specifically required under the
paid by the taxpayer to settle his civil NIRC before an examination of a
liability for tax assessed by the taxpayer may be had while an LN is not
government. The basis of the amount found in the NIRC and is only for the
paid is the basic tax assessed. purpose of notifying the taxpayer that a
[Mamalateo, 2008] discrepancy is found based on the BIR's
RELIEF System.
14. Letter of Authority
Second, an LOA is valid only for 30 days
An official document that empowers a from date of issue while an LN has no
Revenue Officer to examine and such limitation.
scrutinize a taxpayer’s books of accounts
and other accounting records, in order Third, an LOA gives the revenue officer
to determine the taxpayer’s correct only a period of 120 days from receipt of
internal revenue tax liabilities. LOA to conduct his examination of the
taxpayer whereas an LN does not
15. False Return v. Fraudulent Return contain such a limitation.

A false return is due to mistakes, Simply put, LN is entirely different and

carelessness or ignorance and a serves a different purpose than an LOA.
fraudulent return is filed with intent to Due process demands, as recognized
evade taxes. under RMO No. 32- 2005, that after an LN
has serve its purpose, the revenue officer
The fraud contemplated by law is actual should have properly secured an LOA
and not constructive, and must amount before proceeding with the further
to intentional wrongdoing with the sole examination and assessment of the
petitioner. Unfortunately, this was not

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done in this case. (Medicard Philippines, 19. The 120-day waiting period does not
Inc. v. CIR, G.R. No. 222743. April 5, 2017) apply to claims for refund that were
prematurely filed during the period
18. LOA covers one taxable year and it from the issuance of BIR Ruling No.
must specify each taxable year or DA-489-03 on December 10, 2003,
taxable period on separate LOAs. until October 6, 2010, when the Aichi
was promulgated; but before and
It was observed that the Letter of after said period, the observance of
Authority authorized the BIR officers to the 120-day period is mandatory and
examine the books of account of jurisdictional.
Lancaster for the taxable year 1998 only
or, since Lancaster adopted a fiscal year Again, it has already been settled in San
(FY), for the period 1 April 1997 to 31 Roque that BIR Ruling No. DA-489-03 is a
March 1998. However, the deficiency general interpretative rule which all
income tax assessment which the BIR taxpayers may rely upon from the time of
eventually issued against Lancaster was its issuance on December 10, 2003 until its
based on the disallowance of expenses effective reversal by the Court in Aichi.
reported in FY 1999, or for the period 1 While RR 16-2005 may have re-
April 1998 to 31 March 1999. established the necessity of the 120-day
period, taxpayers cannot be faulted for
Even though the date after the words still relying on BIR Ruling DA- 489-03 even
"taxable year 1998 to" is unstated, it is not after the issuance of RR 16-2005 because
at all difficult to discern that the period of the issue on the mandatory compliance
examination is the whole taxable year of the 120- day period was only brought
1998. This means that the examination of before the Court and resolved with
Lancaster must cover the FY period from finality in Aichi. (Sitel Philippines
1 April 1997 to 31 March 1998. It could not Corporation v. CIR, G.R. No. 201326, 8
have contemplated a longer period. The February 2017; Visayas Geothermal
examination for the full taxable year 1998 Company v. CIR, G.R. No. 205279, 26
only is consistent with the guideline in April 2017; CE Luzon Geothermal Power
Revenue Memorandum Order (RMO) Company, Inc. v. CIR, G.R. No. 197526, 26
No. 43-90, dated 20 September 1990, July 2017; Procter & Gamble Asia PTE LTD.
that the LOA shall cover a taxable period v. CIR, G.R. No. 205652, 6 September
not exceeding one taxable year. 2017; Kepco Ilijan Corporation vs.
Commissioner of Internal Revenue, G.R.
Therefore, the revenue examiners had No. 205185, September 26, 2018)
exceeded their authority when they
issued the assessment against Lancaster. 20. The beneficiaries of BIR Ruling No. DA-
Consequently, such assessment is 489-03 include those who did not
without force and effect. (CIR v. specifically invoke it.
Lancaster Philippines, Inc., G.R. No.
183408, July 12, 2017)

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To limit the application of BIR Ruling No. within two years. However, the reckoning
DA-489-03 only to those who invoked it point of counting such two-year period
specifically would unduly strain the varies according to the kind of input tax
pronouncements in San Roque. To subject matter of the claim. (Aichi
provide jurisprudential stability, it is best Forging Asia v. CTA, G.R. No. 193625.
to apply the benefit of BIR Ruling No. DA- August 30, 2017)
489- 03 to all taxpayers who filed their
judicial claims within the window period 22. A final assessment notice which
from 10 December 2003 until 6 October provides, to wit—
2010.
“The complete details covering
The said ruling is an official act the aforementioned
emanating from the BIR. The SC can take discrepancies established
judicial notice of such issuance and its during the investigation of this
consistent application in past rulings of case are shown in the
the Court relating to the timeliness of accompanying Annex 1 of this
judicial claims which makes it even more Notice. The 50% surcharge and
mandatory in taking cognizance of the 20% interest have been imposed
same. (San Roque Power Corporation v. pursuant to Sections 248 and 249
Commissioner of Internal Revenue, G.R.
No. 203249. July 23, 2018) (B) of the [National Internal
Revenue Code], as amended.
21. For the input tax paid on capital Please note, however, that the
goods, the counting of the two-year interest and the total amount due
period starts from the close of the will have to be adjusted if prior or
taxable quarter when the purchase beyond April 15, 2004.”
was made; whereas, for input tax
attributable to zero-rated sale, from is invalid for it does not provide for a
the close of the taxable quarter when definite amount of tax liability for which
such zero- rated sale was made (not the taxpayer is accountable and there
when the purchase was made). are no due dates in the FAN. April 15,
2004 was the reckoning date of accrual
The law contemplates two kinds of of penalties and surcharges and not the
refundable amounts: (1) unutilized input due date for payment of tax liabilities.
tax paid on capital goods purchased, The total amount depended upon when
and (2) unutilized input tax attributable respondent decides to pay. The notice,
to zero-rated sales. The claim for tax therefore, did not contain a definite and
refund or credit is initially led before the actual demand to pay. (CIR v. Fitness by
CIR who is vested with the power and Design, Inc., G.R. No. 215957. November
primary with jurisdiction to decide on 9, 2016)
refunds of taxes, fees or other charges,
and penalties imposed in relation 23. An application for tax abatement is
thereto. In every case, the filing of the deemed approved only upon the
administrative claim should be done

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 issuance of a termination letter by the ineffective to extend the prescriptive
BIR. period to assess taxes. However, due to
peculiar circumstances and as
Asiatrust failed to present a termination exception to the general rule, the
letter from the BIR. Instead, it presented a supposedly invalid waivers may be
Certification issued by the BIR to prove considered valid for the following
that it availed of the Tax Abatement reasons:
Program and paid the basic tax. It also
attached copies of its BIR Tax Payment a. The parties in the case are in pari
Deposit Slips and a letter issued by RDO delicto or “in equal fault”. In pari
Nacar. These documents, however, do delicto connotes that the two
not prove that Asiatrust's application for parties to a controversy are
tax abatement has been approved. If at equally guilty and they shall have
all, these documents only prove no action against each other.
Asiatrust's payment of basic taxes, which
is not a ground to consider its deficiency b. Parties must come to Court with
tax assessment closed and terminated. clean hands. Parties who do not
come to Court with clean hand
Asiatrust's application for tax abatement cannot be allowed to benefit
will be deemed approved only upon the from their own wrongdoing.
issuance of a termination letter, and only Taxpayer should not be allowed
then will the deficiency tax assessment to benefit from the flaws in its own
be considered closed and terminated. waivers and successfully insist on
However, in case Asiatrust's application their invalidity in order to evade its
for tax abatement is denied, any responsibility to pay taxes.
payment made by it would be applied
to its outstanding tax liability. For this c. Taxpayer is estopped
reason, Asiatrust's allegation of double from questioning the validity of its
taxation must also fail. (Asiatrust waivers. While it is true that the
Development Bank, Inc. v. CIR, G.R. No. Court had repeatedly held that
201530. April 19, 2017) the doctrine of estoppel must be
sparingly applied as an exception
24. A waiver of the statute of limitations to the statute of limitations for
that does not comply with the assessment of taxes, the Court
requisites for its validity specified finds that the application of the
under RMO No. 20-90 and RDAO 01- doctrine in this case is justified.
05 is generally invalid, but may still be Verily, the application of estoppel
valid due to peculiar circumstances. in this case would promote the
administration of the law, prevent
The general rule is that a waiver of the injustice and avert the
statute of limitations that does not accomplishment of a wrong. The
comply with the requisites for its validity taxpayer executed 5 waivers and
specified under RMO No. 20-90 and delivered them to the BIR and did
RDAO 01-05 is generally invalid and not raise any objection against

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 their validity until the BIR assessed Revenue Memorandum Order (RMO)
taxes against it. Moreover, the No. 14-2016, Effective April 4, 2016.
application of the estoppel is
necessary to prevent the undue The waiver may be, but not necessarily,
injury that the government would in the form prescribed by RMO No. 20-90
suffer because of the or RDAO No. 05-01. The taxpayer's failure
cancellation of the BIR’s to follow the aforesaid forms does not
assessment of taxpayer’s tax invalidate the executed waiver, for as
liabilities. long as the following are complied with:

d. The Court cannot tolerate a highly a. The Waiver of the Statute of

suspicious situation. In this case, Limitations under Section 222 (b)
after the taxpayer voluntarily and (d) shall be executed before
executing the waivers, insisted on the expiration of the period to
their invalidity by raising the very assess or to collect taxes.
same defects it caused. On the
other hand, the BIR miserably b. The date of execution shall be
failed to exact from the taxpayer specifically indicated in the
compliance with its rules. The BIR’s waiver.
negligence in the compliance of
its duties was so gross such that it c. The waiver shall be signed by the
seemed that it consented to the taxpayer himself or his duly
mistakes in the waivers. Such a authorized representative. ln the
situation is dangerous and open case of a corporation, the waiver
to abuse by unscrupulous must be signed by any of its
taxpayers who intend to escape responsible officials; and
their responsibility to pay taxes by
d. The expiry date of the period
mere expedient of hiding behind
agreed upon to assess/collect the
technicalities.
tax after the regular three- year
period of prescription should be
indicated.
The BIR’s right to assess and collect taxes
should not be jeopardized merely (Note: Section 203 of the NIRC limits the
because of the mistakes and lapses of its CIR's period to assess and collect internal
officers, especially in cases like this where revenue taxes to 3 years counted from
the taxpayer is obviously in bad faith. the last day prescribed by law for the
(CIR vs. Next Mobile, Inc. G.R. No. 212825, filing of the return or from the day the
December 7, 2015; Asian Transmission return was filed, whichever comes later.
Corp. v. Commissioner of Internal Assessments issued after the expiration of
Revenue, G.R. No. 230861, September such period are no longer valid and
19, 2018 effective.)

25. Simplified requisites for valid waiver

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26. Prior to effectivity of RMO 14-2016, days from receipt. Otherwise, the
requirements for proper execution of Commissioner of Internal Revenue will
a valid waiver provided under RMO finalize an assessment and issue a FAN.
20-90 and RDAO 05-01 are The PAN is a part of due process. It gives
mandatory and must strictly be both the taxpayer and the Commissioner
followed. of Internal Revenue the opportunity to
settle the case at the earliest possible
Tested against the requirements of RMO time without the need for the issuance of
20-90 and relevant jurisprudence, CTA a FAN.
found that the waivers suffer from the
following defects: (1) At the time the first On the other hand, a FAN contains not
waiver took effect on June 2, 2006, the only a computation of tax liabilities but
period for CIR to assess for FY 2003 had also a demand for payment within a
already prescribed. The CIR only had prescribed period. (CIR v. Transitions
until April 17, 2006 (for EWT) and May 25, Optical Philippines, Inc., G.R. No. 227544,
2006 (for VAT), to issue the subject November 22, 2017)
assessments; (2) taxpayer's signatory to
the 3 waivers had no notarized written 28. The doctrine of estoppel cannot be
authority from the corporation's board of applied as an exception to the
directors; and (3) the waivers did not statute of limitations on the
specify the kind of tax and the amount of assessment of taxes, considering that
tax due. (CIR v. Systems Technology there is a detailed procedure on the
Institute, Inc., G.R. No. 220835, 26 July execution of waiver, which the BIR
2017) must strictly follow. BIR cannot hide
behind the doctrine of estoppel to
27. The assessment required to be issued cover its failure to comply with RMO
within the 3-year period or extended 20-90 and RDAO 05-01, which the BIR
period in Sections 203 and 222 of the itself issued. (CIR v. Systems
NIRC refers to FAN and not to PAN. Technology Institute, Inc., G.R. No.
220835, 26 July 2017)
Considering the functions and effects of
a PAN vis à vis a FAN, it is clear that the
assessment contemplated in Sections
203 and 222 of the National Internal 29. Estoppel applies against a taxpayer
Revenue Code refers to the service of who did not only raise at the earliest
the FAN upon the taxpayer. A PAN opportunity its representative's lack
merely informs the taxpayer of the initial of authority to execute two (2)
findings of the BIR. It contains the waivers of defense of prescription, but
proposed assessment, and the facts, was also accorded, through these
law, rules, and regulations or waivers, more time to comply with the
jurisprudence on which the proposed audit requirements of the Bureau of
assessment is based. It does not contain Internal Revenue. Nonetheless, a tax
a demand for payment but usually assessment served beyond the
requires the taxpayer to reply within 15 extended period is void. (CIR v.

12
 Transitions Optical Philippines, Inc., machineries and spare parts, has
G.R. No. 227544, 22 November 2017) been sold, traded or transferred to
non- exempt persons.

In the above-cited cases, a FLD/FAN

30. Immediate Issuance of FLD/FAN shall be issued outright.

Exceptions to Prior Notice of the Formal Letter of Demand and Final

Assessment. — Pursuant to Section 228 of Assessment Notice (FLD/FAN). — The
the Tax Code, as amended, a PAN shall FLD/FAN shall be issued by the
not be required in any of the following Commissioner or his duly authorized
cases: representative. The FLD/FAN calling for
payment of the taxpayer's deficiency tax
1) When the finding for any or taxes shall state the facts, the law, rules
deficiency tax is the result of and regulations, or jurisprudence on
mathematical error in the which the assessment is based;
computation of the tax otherwise, the assessment shall be void
appearing on the face of the tax
return filed by the taxpayer; or 31. Remedy of the Taxpayer upon receipt
of FAN
2) When a discrepancy has been
determined between the tax Disputed Assessment. — The taxpayer or
withheld and the amount actually its authorized representative or tax agent
remitted by the withholding may protest administratively against the
agent; or aforesaid FLD/FAN within thirty (30) days
from date of receipt thereof. Otherwise,
3) When a taxpayer who opted to the FLD/FAN becomes final and
claim a refund or tax credit of executory. No request for
excess creditable withholding tax reconsideration or reinvestigation shall
for a taxable period was be granted on tax assessments that have
determined to have carried over already become final, executory and
and automatically applied the demandable.
same amount claimed against
the estimated tax liabilities for the The taxpayer protesting an assessment
taxable quarter or quarters of the may file a written request for
succeeding taxable year; or reconsideration or reinvestigation
defined as follows:
4) When the excise tax due on
excisable articles has not been i. Request for reconsideration—
paid; or refers to a plea of re-
evaluation of an assessment
5) When an article locally purchased on the basis of existing records
or imported by an exempt person, without need of additional
such as, but not limited to, evidence. It may involve both
vehicles, capital equipment,

13
 a question of fact or of law or relevant supporting documents shall not
both. apply to requests for reconsideration.
Furthermore, the term “the assessment
ii. Request for reinvestigation— shall become final” shall mean the
refers to a plea of re- taxpayer is barred from disputing the
evaluation of an assessment correctness of the issued assessment by
on the basis of newly introduction of newly discovered or
discovered or additional additional evidence, and the FDDA shall
evidence that a taxpayer consequently be denied
intends to present in the
reinvestigation. It may also If the protest is denied, in whole or in part,
involve a question of fact or of by the Commissioner’s duly authorized
law or both. representative, the taxpayer may either:

The taxpayer shall state in his protest (i) (i) appeal to the Court of Tax
the nature of protest whether Appeals(CTA) within thirty (30)
reconsideration or reinvestigation, days from date of receipt of
specifying newly discovered or the said decision; or
additional evidence he intends to
present if it is a request for reinvestigation, (ii) elevate his protest through
(ii) date of the assessment notice, and (iii) request for reconsideration to
the applicable law, rules and the Commissioner within thirty
regulations, or jurisprudence on which (30) days from date of receipt
his protest is based, otherwise, his protest of the said decision. No
shall be considered void and without request for reinvestigation shall
force and effect. be allowed in administrative
appeal and only issues raised
Undisputed issue or issues shall become in the decision of the
final, executory and demandable; and Commissioner’s duly
the taxpayer shall be required to pay the authorized representative shall
deficiency tax or taxes attributable be entertained by the
thereto. Commissioner.

For requests for reinvestigation, the If the protest is not acted upon
taxpayer shall submit all relevant by the Commissioner’s duly authorized
supporting documents in support of his representative within one hundred
protest within sixty (60) days from date of eighty (180) days counted from the date
filing of his letter of protest, otherwise, the of filing of the protest in case of a request
assessment shall become final. The term reconsideration; or from date of
“relevant supporting documents” refer submission by the taxpayer of the
to those documents necessary to required documents within sixty (60)
support the legal and factual bases in days from the date of filing of the protest
disputing a tax assessment as in case of a request for reinvestigation,
determined by the taxpayer. The sixty the taxpayer may either:
(60)-day period for the submission of all

14
 (i) appeal to the CTA within thirty i. The notice shall be served
(30) days after the expiration through personal service by
of the one hundred eighty delivering personally a copy
(180)- day period; or thereof to the party at his
registered or known address or
(ii) await the final decision of the wherever he may be found. A
Commissioner’s duly known address shall mean a
authorized representative on place other than the
the disputed assessment. registered address where
business activities of the party
Foregoing remedies are mutually are conducted or his place of
exclusive and the resort to one bars the residence.
application of the other.
In case personal service is not
If the protest or administrative appeal, as practicable, the notice shall
the case may be, is denied, in whole or be served by substituted
in part, by the Commissioner, the service or by mail.
taxpayer may appeal to the CTA within
thirty (30) days from date of receipt of ii. Substituted service can be
the said decision. Otherwise, the resorted to when the party is
assessment shall become final, not present at the registered or
executory and demandable. A motion known address under the
for reconsideration of the following circumstances:
Commissioner’s denial of the protest or
administrative appeal, as the case may The notice may be left at the
be, shall not toll the thirty (30)-day period party’s registered address,
to appeal to the CTA. with his clerk or with a person
having charge thereof.
Final Decision on a Disputed Assessment
(FDDA. — The decision of the If the known address is a place
Commissioner or his duly authorized where business activities of the
representative shall state the facts, the party are conducted, the
applicable law, rules and regulations, or notice may be left with his
jurisprudence on which such decision is clerk or with a person having
based, otherwise, the decision shall be charge thereof.
void and that the same is his final
decision. If the known address is the
place of residence, substituted
Modes of Service. — The notice service can be made by
(PAN/FLD/FAN/FDDA) to the taxpayer leaving the copy with a person
herein required may be served by the of legal age residing therein.
Commissioner or his duly authorized
representative through the following If no person is found in the
modes: party’s registered or known
address, the revenue officers

15
 concerned shall bring a notice may also be sent
barangay official and two (2) through reputable
disinterested witnesses1 to the professional courier service. If
address so that they may no registry or reputable
personally observe and attest professional courier service is
to such absence. The notice available in the locality of the
shall then be given to said addressee, service may be
barangay official. Such facts done by ordinary mail.
shall be contained in the
bottom portion of the notice, Note: Service to the tax
as well as the names, official agent/practitioner, who is appointed by
position and signatures of the the taxpayer under circumstances
witnesses. prescribed in the pertinent regulations on
accreditation of tax agents, shall be
Should the party be found at deemed service to the taxpayer.
his registered or known
address or any other place but 32. The term relevant supporting
refuse to receive the notice, documents refers to the documents
the revenue officers necessary to support the legal basis
concerned shall bring a in disputing a tax assessment as
barangay official and two (2) determined by the taxpayer.
disinterested witnesses in the
presence of the party so that PAN was issued against taxpayer for
they may personally observe deficiency income tax and value-added
and attest to such act of tax. Taxpayer filed a protest against the
refusal. The notice shall then PAN and attached supporting
be given to said barangay documents. FAN was issued. Taxpayer
official. Such facts shall be likewise filed a protest against the FAN
contained in the bottom and did not anymore attach supporting
portion of the notice, as well as documents, considering that such
the names, official position documents had earlier been submitted.
and signatures of the Subsequently, taxpayer filed a petition
witnesses. for review in the CTA praying for the
cancellation of the assessments. The CIR
iii. Service by mail is done by questioned the jurisdiction of the CTA,
sending a copy of the notice arguing that the assessments against
by registered mail to the taxpayer had become final, executory
registered or known address of and demandable because of the failure
the party with instruction to the of the taxpayer to submit the required
Postmaster to return the mail to returns, statements, reports and other
the sender after ten (10) days, documents.
if undelivered. A copy of the

1“Disinterested witnesses” refers to persons of legal age

other than employees of the Bureau of Internal Revenue.

16
The Supreme Court ruled that taxpayer While the rule is that a taxpayer has 30
had timely submitted the relevant days to appeal to the CTA from the final
supporting documents substantiating its decision of the CIR, the said rule could
protest against the assessments. not be applied if the [Amended]
Although the taxpayer did not anymore Assessment Notice itself clearly states
attach to its protest against the FAN the that the taxpayer must file a protest with
relevant supporting documents earlier the CIR or the Regional Director within 30
submitted to support its protest against days from receipt of the Assessment
the PAN, such submission of the Notice.
documents constituted a sufficient
compliance with Section 228 of the When petitioner sent a letter-reply dated
National Internal Revenue Code. After April 8, 2011 to the Regional Director, it
all, the submitted documents still formed was actually protesting both the
part of the records of the taxpayer’s Amended Assessment Notice and the
administrative protest and were thus FDDA. The Amended Assessment Notice
readily accessible to the CIR. (CIR v. reflects the amended deficiency EWT of
Oakwood Overseas Limited, G.R. No. petitioner after reinvestigation while the
227083, 5 April 2017) FDDA reflects the Final Decision on: (a)
petitioner's deficiency EWT; (b) Final
33. It is incumbent upon the taxpayer to Withholding of VAT; and (c) Compromise
prove before the CTA that the Penalty. Since the deficiency EWT is a
deficiency tax assessment issued by mere component of the aggregate tax
the CIR had no legal or factual basis due as reflected in the FDDA, then the
or that it had already paid or remitted FDDA cannot be considered as the final
the deficiency tax assessment. decision of the CIR as one of its
(Edison (Bataan) Cogeneration components — the amended
Corporation v. CIR, G.R. No. 210665, deficiency EWT — is still under protest.
30 August 2017)
Hence, petitioner was correct when it
protested with the Regional Director the
deficiency EWT as per the Amended
34. The receipt of both an FDDA and an Assessment Notice sent by the BIR and
Amended Assessment Notice on the petitioner's belated filing of an appeal
same date coupled with reliance in with the CTA is not without strong,
good faith in the statement contained compelling reason. We could say that
in the Amended Assessment Notice petitioner was merely exhausting all
that it has 30 days within which to file administrative remedies available
a protest is a strong compelling before seeking recourse to the judicial
reason to allow a relaxation of the courts. (Misnet, Inc. vs. Commissioner of
statutory period of appeal of an Internal Revenue, G.R. No. 210604, June
adverse decision on a protest in the 3, 2019)
CIR.

17
35. A petition for review to the CTA Withholding tax is a method of collecting
grounded solely on the receipt of a tax in advance and that a withholding
Preliminary Collection Notice (PCL) is tax on income necessarily implies that
a violation of the doctrine of the amount of tax withheld comes from
exhaustion of administrative the income earned by the
remedies because what are taxpayer/payee. "Penalties" are
appealable to the CTA are decisions amounts collected on top of the
of the CIR on the protest of the deficiency tax assessments including
taxpayer against assessments and a deficiency withholding tax assessments.
PCL is not within the contemplation of
a ‘decision’. Withholding tax assessments such as EWT
and WTC clearly contemplate
The word "decisions" in the deficiency internal revenue taxes. Their
aforementioned provision of R.A. No. aim is to collect unpaid income taxes
9282 has been interpreted to mean the and not merely to impose a penalty on
decisions of the CIR on the protest of the the withholding agent for its failure to
taxpayer against the assessments. comply with its statutory duty.
Definitely, said word does not signify the (Commissioner of Internal Revenue vs. La
assessment itself. Flor De La Isabela, Inc., G.R. No. 211289,
January 14, 2019)
What is appealable to the CTA are
decisions of the CIR on the protest of the 37. A civil action filed to question a Final
taxpayer against the assessments. There Decision on Disputed Assessment
being no protest ruling by the CIR when (FDDA) is not within the meaning of a
V.Y. Domingo's petition for review was ‘civil case’ which is impliedly
filed, the dismissal of the same by the instituted in a criminal case for tax
CTA First Division was proper. evasion.
(Commissioner of Internal Revenue vs.
V.Y. Domingo Jewellers, Inc., G.R. No. It is well-settled that the taxpayer's
221780, March 25, 2019) obligation to pay the tax is an obligation
that is created by law and does not arise
36. Withholding taxes are ‘internal from the offense of tax evasion, as such,
revenue’ taxes covered by Section the same is not deemed instituted in the
203 of the NIRC on prescription in criminal case. Civil liability to pay taxes
relation to whether or not an arises from the fact, for instance, that
assessment is made within the 3-year one has engaged himself in business,
prescriptive period. and not because of any criminal act
committed by him.
Petitioner argued that the EWT and WTC
deficiencies are mere penalties imposed While the tax evasion case is pending,
on the withholding agents and are thus, the BIR is not precluded from issuing a
not within the contemplation of internal final decision on a disputed assessment,
revenue taxes for purposes of such as what happened in this case. The
prescription of assessment. tax evasion case filed by the

18
government against the erring taxpayer If the taxpayer denies having received
has, for its purpose, the imposition of an assessment from the BIR, it then
criminal liability on the latter. While the becomes incumbent upon the latter to
Petition for Review filed by the petitioner prove by competent evidence that such
was aimed to question the FDDA and to notice was indeed received by the
prevent it from becoming final. The stark addressee. Here, the onus probandi has
difference between them is glaringly shifted to the BIR to show by contrary
apparent. As such, the Petition for evidence that GJM indeed received the
Review Ad Cautelam is not deemed assessment in the clue course of mail. It
instituted with the criminal case for tax has been settled that while a mailed
evasion. (Macario Lim Gaw vs. letter is deemed received by the
Commissioner of Internal Revenue, G.R. addressee in the course of mail, this is
No. 222837, July 23, 2018) merely a disputable presumption subject
to controversion, the direct denial of
38. While it is true that an assessment is which shifts the burden to the sender to
made when the notice is sent within prove that the mailed letter was, in fact,
the prescribed period, the release, received by the addressee.
mailing, or sending of the same must
still be clearly and satisfactorily To prove the fact of mailing, it is essential
proved. to present the registry receipt issued by
the Bureau of Posts or the Registry return
The CIR has three (3) years from the date card which would have been signed by
of the actual filing of the return or from the taxpayer or its authorized
the last day prescribed by law for the representative. *** While it is true that an
filing of the return, whichever is later, to assessment is made when the notice is
assess internal revenue taxes. Here, GJM sent within the prescribed period, the
filed its Annual Income Tax Return for the release, mailing, or sending of the same
taxable year 1999 on April 12, 2000. The must still be clearly and satisfactorily
three (3)- year prescriptive period, proved. Mere notations made without
therefore, was only until April 15, 2003. the taxpayer's intervention, notice or
The records reveal that the BIR sent the control, and without adequate
FAN through registered mail on April 14, supporting evidence cannot suffice.
2003, well-within the required period. The Otherwise, the defenseless taxpayer
Court has held that when an assessment would be unreasonably placed at the
is made within the prescriptive period, as mercy of the revenue offices.
in the case at bar, receipt by the
taxpayer may or may not be within said The BIR's failure to prove GJM's receipt of
period. But it must be clarified that the the assessment leads to no other
rule does not dispense with the conclusion but that no assessment was
requirement that the taxpayer should issued. (CIR v. GJM Philippines
actually receive the assessment notice, Manufacturing, Inc., G.R. No. 202695,
even beyond the prescriptive period. February 29, 2016; CIR vs. BPI, G.R. No.
GJM, however, denies ever having 224327. June 11, 2018).
received any FAN.

19
39. The running of the statute of limitations 41. Exceptions to the rule on exhaustion
is not suspended by a mere request of administrative remedies prior to
for reinvestigation. judicial recourse

The provision is clear. A request for The doctrine of exhaustion of

reinvestigation alone will not suspend the administrative remedies is a relative one
statute of limitations. Two things must and its flexibility is called upon by the
concur: there must be a request for peculiarity and uniqueness of the factual
reinvestigation and the CIR must have and circumstantial settings of a case.
granted it. The Court went on to declare Hence, it is disregarded (1) when there is
that the burden of proof that the request a violation of due process, (2) when the
for reinvestigation had been actually issue involved is purely a legal question,
granted shall be on the CIR. Such grant (3) when the administrative action is
may be expressed in its communications patently illegal amounting to lack or
with the taxpayer or implied from the excess of jurisdiction,(4) when there is
action of the CIR or his authorized estoppel on the part of the
representative in response to the request administrative agency concerned,(5)
for reinvestigation. More importantly, the when there is irreparable injury, (6) when
defense of prescription at any stage of the respondent is a department
the proceedings. (China Banking secretary whose acts as an alter ego of
Corporation v. CIR, G.R. No. 172509, the President bears the implied and
February 4, 2015) assumed approval of the latter, (7) when
to require exhaustion of administrative
40. The no-estoppel rule is not absolute remedies would be unreasonable, (8)
when it would amount to a nullification
Failure on the part of the government to of a claim, (9) when the subject matter is
timely object on defenses of prescription a private land in land case proceedings,
when raised coupled with delay in the (10) when the rule does not provide a
assessment and collection causing plain, speedy and adequate remedy,
injustice to the taxpayer is an exception. (11) when there are circumstances
The procedural matter consists in the indicating the urgency of judicial
failure to raise the issue of prescription at intervention. (Banco De Oro et. al. v. CIR,
the trial court/administrative level, and G.R. No. 198756, January 13, 2015)
injustice in the fact that the BIR has
unduly delayed the assessment and 42. Proving that no carry-over has been
collection of the DST in this case. The fact made does not absolutely require the
is that it took more than 12 years for it to presentation of the quarterly ITRs.
take steps to collect the assessed tax.
The BIR definitely caused untold The logic in not requiring quarterly ITRs of
prejudice to petitioner, keeping the the succeeding taxable years to be
latter in the dark for so long, as to presented remains true to this day. What
whether it is liable for DST and, if so, for Section 76 requires, just like in all civil
how much. (China Banking Corporation cases, is to prove the prima facie
v. CIR, G.R. No. 172509, February 4, 2015) entitlement to a claim, including the fact

20
of not having carried over the excess option shall be considered
credits to the subsequent quarters or irrevocable for that taxable period
taxable year. It does not say that to and no application for cash refund or
prove such a fact, succeeding quarterly issuance of a tax credit certificate
ITRs are absolutely needed. shall be allowed therefor.

This simply underscores the rule that any These two options under Section 76 are
document, other than quarterly ITRs may alternative in nature. The choice of one
be used to establish that indeed the non- precludes the other. The requirements for
carry over clause has been complied entitlement of a corporate taxpayer for
with, provided that such is competent, a refund or the issuance of tax credit
relevant and part of the records. certificate involving excess withholding
taxes are as follows:
It goes without saying that the annual ITR
(including any other proof that may be 1) That the claim for refund was filed
sufficient to the Court) can sufficiently within the two-year reglementary
reveal whether carry over has been period pursuant to Section 229 of
made in subsequent quarters even if the the NIRC;
petitioner has chosen the option of tax
credit or refund in the immediately 2003 2) When it is shown on the ITR that
annual ITR. the income payment received is
being declared part of the
It must be emphasized that once the taxpayer’s gross income; and
requirements laid down by the NIRC
have been met, a claimant should be 3) When the fact of withholding is
considered successful in discharging its established by a copy of the
burden of proving its right to refund. withholding tax statement, duly
Thereafter, the burden of going forward issued by the payor to the payee,
with the evidence, as distinct from the showing the amount paid and
general burden of proof, shifts to the income tax withheld from that
opposing party that is, the CIR. It is then amount. (CIR v. Team (Phils.)
the turn of the CIR to disprove the claim Energy Corporation, G.R. No.
by presenting contrary evidence which 188016, January 14, 2015;
could include the pertinent ITRs easily Rhombus Energy, Inc. v.
obtainable from its own files. Commissioner of Internal
(Winebrenner & Iñigo Insurance Brokers, Revenue, G.R. No. 206362, August
Inc. v. CIR (G.R. No. 206526, January 28, 1, 2018)
2015)
44. The irrevocability rule applies
43. Once the option to carry over and exclusively to the carry-over option,
apply the excess quarterly income hence does not apply to the cash
tax against income tax due for the refund or tax credit certificate
taxable years of the succeeding remedies.
taxable years has been made, such

21
 SECTION 76. Final Adjustment creditable taxes to the taxable quarters
Return. — xxx of the succeeding taxable years.
However, in case the taxpayer decides
In case the corporation is entitled to shift its option to carry-over, it may no
to a tax credit or refund of the longer revert to its original choice due to
excess estimated quarterly the irrevocability rule. As Section 76
income taxes paid, the excess unequivocally provides, once the option
amount shown on its final to carry over has been made, it shall be
adjustment return may be carried irrevocable. Furthermore, the provision
over and credited against the seems to suggest that there are no
estimated quarterly income tax qualifications or conditions attached to
liabilities for the taxable quarters the rule on irrevocability. (University
of the succeeding taxable years. Physicians Services, Inc. v. Commissioner
Once the option to carry-over of Internal Revenue, G.R. No. 205955,
and apply the excess quarterly March 7, 2018)
income tax against income tax
due for the taxable quarters of the 45. In claims for refund of erroneously or
succeeding taxable years has illegally collected taxes under
been made, such option shall be Section 229, NIRC, the two (2) year
considered irrevocable for that period covers both the administrative
taxable period and no and judicial claim. Pending
application for cash refund or consideration by the CIR, the 2- year
issuance of a tax credit certificate prescriptive period continues to run.
shall be allowed therefor.
(emphasis supplied) To this end, and bearing in mind that the
Legislature is presumed to have
The irrevocability rule is provided in the understood the language it used and to
last sentence of Section 76. A have acted with full idea of what it
perfunctory reading of the law wanted to accomplish, it is fair and
unmistakably discloses that the reasonable to say without doing
irrevocable option referred to is the violence to the context or either of the
carry-over option only. There appears two provisions, that by the first is meant
nothing therein from which to infer that simply that the Collector of Internal
the other choice, i.e., cash refund or tax Revenue shall be given an opportunity to
credit certificate, is also irrevocable. If consider his mistake, if mistake has been
the intention of the lawmakers was to committed, before he is sued, but not, as
make such option of cash refund or tax the appellant contends that pending
credit certificate also irrevocable, then consideration of the claim, the period of
they would have clearly provided so. two years provided in the last clause
shall be deemed interrupted. Nowhere
In other words, the law does not prevent and in no wise does the law imply that
a taxpayer who originally opted for a the Collector of Internal Revenue must
refund or tax credit certificate from act upon the claim, or that the taxpayer
shifting to the carry-over of the excess shall not go to court before he is notified

22
of the Collector’s action. We understand paid taxes. (Alcantara v. Republic of
the filing of the claim with the Collector the Philippines, G.R. No. 192536.
of Internal Revenue to be intended March 15, 2017)
primarily as a notice of warning that
unless the tax or penalty alleged to have
been collected erroneously or illegally is
refunded, court action will follow. (CIR v. 48. Input VAT is not "excessively"
CBK Power Company Limited, G.R. Nos. collected as understood under
193383-84, January 14, 2015) Section 229 because at the time the
input VAT is collected, the amount
46. As a rule, a claimant for refund of paid is correct and proper. If said
erroneously or illegally collected input VAT is in fact "excessively"
taxes under Section 229, NIRC, must collected as understood under
first file an administrative claim for Section 229, then it is the person
refund before the CIR, prior to filing a legally liable to pay the input VAT,
judicial claim before the CTA. Both and not the person to whom the tax is
the administrative and judicial claims passed on and who is applying the
for refund should be filed within the 2- input VAT as credit for his own output
year prescriptive period. Further, the VAT, who can file the judicial claim for
claimant is allowed to file the judicial refund or credit outside the VAT
claim even without waiting for the system.
resolution of the administrative claim
in order to prevent the forfeiture of its Taxpayer filed a claim for refund or tax
claim through prescription. credit under Section 229 of the NIRC of its
alleged over/erroneous payment of VAT,
Since taxpayer’s final withholding taxes asserting that due to its employee’s
are considered as full and final payment inadvertence, the input tax was not
of the income tax due, the 2-year credited against the corresponding
prescriptive period commenced to run output tax.
from the time the refund was
ascertained – that is, the date such tax The Supreme Court had consistently
was paid, and not upon taxpayer’s ruled on the inapplicability of Section 229
discovery of the erroneous or excessive to claims for the recovery of unutilized
payment of taxes. (Metrobank v. CIR, input VAT. From the plain text of Section
G.R. No. 182582. April 17, 2017) 229, it is clear that what can be refunded
or credited is a tax that is "erroneously,
47. Under Section 229 of P.D. No. 1158, illegally, excessively or in any manner
the taxpayer has the right to wrongfully collected." In short, there must
administratively protest the be a wrongful payment because what is
assessment and collection of taxes paid, or part of it, is not legally due.
before the Commissioner. Such
remedy is a prerequisite before any Neither can taxpayer advance its claim
resort to the courts could be made to for refund or tax credit under Sections
recover the erroneously or illegally 110 (B) and 112 (A) of the 1997 NIRC. A

23
plain and simple reading of the afore- responsibility of the withholding agent
quoted provisions reveals that if and and not of the taxpayer-refund claimant.
when the input tax exceeds the output Also, the BIR is in no position to assail the
tax, the excess shall be carried over to authenticity of the CWT due to the
the succeeding quarter or quarters. It is taxpayer’s alleged failure to submit the
only when the sales of a VAT-registered same before the administrative level
person are zero-rated or effectively zero- since he could have easily directed the
rated that he may have the option of claimant to furnish copies of these
applying for the issuance of a tax credit documents, if the refund applied for
certificate or refund of creditable input casts him any doubt. The CTA is not
tax due or paid attributable to such precluded from accepting the evidence
sales. (Coca-cola Bottlers Philippines, Inc. assuming these were not presented at
v. CIR, G.R. No. 222428, 19 February 2018) the administrative level. Cases filed in the
CTA are litigated de novo. (CIR vs. PNB,
49. Presentation of withholding tax G.R. No. 180920, September 29, 2014, as
certificates at the administrative level reiterated in PAL v. CIR, G.R. Nos. 206079-
is not required in a claim for refund. 80, 17 January 2018)

Taxpayer earned income subjected to 50. To be entitled to refund of final

withholding taxes for the year 2000. In withholding tax, remittance need not
April 18, 2001, it filed tentative income tax be proven. The taxpayer needs only
return which it subsequently amended to prove that taxes were withheld.
on July 25, 2001. A second amendment
was filed on June 20, 2002, declaring that Taxpayer filed a claim for refund with the
it has no income tax liability as it incurred BIR for final taxes withheld on its interest
loss. The second amended return income from its peso and dollar deposits.
showed an income tax overpayment. The CTA denied the claim on the ground
On November 11, 2002, it filed an that taxpayer failed to substantiate its
administrative claim for the refund with claim because it did not prove that the
the BIR for the excess amount. On April Agent Banks remitted the withheld taxes
11, 2003, it filed a petition for review with to the BIR.
the CTA due to inaction of the BIR. The
CTA granted the petition. The BIR alleged The Supreme Court held that remittance
that the taxpayer presented the need not be proven. Taxpayer is not
withholding tax certificates only before responsible for the remittance of tax to
the CTA and not at the first instance the BIR. The taxes on interest income from
when it filed for claim for refund bank deposits are in the nature of a
administratively with the BIR. The withholding tax. Thus, the party liable for
Supreme Court held that proof of actual remitting the amounts withheld is the
remittance by the respondent is not withholding agent of the BIR. To claim a
needed in order to prove the withholding refund, the taxpayer needs only to prove
and remittance to the BIR. Section that taxes were withheld. Taxes withheld
2.58.3(B) of RR No. 2-98 clearly provides by the withholding agent are deemed to
that proof of remittance is the be the full and final payment of the

24
income tax due from the income earner among others, deficiency withholding
or payee. Thus, the Certificates of Final tax on compensation. Taxpayer
Tax Withheld at Source from the Agent contends that the subject 1997 and 1998
Banks are sufficient evidence to establish withholding tax assessments on
the withholding of the taxes. (PAL v. CIR, compensation were issued beyond the
G.R. Nos. 206079-80, January 17, 2018) prescriptive period of three years under
Section 203 of the NIRC of 1997.
51. Considering that the obligation of the
payor to deduct and withhold tax on The Supreme Court ruled that there are
interest payments on loan exceptions to the 3-year prescriptive
agreements only accrues when the period, such as, but not limited to a case
loan is paid or becomes payable or of a false or fraudulent return with intent
when it becomes due, demandable to evade tax or of failure to file a return,
or legally enforceable, whichever in which the tax may be assessed, or a
comes first, assessments for proceeding in court for the collection of
deficiency FWT on interest payments such tax may be filed without
on loan agreements should accrue assessment, at any time within ten (10)
from the date the obligation years after the discovery of the falsity,
becomes due, demandable or fraud or omission. In this case, the
legally enforceable. (Edison (Bataan) taxpayer’s substantial under-
Cogeneration Corporation v. declaration of withholding taxes which
Commission of Internal Revenue, G.R. constituted the “falsity” in the subject
No. 201665 & 201668, 30 August 2017) returns – giving the BIR the benefit of the
period under Section 222 of the NIRC of
1997 to assess the correct amount of tax
“at any time within ten (10) years after
the discovery of the falsity, fraud or
52. Substantial under-declaration omission.”
of withholding taxes renders the tax
return false, resulting in the In the three different cases of (1) false
application of the 10- year return, (2) fraudulent return with intent to
prescriptive period. evade tax, (3) failure to file a return, the
tax may be assessed, or a proceeding in
Taxpayer was issued a letter or authority court for the collection of such tax may
by the BIR for the examination of its books be begun without assessment, at any
of account and other accounting time within ten years after the discovery
records for income and withholding of the (1) falsity, (2) fraud, (3) omission.
taxes for the period of 1997 to 1999. On That there is a difference between "false
December 13, 2001, taxpayer executed return" and "fraudulent return" cannot be
a Waiver of the Defense of Prescription. denied. While the first implies deviation
Under the Statutes of Limitation, good from the truth, whether intentional or not,
until March 29, 2002. On September 15, the second implies intentional or
2002, a FAN was received by taxpayer deceitful entry with intent to evade the
for the 1997, 1998 and 1999, alleging, taxes due. (Samar-I Electric Cooperative

25
vs. Commissioner of Internal Revenue, The prima facie correctness of a tax
G.R. No. 193100. December 10, 2014) assessment does not apply upon proof
that an assessment is utterly without
53. There is a prima facie evidence of a foundation; i.e., it is arbitrary and
false return if there is a substantial capricious. Where the BIR has come out
under- declaration of sales, receipts with a “naked assessment,” the
or income in an amount exceeding determination of the tax is without
30% of what is declared in the returns. rational basis; hence, the determination
by this Court must rest on all the
Generally, internal revenue taxes shall be evidence introduced and its ultimate
assessed within three (3) years after the determination must find support in
last day prescribed by law for the filing of credible evidence.
the return, or where the return is filed
beyond the period, from the day the In the imposition of income tax, it must be
return was actually filed. However, in the clear that there was an income, and
case of a false or fraudulent return with such income was received by the
intent to evade tax or of failure to file a taxpayer, not when there is an under‐
return, the assessment may be made declaration of purchases. Here, the BIR
within ten (10) years from the discovery presumed that the alleged undeclared
of the falsity, fraud or omission. (CIR v. purchase is an unaccounted expense,
Asalus Corporation, G.R. No. 221590. which supposed translated into income.
February 22, 2017) A taxpayer is free to deduct from its gross
income a lesser amount, or not to claim
54. While the filing of a fraudulent return any deduction at all. What is prohibited
necessarily implies that the act of the by the income tax law is to claim a
taxpayer was intentional and done deduction beyond the amount
with intent to evade the taxes due, authorized therein.
the filing of a false return can be
intentional or due to honest mistake. With respect to VAT, VAT can be
imposed only when it is shown that the
The entry of wrong information due to taxpayer received an amount of money
mistake, carelessness, or ignorance, or its equivalent from a taxable sale of
without intent to evade tax, does not goods or services, and not when there
constitute a false return. (CIR v. Philippine are under- declared purchases.
Daily Inquirer, Inc., G.R. No. 213943.
March 22, 2017.) An assessment must be based on actual
fact. The presumption of correctness of
55. Deficiency assessment based on assessment, being a mere presumption,
under- declaration of purchases cannot be made to rest on another
amounts to a presumptuous “naked” presumption (i.e., the under‐declared
assessment. purchases would automatically result in
undeclared income or additional
taxable sales, which would in turn
increase petitioner’s income tax and VAT

26
liabilities. (Agrinurture, Inc. v. CIR, CTA exercise of their quasi- legislative or rule-
Case 8345, May 29, 2013) making powers, and not judicial or quasi-
judicial functions. Respondents did not
56. Whenever it is determined by the adjudicate the rights of the parties. RR 2-
courts that the method employed by 2012 was issued by the Secretary of
the CIR in the collection of tax is not Finance based on Section 244 of the
sanctioned by law, the bond NIRC. The application of Section 244 of
requirement under Section 11 of R.A. the NIRC is an exercise of quasi-
No. 1125 should be dispensed with. legislative or rule- making powers of the
Secretary of Finance. And since RR 2-
The purpose of the rule is not only to 2012 was issued by the Secretary of
prevent jeopardizing the interest of the Finance based on Section 244 of the
taxpayer, but more importantly, to NIRC, such administrative issuance is
prevent the absurd situation wherein the therefore quasi- legislative in nature
court would declare “that the collection which is outside the scope of petition for
by the summary methods of distraint and certiorari. (Clark Investors and Locators
levy was violative of law, and then, in the Association, Inc. vs. Secretary of Finance
same breath require the petitioner to and Commissioner of Internal Revenue,
deposit or file a bond as a prerequisite for G.R. No. 200670, July 6, 2015)
the issuance of a writ of injunction.”
(Spouses Pacquiao v. CTA, G.R. No. 58. Injunctive relief before the RTC is not
213394, [April 6, 2016]) available as a remedy to assail the
collection of a tax.
57. A petition for certiorari under Rule 65
of the 1997 Rules of Civil Procedure Taxes, being the lifeblood of the
may be invoked only against a Government, should be collected
tribunal, board of officer exercising promptly and without hindrance or
judicial of quasi-judicial functions. delay. Indeed, Section 218 of the NIRC
expressly provides that "no court shall
A petition for certiorari under Rule 65 of have the authority to grant an injunction
the 1997 Rules of Civil Procedure is a to restrain the collection of any national
special civil action that may be invoked internal revenue tax, fee or charge
only against a tribunal, board or officer imposed by the NIRC." Also, pursuant to
exercising judicial or quasi-judicial Section 11 of RA 1125, as amended, the
functions. decisions or rulings of the CIR among
others, assessing any tax, or levying, or
Respondents (Secretary of Finance) do distraining, or selling any property of
not fall within the ambit of a tribunal, taxpayers for the satisfaction of their tax
board, or officer exercising judicial or liabilities are immediately executory, and
quasi-judicial functions. They issued RR 2- their enforcement is not to be suspended
2012 (imposing VAT and excise tax on the by any appeals thereof to the CTA unless
importation of petroleum and petroleum "in the opinion of the CTA the collection
products from abroad and into the by the BIR or the Commissioner of
Freeport and Economic Zones) in the Customs may jeopardize the interest of

27
the Government and/or the taxpayer," in position, the value of that privilege need
which case the CTA "at any stage of the not be included as compensation
proceeding may suspend the said (Henderson v. Collector (1961)).
collection and require the taxpayer
either to deposit the amount claimed or 62. Tax Benefit Rule
to file a surety bond for not more than
double the amount." – This is a general principle in taxation
which states that if a taxpayer deducted
In view of the foregoing, the RTC not only an item on his income tax return and
grossly erred in giving due course to the enjoyed a tax benefit (reduced his
petition for declaratory relief, but even income tax) thereby, and in a
worse acted without jurisdiction. (CIR v. subsequent year recovers all or part of
Standard Insurance Co., Inc., G.R. No. that item, he will recognize gross income
219340. November 7, 2018) in the year the deducted item is
recovered. The rule has both an
III. INCOME TAXATION inclusionary and an exclusionary
component, i.e., the recovery is included
in the taxpayer’s gross income to the
59. Residence Principle
extent that the taxpayer obtained a tax
benefit from the prior year’s deduction,
– A resident alien is liable to pay
and the recovery is excluded to the
Philippine income tax on his income from
extent that the prior year’s deduction did
sources within the Philippines but is
not provide a tax benefit.
exempt from tax on his income from
sources outside the Philippines.
63. COHAN Rule
60. Source of Income Principle
– This relief will apply if the taxpayer has
shown that it is usual and necessary in the
– An alien is subject to Philippine income
trade to entertain and to incur similar
tax because he derives income from
kinds of expenditures, there being
sources within the Philippines. Thus, a
evidence to show the amounts spent
non-resident alien or non-resident foreign
and the persons entertained, though not
corporation is liable to pay Philippine
itemized. In such a situation, deduction
income tax on income from sources
of a portion of the expenses incurred
within the Philippines, such as dividend
might be allowed even if there are no
interest, rent, or royalty, despite the fact
receipts or vouchers. Absence of
that he has not set foot in the Philippines.
invoices, receipts or vouchers,
particularly lack of proof of the items
61. Convenience of the Employer Rule
constituting the expense is fatal to the
allowance of the deduction (Gancayco
– If meals, living quarters, and other
v. Collector, G.R. No. L-13325, April 20,
facilities and privileges are furnished to
1961).
an employee for the convenience of the
employer, and incidental to the
requirement of the employee’s work or

28
64. Arbitrage Rule – This may be formed by corporations
with separate personalities. If they form
The taxpayer’s allowable deduction for that emergency operation (it is really a
interest expense shall be reduced by an special activity) to engage in joint
amount equal to 33% of the interest venture, corporation 1 may be taxed
income earned by him which has been only from the income derived from such
subjected to final tax. (Effective January business. The income derived from such
1, 2009) special activity should also be included
in the income of that corporation 2,
CORPORATE INCOME TAXATION subject to corporate income tax, even if
it is not registered with the SEC.
65. Joint Venture
69. Tax Sparing Rule
– created when 2 corporations while
registered and operating separately are Under the tax sparing rule, non-resident
placed under one sole management foreign corporations are subject only to
which operated the business affairs of a tax rate of 15% instead of the usual
said companies as though they 30%, subject to the rule on reciprocity.
constituted a single thereby obtaining
substantial economy and profits in the Reason: To encourage foreign investors
operation. and to make it equal with the branch
profit remittance tax of 15%, otherwise,
66. Joint Account the foreign corporations will only create
branches, not subsidiaries, in the country.
Created when 2 persons form or create
a common fund and such persons 70. Government to Government
engages in a business for profit. This may Exchange of Note is an executive
result in a taxable unregistered agreement, which is binding even
association or partnership. without Senate concurrence.

67. Joint Stock Companies The Exchange of Notes is considered an

executive agreement, which is binding
– the midway between a corporation on the state even without Senate
and a partnership, a “hybrid personality”, concurrence. The assumption provision
somewhat a corporation because this is in the Exchange of Notes is a clear
managed by a Board of Directors and concession to the Japanese contractors
such persons may transfer their share/s working on the Project.
without the consent of others, and
somewhat a partnership because is an The tax assumption provision differs from
association and persons or members of a tax exemption provision in that, in the
the same contribute fund, money to a former, there is still a tax liability but it is
common fund. merely assumed by another entity, in this
case, the Philippine government. Thus,
68. Emergency Operation the constitutional requirement on tax

29
exemption would not apply. Because The last paragraph of Section 30 of the
the Japanese contractor paid the Tax Code is without force and effect for
income taxes not required, this is a case being contrary to the Constitution insofar
of an erroneous tax payment which is as it subjects to tax the income and
refundable. (Mitsubishi Corporation- revenues of non-stock, non-profit
Manila Branch vs CIR GR 175772 dated 5 educational institutions used actually,
June 2017) directly and exclusively for educational
purpose. (CIR v. De La Salle University,
71. The last paragraph of Section 30 of G.R. Nos. 196596, 198841, 198941,
the Tax Code is: (1) without force and November 9, 2016)
effect with respect to nonstock, non-
profit educational institutions, 72. Non-stock, Non-profit Educational
provided, that the non-stock, non- Institutions are excluded from RMO
profit educational institutions prove No. 20- 2013.
that its assets and revenues are used
actually, directly and exclusively for RMO No. 20-2013 was issued by the CIR,
educational purposes and (2) the making the failure to file an annual
tax- exemption constitutionally- information return a ground for a non-
granted to non-stock , non-profit stock, non-profit educational institution
educational institutions, is not subject to automatically lose its income tax-
to limitations imposed by law. exempt status.

The tax exemption granted by the

Constitution to non-stock, non-profit
educational institutions, unlike the The SC held that non-stock, non-profit
exemption that may be availed of by educational institutions are
proprietary educational institutions, is not constitutionally exempt from tax on all
subject to limitations imposed by law. revenues derived in pursuance of its
purpose as an educational institution
By the Tax Code's clear terms, a and used actually, directly and
proprietary educational institution is exclusively for educational purposes. This
entitled only to the reduced rate of 10% constitutional exemption gives the non-
corporate income tax. The reduced rate stock, non- profit educational institutions
is applicable only if: (1) the proprietary a distinct character. And for the
educational institution is non-profit and constitutional exemption to be enjoyed,
(2) its gross income from unrelated trade, jurisprudence and tax rulings affirm the
business or activity does not exceed 50% doctrinal rule that there are only two
of its total gross income. requisites: (1) The school must be non-
stock and non-profit; and (2) The income
Consistent with Article XIV, Section 4 (3) is actually, directly and exclusively used
of the Constitution, these limitations do for educational purposes. There are no
not apply to non- stock, non-profit other conditions and limitations.
educational institutions.

30
However, the SC also took judicial notice The proper interpretation of R.A. 9504
that on July 25, 2016, CIR Caesar R. Dulay (being a social legislation) is that it
issued RMO No. 44-2016 which imposes taxes only on the taxable
amended RMO No. 20-2013. RMO No. income received in excess of the
44-2016 clarified that non-stock, non- minimum wage, but the MWEs will not
profit educational institutions are lose their exemption as such. Workers
excluded from the coverage of RMO No. who receive the statutory minimum
20-2013. (Jacinto-Henares v. St. Paul wage their basic pay remain MWEs. The
College of Makati, G.R. No. 215383 receipt of any other income during the
(Resolution), March 8, 2017) year does not disqualify them as MWEs.
They remain MWEs, entitled to exemption
73. The test is whether the new set of as such, but the taxable income they
personal and additional exemptions receive other than as MWEs may be
was available at the time of the filing subjected to appropriate taxes.
of the income tax return. In other
words, while the status of the The following provisions of Revenue
individual taxpayers is determined at Regulations No. 10-2008 were declared
the close of the taxable year, their NULL and VOID: (i) Sections 1 and 3,
personal and additional exemptions insofar as they disqualify MWEs who earn
— and consequently the purely compensation income from the
computation of their taxable income privilege of the MWE exemption in case
— are reckoned when the tax they receive bonuses and other
becomes due, and not while the compensation-related benefits
income is being earned or received. exceeding the statutory ceiling of
P30,000; (ii) Section 3 insofar as it provides
The increased exemptions were already for the prorated application of the
available much earlier than the required personal and additional exemptions
time of filing of the return on 15 April 2009. under R.A. 9504 for taxable year 2008,
R.A. 9504 came into law on 6 July 2008, and for the period of applicability of the
more than nine months before the MWE exemption to begin only on 6 July
deadline for the filing of the income tax 2008. [Soriano v. Secretary of Finance,
return for taxable year 2008. Hence, G.R. No. 184450. January 24, 2017 (En
individual taxpayers were entitled to Banc)]
claim the increased amounts for the
entire year 2008. 74. An offline international air carrier
selling passage tickets in the
Sections 1 and 3 of RR 10-2008 add a Philippines, through a general sales
requirement not found in the law by agent, is a resident foreign
effectively declaring that an MWE who corporation doing business in the
receives other benefits in excess of the Philippines. As such, it is taxable but
statutory limit of P30,000 is no longer subject to any applicable tax treaty
entitled to the exemption provided by to which the Philippines is a signatory.
R.A. 9504. Hence, it is invalid. Pursuant to Article 8 of the Republic of
the Philippines-Canada Tax Treaty,

31
 Air Canada may only be imposed a investment, and according fair and
maximum tax of 1½% of its gross equitable tax treatment to foreign
revenues earned from the sale of its residents or nationals." Through the
tickets in the Philippines. appointment of Aerotel as its local sales
agent, petitioner is deemed to have
Petitioner is undoubtedly "doing business" created a "permanent establishment" in
or "engaged in trade or business" in the the Philippines as defined under the
Philippines. Republic of the Philippines-Canada Tax
Treaty. (Air Canada v. CIR, January 11,
Aerotel performs acts or works or 2016, G.R. No. 169507, January 11, 2016)
exercises functions that are incidental
and beneficial to the purpose of 75. Saint Luke’s Medical Center (SLMC) is
petitioner’s business. The activities of liable for income tax under Section
Aerotel bring direct receipts or profits to 27(b) of the NIRC insofar as its
petitioner. There is nothing on record to revenues from paying patients are
show that Aerotel solicited orders alone concerned.
and for its own account and without
interference from, let alone direction of, The Constitution exempts charitable
petitioner. On the contrary, Aerotel institutions only from real property taxes.
cannot "enter into any contract on In the NIRC, Congress decided to extend
behalf of [petitioner Air Canada] without the exemption to income taxes.
the express written consent of [the However, the way Congress crafted
latter,]" and it must perform its functions Section 30(E) of the NIRC is materially
according to the standards required by different from Section 28(3), Article VI of
petitioner. Through Aerotel, petitioner is the Constitution.
able to engage in an economic activity
in the Philippines. Section 30(E) of the NIRC defines the
corporation or association that is exempt
Petitioner is, therefore, a resident foreign from income tax. On the other hand,
corporation that is taxable on its income Section 28(3), Article VI of the
derived from sources within the Constitution does not define a charitable
Philippines. Petitioner’s income from sale institution, but requires that the institution
of airline tickets, through Aerotel, is 'actually, directly and exclusively' use
income realized from the pursuit of its the property for a charitable purpose.
business activities in the Philippines. Section 30(E) of the NIRC provides that a
charitable institution must be:
In this case however, there is a tax treaty
that must be taken into consideration to (1) A non-stock corporation or
determine the proper tax rate. A tax association;
treaty is an agreement entered into
between sovereign states "for purposes (2) Organized exclusively for
of eliminating double taxation on charitable purposes;
income and capital, preventing fiscal
evasion, promoting mutual trade and (3) Operated exclusively for
charitable purposes; and

32
 (4) No part of its net income or corporate income tax pursuant to the
asset shall belong to or inure to 1997 NIRC, as amended.
the benefit of any member,
organizer, officer or any specific In addition, PD 1869 clearly gives
person. PAGCOR a blanket exemption to taxes
with no distinction on whether the taxes
The Court finds that St. Luke's is a are direct or indirect, such as VAT.
corporation that is not “operated Further, such exemption was retained in
exclusively” for charitable or social the amendment to the 1997 NIRC.
welfare purposes insofar as its revenues
from paying patients are concerned. This However, PAGCOR's liability as a
ruling is based not only on a strict withholding agent is not covered by the
interpretation of a provision granting tax tax exemptions under PD 1869. FBT is
exemption, but also on the clear and treated as a final income tax on the
plain text of Section 30(E) and (G). employee that shall be withheld and
Section 30(E) and (G) of the NIRC paid by the employer on a calendar
requires that an institution be 'operated quarterly basis. As such, PAGCOR is a
exclusively' for charitable or social mere withholding agent inasmuch as the
welfare purposes to be completely FBT is imposed on PAGCOR's employees
exempt from income tax. An institution who receive the fringe benefit.
under Section 30(E) or (G) does not lose (PAGCOR v. CIR, G.R. 210689-90, 22
its tax exemption if it earns income from November 2017; CIR v. PAGCOR, G.R.
its for-profit activities. Such income from 210704-210725, 22 November 2017)
for-profit activities, under the last
paragraph of Section 30, is merely
subject to income tax, previously at the
ordinary corporate rate but now at the
preferential 10% rate pursuant to Section
27(B). (CIR v. St. Luke’s Medical Center 77. The duty to withhold tax on
(SLMC), G.R. No. 203514. February 13, compensation arises upon its
2017) accrual.

76. PAGCOR’s income from gaming Taxpayer accrued bonuses in the

operations is exempt from corporate taxable years 1996 and 1997, although
income tax; income from other no withholding taxes were withheld in the
related activities is subject to year of accrual. The taxpayer was then
corporate income tax. It however assessed for deficiency withholding taxes
remains NOT subject to VAT. in the year of accrual. Taxpayer
maintained that the liability of the
PAGCOR’s income from gaming employer to withhold the tax does not
operations is subject only to 5% franchise arise until such bonus is actually
tax under PD 1869; while its income from distributed, citing Section 72 of the 1977
other related services is subject to NIRC which states that every employer
making payment of wages shall deduct
and withhold upon such wages. Since

33
the supposed bonuses were not "subject to income tax” because nothing
distributed to the officers and employees is to be gained from their collection.
in 1996 and 1997 but were distributed in
the succeeding year when the amounts Membership fees, assessment dues, and
of bonuses were finally determined, the like are not subject to VAT because
taxpayer asserts that its duty to withhold in collecting such fees, the club is not
tax during those years did not arise. selling its service to the members.
Conversely, the members are not buying
The Court ruled that the taxpayer is liable services from the club when dues are
for the withholding tax on the bonuses paid; hence, there is no economic or
since it claimed the same as expense in commercial activity to speak of as these
the year they were accrued. (ING Bank dues are devoted for the
N.V. vs. Commissioner of Internal operations/maintenance of the facilities
Revenue, G.R. No. 167679, July 22, 2015) of the organization. (ANPC v. BIR, G.R.
No. 228539, June 26, 2019)
78. Membership fees, assessment dues
and similar charges of clubs 79. “At any one time”, for purposes of
organized and operated exclusively determining the “20 or more lenders”
for pleasure, recreation and other would mean every transaction
non-profit purposes are not subject to executed in the primary or secondary
both Income Tax And Value-Added market in connection with the
Tax (VAT) for as long as these charges purchase or sale of securities.
are treated as collections by
recreational clubs from their The 1997 NIRC defines “public” to mean
members as an inherent “twenty (20) or more individual or
consequence of their membership, corporate lenders at any one time.”
and are, by nature, intended for the Hence, as decided by the Supreme
maintenance, preservation, and Court, the number of lenders is
upkeep of the clubs' general determinative of whether a debt
operations and facilities because instrument should be considered a
such charges form part of capital and deposit substitute and consequently
is not income. subject to the 20% final withholding tax.
From the point of view of the financial
For as long as these membership fees, market, the phrase “at any one time”
assessment dues, and the like are for purposes of determining the “20
treated as collections by recreational or more lenders” would mean every
clubs from their members as an inherent transaction executed in the primary or
consequence of their membership, and secondary market in connection with the
are, by nature, intended for the purchase or sale of securities. Where the
maintenance, preservation, and upkeep financial assets involved are government
of the clubs' general operations and securities like bonds, the reckoning of the
facilities, then these fees cannot be “20 or more lenders/investors” is made at
classified as "the income of recreational any transaction in connection with the
clubs from whatever source" that are purchase or sale of the government

34
bonds, such as: Issuance by the Bureau winning bidder in the primary auction. At
of Treasury of the bonds to the the same time, CODE-NGO got RCBC-
Government Securities Eligible Dealers Capital as underwriter to distribute and
(GSEDs) in the primary market. (Banco sell the bonds to the public. The
De Oro, et. al. vs. Republic of the Underwriting Agreement and RCBC term
Philippines, et. al., G.R. Nos. 198756, Sheet for the sale of the PEACe Bonds
January 13, 2015) show that the settlement dates for the
issuance by the BTr of the bonds to RCBC
CODE-NGO and the distribution by RCBC
Capital of the PEACe Bonds to various
80. A debt instrument is considered a investors fall on the same day, October
deposit substitute, the interest of 18, 2001. Hence, the reckoning of the
which shall be subject to 20% FWT, if phrase “20 or more lenders” should be at
the borrowing is made from 20 or the time when RCBC Capital sold the
more lenders at any one time. PEACe Bonds to investors.
Depending on the number of lenders
“at any one time,” the 20-lender rule However, the phrase “at any one time”
may apply to the PEACe Bonds. cannot be applied to the PEACe Bonds
and should instead be given prospective
The 20-lender rule may apply to the application
PEACe Bonds, depending on the
number of lenders “at any one time.” The The Supreme Court interpretation in its
definition of deposit substitutes in Section January 2015 decision of the phrase “at
22 (Y) specifically defined “public” to any one time” cannot be applied to the
mean “twenty or more individual or PEACe Bonds and should instead be
corporate lenders at any one time.” given prospective application. RCBC
Hence, if there are 20 or more lenders, and the rest of the investors relied on the
the debt instrument is considered a opinions of the BIR in its Ruling Nos. 020-
deposit substitute which is subject to the 2011, 035-2001 and DA 175-01 which
20% FWT. provide that the “20 or more lenders” is
to be determined at the time of the
The existence of 20 or more lenders original issuance. Under the said rulings,
should be reckoned at the time when the PEACe Bonds were not to be treated
the successful Government Securities as deposit substitutes.
Eligible Dealer (GSED)- bidder distributes
(by itself or through an underwriter)the The Bureau of Treasury (BTr) is liable to
government securities to final holders. pay legal interest for refusal to release
When the GSED sells the government withheld tax pursuant to an Order of the
securities to 20 or more investors, the Supreme Court.
government securities are deemed to be
in the nature of a deposit substitute. The BTr made no effort to release the
amount corresponding to the 20% FWT
In this case, the PEACe Bonds were which it had not shown to have already
awarded to RCBC/CODE-NGO as the been remitted to the BIR. It remained
obstinate in its refusal to release the

35
monies and exhibited utter disregard Besides, consequential damages are
and defiance of the SC’s order. only awarded if as a result of the
expropriation, the remaining property of
The BTr is ordered to immediately release the owner suffers from an
and pay the bondholders the 20% FWT impairment/decrease in value. In this
on the PEACe Bonds, with legal interest case, no evidence was submitted to
of 6% per annum from October 19, 2011, prove any impairment or decrease value
the day the BTr received the TRO, until full of the subject property as a result of the
payment. (Banco De Oro, et al vs. expropriation. (Republic v. Spouses
Republic of the Philippines et. al. (En Salvador, G.R. No. 205428, June 7, 2017)
Banc), G.R. No. 198756, August 16, 2016)
82. PAL is not subject to the 2% MCIT
81. Capital gains tax in expropriation
proceedings remains a liability of the By way of, reiteration, although it
seller as it is a tax on the seller's gain appears that respondent is not
from the sale of real property. completely exempt from all forms of
taxes under PD 1590 considering that
The Republic filed a verified Complaint Section 13 thereof requires it to pay,
before the RTC for the expropriation of a either the lower amount of the basic
property owned by respondents. While corporate income tax or franchise tax
the RTC ruled in favor of the Republic for (which are both direct taxes), at its
the condemnation of the property, it option, mere exercise of such option
likewise ordered the latter to pay already relieves respondent of liability for
consequential damages in favor of all other taxes and/or duties, whether
respondents which is equivalent to the direct or indirect taxes. This is an
capital gains tax for the transfer of the expression of the same thought in Our
property. ruling that, to repeat, it is not the fact of
tax payment that exempts it, but the
It is settled that the transfer of property exercise of its option. Section 13(a) of
through expropriation proceedings is a [PD] 1590 refers to "basic corporate
sale or exchange within the meaning of income tax, as stipulated in Section 27(A)
Sections 24(D) and 56(A)(3) of the NIRC, of the NIRC of 1997. There is nothing in
and profit from the transaction Section 13(a) of [PD] 1590 to support the
constitutes capital gain. Since capital contention of the CIR that PAL is subject
gains tax is a tax on passive income, it is to the entire Title II of the NIRC of 1997,
the seller, or respondents in this case, entitled "Tax on Income." (CIR v.
who are liable to shoulder the tax. In fact, Philippine Airlines (PAL) G.R. 179259,
the BIR, in BIR Ruling No. 476- 2013, has September 25, 2013)
constituted the DPWH as a withholding
agent tasked to withhold the 6% 83. Prior application for tax treaty relief is
withholding tax in the expropriation of not required for the availment of tax
real property. treaty provisions.

36
Our Constitution provides for adherence Any claims of exemption from
to the general principles of international withholding taxes by an employee, as in
law as part of the law of the land. The the case of petitioners, must be brought
time-honored international principle of and resolved in the appropriate
pacta sunt servanda demands administrative and judicial proceeding,
performance in good faith of treaty with the employee having the burden to
obligation on the part of the states that prove the factual and legal bases
enter into the agreement. Every treaty in thereof.
force is binding upon the parties and
obligations under the treaty must be The following allowances, bonuses or
performed by them in good faith. benefits, excluded by the NIRC of 1997,
as amended, from the employee's
Treaties have the force and effect of law compensation income, are exempt from
in this jurisdiction. Tax treaties are entered withholding tax on compensation:
into “to reconcile the national fiscal
legislations of the contracting parties 1) Retirement benefits received
and in turn, help the taxpayer avoid under RA No. 7641 and those
simultaneous taxations in two different received by officials and
jurisdictions. It must be stressed that there employees of private firms,
is nothing in RMO 1-2000 which would whether individual or corporate,
indicate a deprivation of entitlement to under a reasonable private
a tax treaty relief for failure to comply benefit plan maintained by the
with the 15-day period. The period of employer subject to the
application for the availment of tax requirements provided by the
treaty relief as required by RMO 1-2000 Code;
should not operate to divest entitlement
to the relief as it would constitute a 2) Any amount received by an
violation of the duty required by good official or employee or by his heirs
faith in complying with a tax treaty. from the employer due to death,
(Deutsche Bank AG Manila Branch vs. sickness or other physical disability
CIR, G.R. No. 188550, August 19, 2014) or for any cause beyond the
control of the said official or
84. The NIRC of 1997, as amended, is employee, such as retrenchment,
clear that all forms of compensation redundancy, or cessation of
income received by the employee business;
from his employer are presumed
taxable and subject to withholding 3) Social security benefits, retirement
taxes. The Government of the gratuities, pensions and other
Philippines, its agencies, similar benefits received by
instrumentalities, and political residents or non-resident citizens
subdivisions, as an employer, is of the Philippines or aliens who
required by law to withhold and remit come to reside permanently in
to the BIR the appropriate taxes due the Philippines from foreign
thereon. government agencies and other
institutions private or public;

37
4) Payments of benefits due or to 13) Compensation for services by a
become due to any person citizen or resident of the
residing in the Philippines under Philippines for a foreign
the law of the United States government or an international
administered by the United States organization;
Veterans Administration;
14) Actual, moral, exemplary and
5) Payments of benefits made under nominal damages received by an
the Social Security System Act of employee or his heirs pursuant to
1954 as amended; a final judgment or compromise
agreement arising out of or
6) Benefits received from the GSIS related to an employer-
Act of 1937, as amended, and the employee relationship;
retirement gratuity received by
government officials and 15) The proceeds of life insurance
employees; policies paid to the heirs or
beneficiaries upon the death of
7) Thirteenth (13th) month pay and the insured, whether in a single
other benefits received by sum or otherwise, provided
officials and employees of public however, that interest payments
and private entities not agreed under the policy for the
exceeding: P82,000.00; amounts which are held by the
insured under such an agreement
8) GSIS, SSS, Medicare and Pag-Ibig shall be included in the gross
contributions, and union dues of income;
individual employees;
16) The amount received by the
9) Remuneration paid for insured, as a return of premium/s
agricultural labor; paid by him under life insurance,
endowment, or annuity contracts
10) Remuneration for domestic either during the term or at the
services; maturity of the term mentioned in
the contract or upon surrender of
11) Remuneration for casual labor not
the contract;
in the course of an employer's
trade or business; 17) Amounts received through
Accident or Health Insurance or
12) Remuneration not more than the
under Workmen's Compensation
statutory minimum wage and the
Acts, as compensation for
holiday pay, overtime pay, night
personal injuries or sickness, plus
shift differential pay and hazard
the amount of any damages
pay received by Minimum Wage
received whether by suit or
Earners;
agreement on account of such
injuries or sickness;

38
 18) Income of any kind to the extent an interpretative rule designed to
required by any treaty obligation provide guidelines to the law which it is in
binding upon the Government of charge of enforcing; but instead,
the Philippines; supplanted details thereon - a power
duly vested by law only to respondent
19) Fringe and De minimis Benefits; Secretary of Finance under Section 244
and of the NIRC of 1997, as amended.
(Confederation for Unity, Recognition
20) Other income received by and Advancement of Government
employees which are exempt Employees (COURAGE) et. al. v. CIR, G.R.
under special laws (RATA granted Nos. 213446 & 213658, (En Banc) July 3,
to public officers and employees 2018)
under the General Appropriations
Act and Personnel Economic 85. The government is allowed to resort to
Relief Allowance granted to all evidence or resources available to
government personnel). determine a taxpayer’s income and
to use methods to reconstruct one’s
The CIR gravely abused its discretion in income, such as the expenditure
issuing Section VI of RMO No. 23-2014 method.
insofar as it includes the Governor, City
Mayor, Municipal Mayor, Barangay The BIR issued a LOA authorizing its
Captain, and Heads of Office in revenue officers to investigate Spouses
agencies, GOCCs, and other Antonio Villan Manly (Antonio) and Ruby
government offices, as persons required Ong Manly for their internal revenue tax
to withhold and remit withholding taxes, liabilities for the taxable year 2003 and
as they are not among those officials prior years. Antonio is a stockholder and
designated by the 1997 NIRC, as the Executive Vice-President of Standard
amended, and its implementing rules. Realty Corporation, a family-owned
corporation. He is also engaged in rental
Nowhere in the NIRC of 1997, as
business. His spouse is a housewife. The
amended, or in RR No. 2-98, as
BIR later issued the Spouses a letter
amended, would one find the Provincial
requiring them to submit documentary
Governor, Mayor, Barangay Captain
evidence to substantiate the source of
and the Head of Government Office or
their cash purchase of a 256-square
the "Official holding the highest position
meter log cabin in Tagaytay City worth
(such as the President, Chief Executive
P17,511,010.00. The Spouses, however,
Officer, Governor, General Manager)" in
failed to comply with the letter. The
an Agency or GOCC as one of the
revenue examiners then executed
officials required to deduct, withhold
affidavit showing the declared income
and remit the correct amount of
of the Spouses for the covered years,
withholding taxes.
and despite such modest income, they
were able to buy in cash luxurious
The CIR, in imposing upon these officials
vacation house in Tagaytay and motor
the obligation not found in law nor in the
vehicles. Since the Spouses failed to
implementing rules, did not merely issue

39
show the source of their cash purchases, The start of petitioner's commercial
the revenue officers concluded that the operations for purposes of the ITH was on
income declared in Antonio’s income February 21, 2011, the date Unit 1 of
tax returns were under-declared. And petitioner's power plant started
since the under-declaration exceeded operating. The fact that only Unit 1 of the
30% of the reported or declared income, power plant was operational at that time
it was considered a prima facie is of no moment as the rules clearly states
evidence of fraud with intent to evade "irrespective of phases or modules or
the payment of proper taxes due to the schedule or development." (Kepco SPC
government. The revenue officers, thus, Power Corp. v. Legal and Compliance
recommended the filing of criminal Service-Board of Investments, G.R. No.
cases against the Spouses for failing to 243687 (Notice), June 3, 2019)
supply correct and accurate information
in their income tax returns, punishable 87. Respondent JP Morgan Chase Bank's
under Sections 254 and 255 in relation to lease of the physical plant space,
Section 248(B) of the 1997 Tax Code. infrastructure, and other transmission
facilities of PeopleSupport
A method commonly used by the (Philippines), Inc., a PEZA-registered
government is the expenditure method, Export Enterprise, is not covered
which is a method of reconstructing a within its registered activities. Thus,
taxpayer’s income by deducting the income derived from it is subject to
aggregate yearly expenditures from the RCIT.
declared yearly income. The theory of
this method is that when the amount of To qualify for the income tax holiday
the money that a taxpayer spends incentive, respondent must satisfactorily
during a given year exceeds his reported show that its transaction with
or declared income and the source of PeopleSupport is a registered activity or
such money is unexplained, it may be embraced within the latter's registered
inferred that such expenditures represent activities with the PEZA. Tax incentives
unreported or undeclared income. (BIR under the PEZA Act of 1995 are granted
vs. CA, Sps. Antonio Villan Manly and to information technology service
Ruby Ong Manly, G.R. No. 197590, activities, which refer to activities that
November 24, 2014) involve the use of any information
technology software and/or system for
86. Start of Commercial Operations" for value addition, as defined in Board
purposes of the Income Tax Holiday Resolution No. 00-411. These include
should be the date specified in the "business processes outsourced using e-
project study submitted to the Board, commerce."
OR the date when a service-oriented
enterprise begins catering to or Providing information technology-
servicing its clients on a commercial enabled services is different from
basis, whichever comes first, providing information technology
irrespective of phases or modules or facilities, infrastructure, or equipment.
schedule or development.

40
(CIR vs. J.P. Morgan Chase Bank, G.R. The imposition of estate tax
No. 210528, November 28, 2018) reduces the property received by
the successor, which helps
IV. ESTATE TAXATION promote a more equitable
distribution of wealth in society.
The tax base is the value of the
88. Justification (Theories) For The property and the progressive
Imposition of Estate Tax scheme of taxation is precisely
motivated by the desire to
(1) Benefit received theory – The mitigate the evils of inheritance in
State collects the tax because of the present form. The taxes paid
the services it renders in the by rich people are programmed
distribution of the estate of the for disbursement by Congress for
decedent, either by law or in the benefit of the poor in terms on
accordance with his will. social services, education, health,
etc.
(2) Privilege theory or state
partnership theory – Succession to
89. Reciprocity Rule –
the property of a deceased
person is not a right but a privilege
There is reciprocity if the foreign country
granted by the State and
of which the decedent was a citizen and
consequently, the legislature can
resident at the time of his death:
constitutionally burden such
succession with a tax. The State (a) Did not impose a transfer tax of
collects the tax because of the any character, in respect of
protection it provides in the intangible personal property of
acquisition of large estates. citizens of the Philippines not
Hence, the State is a “silent or residing in that foreign country;
passive partner” in the OR
accumulation of said large
property. (b) Allowed a similar exemption from
transfer tax in respect of
(3) Ability to pay theory – Receipt of intangible personal property
inheritance, which is in the nature owned by citizens of the
of unearned wealth or windfall, Philippines not residing in that
places assets into the hands of the country
heirs and beneficiaries. This
creates an ability to pay the tax Note: In sum, both states must exempt
and thus contributes to non-residents (citizens of the other state)
government income. from transfer taxes in respect of
intangible personal property.
(4) Redistribution of wealth theory –
Receipt of inheritance is a
contributing factor to the
inequalities in wealth and income.

41
 for another person, excluding VAT. [Sec.
VI. VALUE ADDED 108 (A), NIRC]
TAXATION
93. Gross Selling Price (GSP)
90. Tax Credit Method
– the total amount of money or its
– The tax credit method refers to the equivalent which the purchaser pays or
manner by which the value added tax of is obligated to pay to the seller in
a taxpayer is computed. The input taxes consideration of the sale, barter or
shifted by the sellers to the buyer are exchange of the goods or properties,
credited against the buyer’s output excluding the VAT. The excise tax, if any,
taxes when he sells the taxable goods, on such goods or properties shall form
properties or services. part of the gross selling price. (Sec. 106,
NIRC)
Under this method, the tax is computed
by determining the difference between 94. Initial Payments
the output tax on his sales and the input
tax on the purchases of goods, services, – payment/payments which the seller
capital goods, supplies, and materials. receives before or upon execution of the
instrument of sale and payments which
91. Rule of Regularity he expects or is scheduled to receive in
cash or property during the year when
– Also, the sale, barter, exchange, lease, the sale or disposition of the real property
or rendering of service must be in the was made.
course of trade or business. The term “in
the course of trade or business” (a) It includes down payment and all
embraces the regular conduct or pursuit payments actually or
of a commercial or economic activity. It constructively received during
also includes transactions that are the year of sale.
incidental to the regular conduct or
(b) It does not include the amount of
pursuit of the activity.
mortgage on the real property
sold (except as to the excess
92. Gross Receipts
when such mortgage exceeds
the cost or other basis of the
– the total amount of money or its
property to the seller) and notes
equivalent representing the contract
or other evidence of
price, compensation, service fee, rental
indebtedness issued by the
or royalty, including the amount charged
purchaser to the seller at the time
for materials supplied with the services
of the sale.
and deposits and advanced payments
actually or constructively received
95. Landed Cost = invoice amount +
during the taxable quarter for the
customs duties + freight + insurance +
services performed or to be performed
other charges + excise tax (if any)

42
Who Pays: IMPORTER prior to the release Destination Principle – Exempts from VAT
of such goods from customs custody goods, properties and services destined
[Sec. 107 (A), NIRC] for CONSUMPTION OUTSIDE the country.

Importer – any person who brings goods 97. Excess input tax or creditable input
into the Philippines, whether or not made tax is not an excessively, erroneously,
in the course of his trade or business, or illegally collected tax because the
including non- exempt persons or entities taxpayer pays the proper amount of
who acquire tax-free imported goods input tax at the time it is collected.
from exempt persons, entities or
agencies [RR 16-2005] That a VAT-registered taxpayer incurs
excess input tax does not mean that it
96. Destination Principle or Cross-border was wrongfully or erroneously paid. It
Doctrine simply means that the input tax is greater
than the output tax, entitling the
Destination Principle taxpayer to carry over the excess input
tax to the succeeding taxable quarters.
1) It is the basis for the jurisdictional If the excess input tax is derived from
reach of the VAT. zero-rated or effectively zero-rated
transactions, the taxpayer may either
2) CIR v. American Express seek a refund of the excess or apply the
International (2005): As a general excess against its other internal revenue
rule, goods and services are taxed tax. (CE Luzon Geothermal Power
only in the country where they are Company, Inc. v. CIR, G.R. No. 197526.
consumed. July 26, 2017)
Corollarily, the Cross Border Doctrine
mandates that no VAT shall be imposed
to form part of the cost of the goods 98. Although the sale of refined sugar is
destined for consumption outside the generally subject to VAT, such
territorial border of the taxing authority. transaction may nevertheless qualify
as a VAT-exempt transaction if the
Atlas Consolidated Mining & Dev. Corp.
sale is made by a cooperative. A
v. CIR (2007): Hence, actual export of
qualified cooperative also enjoys
goods and services from the Philippines
exemption from the requirement of
to a foreign country must be free of VAT,
advance payment of VAT upon
while those destined for use or
withdrawal from the refinery/mill.
consumption within the Philippines shall
be imposed with 12% VAT.
Under Section 109 (1) of the NIRC, sales
by agricultural cooperatives are exempt
Cross-border Doctrine – Does not subject
from VAT provided the following
to VAT goods, properties and services
conditions concur, viz:
BEYOND THE TERRITORIAL BORDERS of the
Philippines.

43
First, the seller must be an agricultural upon the withdrawal of the refined sugar
cooperative duly registered with the from the sugar mill.
CDA. An agricultural cooperative is "duly
registered" when it has been issued a The withdrawal from the sugar refinery by
certificate of registration by the CDA. This the cooperative is not the incident which
certificate is conclusive evidence of its gives rise to the imposition of VAT, but the
registration. subsequent sale of the sugar. If at all, the
withdrawal of the refined sugar gives rise
Second, the cooperative must sell either: to the obligation to pay the VAT on the
1) exclusively to its members; or 2) to both would-be sale. In other words, the
members and non-members, its advance VAT which is imposed upon the
produce, whether in its original state or withdrawal of the refined sugar is the
processed form. very same VAT which would be imposed
on the sale of refined sugar following its
The second requisite differentiates withdrawal from the refinery, hence, the
cooperatives according to its customers. term "advance." It is therefore erroneous
If the cooperative transacts only with to treat the withdrawal of the refined
members, all its sales are VAT- exempt, sugar as a tax incident different from or
regardless of what it sells. On the other in addition to the sale itself. (CIR v.
hand, if it transacts with both members Negros Consolidated Farmers Multi-
and non- members, the product sold Purpose Cooperative, G.R. No. 212735.
must be the cooperative's own produce December 5, 2018)
in order to be VAT- exempt. Stated
differently, if the cooperative only sells its 99. The tax exemption provided under
produce or goods that it manufactures Section 16 of PD No. 972 (Coal
on its own, its entire sales is VAT-exempt. Development Act of 1976) was not
revoked, withdrawn or repealed,
expressly or impliedly, by Congress
with the enactment of RA No. 9337.
A cooperative is the producer of the
sugar if it owns or leases the land tilled, Section 16 of PD No. 972 provides various
incurs the cost of agricultural production incentives to Coal Operating Contract
of the sugar, and produces the sugar (COC) operators, including tax
cane to be refined. It should not have exemptions.
merely purchased the sugar cane from
its planters-members. (CIR v. United A special law cannot be repealed or
Cadiz Sugar Farmers Association Multi- modified by a subsequently enacted
Purpose Cooperative, G.R. No. 209776. general law in the absence of any
December 7, 2016) express provision in the latter law to that
effect. The repealing clause of RA 9337,
Exemption from the payment of VAT on a general law, did not provide for the
sales made by the agricultural express repeal of PD 972, a special law.
cooperatives to members or to non- Further, Sec. 109 (K) of the NIRC, as
members necessarily includes exemption amended by RA 9337, still provides that
from the payment of "advance VAT"

44
transactions which are exempt under It shall then be considered as an
special laws are VAT-exempt. importation subject to all applicable
(Commissioner of Internal Revenue v. national internal revenue taxes and
Semirara Mining Corp., G.R. No. 202922, customs duties. [Secretary of Finance v.
June 19, 2017) Lazatin, G.R. No. 210588. November 29,
2016 (En Banc)]
100. RR 2-2012 which requires the
payment of value-added tax (VAT) 101. The “no contact- audit approach”
and excise tax on the importation of includes the process of computerized
all petroleum and petroleum matching ofsales and purchases
products coming directly from data contained in the Schedules of
abroad and brought into the Sales and Domestic Purchases, and
Philippines, including Freeport and Schedule of Importation submitted by
Economic Zones (FEZs) is invalid and VAT taxpayers under the RELIEF
unconstitutional. System pursuant to BIR regulations.

The tax exemption enjoyed by FEZ This may also include the matching of
enterprises covers internal revenue taxes data from other information or returns led
imposed on goods brought into the FEZ, by the taxpayers with the BIR such as
including Clark FEZ, such as VAT and Alphalist of Payees subject to Final or
excise tax. It follows that the taxes Creditable Withholding Taxes. (Medicard
imposed by Section 3 of RR 2-2012 Philippines, Inc. v. CIR, G.R. No. 222743.
directly contravene these exemptions. April 5, 2017)
First, the regulation erroneously considers
petroleum and petroleum products
brought into a FEZ as taxable
importations. Second, it unreasonably 102. The amounts earmarked and
burdens FEZ enterprises by making them eventually paid by Medicard to the
pay the corresponding taxes — an medical service providers do not
obligation from which the law form part of gross receipts for VAT
specifically exempts them — even if purposes.
there is a subsequent opportunity to
refund the payments made. The main difference between an HMO
and an insurance company is that HMOs
Therefore, the act of bringing the goods undertake to provide or arrange for the
into an FEZ is not a taxable importation. provision of medical services through
As long as the goods remain (e.g., sale participating physicians while insurance
and/or consumption of the article within companies simply undertake to
the FEZ) in the FEZ or re-exported to indemnify the insured for medical
another foreign jurisdiction, they shall expenses incurred up to a pre- agreed
continue to be tax-free. However, once limit. In the present case, the VAT is a tax
the goods are introduced into the on the value added by the performance
Philippine customs territory, it ceases to of the service by the taxpayer. It is, thus,
enjoy the tax privileges accorded to FEZs. this service and the value charged

45
thereof by the taxpayer that is taxable 1. It is only the administrative claim
under the NIRC. (Medicard Philippines, that must be filed within the two-
Inc. v. CIR, G.R. No. 222743. April 5, 2017) year prescriptive period. (Aichi)

103. The sale of the power plants by 2. The proper reckoning date for the
Power Sector Assets and Liabilities two-year prescriptive period is the
Management Corporation (PSALM) is close of the taxable quarter when
not in pursuit of a commercial or the relevant sales were made.
economic activity but a (San Roque)
governmental function mandated by
law to privatize National Power 3. The only other rule is the Atlas
Corporation (NPC) generation asset ruling, which applied only from 8
in accordance with the guidelines June 2007 to 12 September 2008.
imposed by the EPIRA law. Hence, the Atlas states that the two- year
sale is not subject to VAT. prescriptive period for filing a
claim for tax refund or credit of
PSALM was created primarily to liquidate unutilized input VAT payments
all NPC financial obligations and should be counted from the date
stranded contract costs in an optimal of filing of the VAT return and
manner. The purpose and objective of payment of the tax. (San Roque)
PSALM are explicitly stated in Section 50
of the EPIRA law. PSALM is limited to
selling only NPC assets and IPP contracts
of NPC. The sale of NPC assets by PSALM
is not "in the course of trade or business"
but purely for the specific purpose of
privatizing NPC assets in order to
liquidate all NPC financial obligations.
The sale of the power plants is clearly not
the same as the sale of electricity by VII. 120+30 Day Period
generation companies, transmission,
and distribution companies, which is 1. The taxpayer can file an appeal in
subject to VAT under Section 108 of the one of two ways: (1) file the
NIRC. (PSALM vs. CIR, G.R. No. 226556. judicial claim within thirty days
July 3, 2019) after the Commissioner denies the
claim within the 120-day period,
104. Summary of Rules on Prescriptive or (2) file the judicial claim within
Periods for Claiming Refund or Credit thirty days from the expiration of
of Input VAT (Section 112, NIRC) the 120-day period if the
Commissioner does not act within
A. Two-Year Prescriptive Period the 120-day period

46
 2. The 30-day period always applies, goods sold or services
whether there is a denial or rendered indicating the prices
inaction on the part of the CIR. charged therefor or a list by
whatever name it is known
3. As a general rule, the 30-day which is used in the ordinary
period to appeal is both course of business evidencing
mandatory and jurisdictional. sale and transfer or
(Aichi and San Roque) agreement to sell or transfer
goods and services.
4. As an exception to the general
rule, premature filing is allowed A "receipt" on the other hand
only if filed between 10 is a written acknowledgment
December 2003 and 5 October of the fact of payment in
2010, when BIR Ruling No. DA-489- money or other settlement
03 was still in force. (San Roque) between seller and buyer of
goods, debtor or creditor, or
5. Late filing is absolutely prohibited, person rendering services and
even during the time when BIR client or customer.
Ruling No. DA- 489-03 was in force.
(San Roque) A VAT invoice and a VAT receipt should
not be confused and made to refer to
(Silicon Philippines v. CIR, G.R. No. one and the same thing. Certainly,
173241, March 25, 2015) neither does the law intend the two to be
used alternatively. (Northern Mindanao
105. A VAT invoice is the seller's best Power Corporation v. CIR, G.R. No.
proof of the sale of goods or services 185115, February 18, 2015)
to the buyer, while a VAT receipt is the
buyer's best evidence of the 106. To claim a refund of unutilized or
payment of goods or services excess input VAT, purchase of goods
received from the seller. or properties must be supported by
VAT invoices, while purchase of
Section 113 of the NIRC of 1997 provides services must be supported by VAT
that a VAT invoice is necessary for every official receipts. (Team Energy Corp.
sale, barter or exchange of goods or v. Commissioner of Internal Revenue,
properties, while a VAT official receipt G.R. Nos. 197663 & 197770, March 14,
properly pertains to every lease of goods 2018)
or properties; as well as to every sale,
barter or exchange of services.

The Court has in fact distinguished an 107. Compliance with all the VAT
invoice from a receipt in CIR v. Manila invoicing requirements is required for
Mining Corporation: taxpayer to be entitled to a claim for
input taxes attributable to zero-rated
A "sales or commercial
sales.
invoice" is a written account of

47
Taxpayer is a VAT and PEZA registered filed within the two-year prescriptive
corporation engaged in the period; the judicial claim need not fall
manufacture and export of ready- to- within the two-year prescriptive period.
wear items. It claimed to have paid Subsection (A) of the said provision states
excess input VAT for the year 1999 that “any VAT-registered person whose
attributable to its zero- rated export sales. sales are zero-rated may, within two
It then filed 4 separate applications for years after the close of the taxable
tax refund with the One-Stop-Shop Inter- quarter when the sales were made,
Agency Tax credit and Duty Drawback apply for the issuance of a tax credit
Center of the DOF. Thereafter, taxpayer certificate or refund of creditable input
filed a petition for review before the CTA. tax due or paid attributable to such
The CTA Division denied the petition on sales.”
the ground that all of its export sales
invoices failed to comply with the The phrase “within two (2) years *** apply
invoicing requirements: have no BIR for the issuance of a tax credit certificate
Permit to Print; did not contain its TIN-VAT or refund” refers to applications for
or TIN-V and the word zero- rated was not refund/credit filed with the Commissioner
imprinted thereon in violation of Section of Internal Revenue (CIR) and not to
113(A) in relation to Section 238 of the appeals made to the Court of Tax
Tax Code. Upholding the decision of CTA Appeals (CTA). This is apparent in the first
Division and CTA En Banc, the Supreme paragraph of subsection (D) of the same
Court held that the invoicing provision which states that the CIR has
requirements for a VAT-registered “120 days from the submission of
taxpayer as provided in the NIRC and complete documents in support of the
revenue regulations are clear – a VAT application filed in accordance with
registered taxpayer is required to comply Subsections (A) and (B)” within which to
with all the VAT invoicing requirements to decide on the claim. (CIR vs. Mindanao
be able to file for a claim for input taxes II Geothermal Partnership, G.R. No.
on domestic purchases of goods or 191498, January 15, 2014.)
services attributable to zero-rated sales.
A VAT invoice is an invoice that meets 109. The 2-year prescriptive period for
the requirements of Section 4.108-4 of RR an administrative claim for refund or
7-95. (J.R.A. Philippines Inc. vs. CIR, G.R. credit of VAT input is reckoned the
No. 171307, August 28, 2014) close of the taxable quarter when the
relevant sales were made. This
108. 62. Only the administrative claim reckoning period is effective before
for input VAT (Section 112) must be June 8, 2007 and after September 12,
filed within the 2- year prescriptive 2008.
period.
The doctrine in the case of Atlas
Under Section 112 of the National Consolidated Mining and Development
Internal Revenue Code (NIRC), it is only Corporation vs. CIR, which held that
the administrative claim for refund of claims for refund or credit of input VAT
input value-added tax (VAT) must be must comply with the two-year

48
prescriptive period under Section 229, the law, since the imprinting of the word
should be effective only from its “zero-rated” was required merely to
promulgation on June 8, 2007 until its distinguish sales subject to 10% VAT,
abandonment on September 12, 2008 in those that are subject to 0% VAT (zero-
the case of CIR vs. Mirant Pagbilao rated) and exempt sales, to enable the
Corporation. The Atlas doctrine was Bureau of Internal Revenue to properly
limited to the reckoning of the two- year implement and enforce the other VAT
prescriptive period from the date of provisions of the Tax Code. (CIR v.
payment of the output VAT. Prior to the Toledo, Power, Inc., G.R. No. 183880,
Atlas doctrine, the two- year prescriptive January 20, 2014.)
period for claiming refund or credit of
input VAT should be governed by Section 111. Prior payment of taxes is not
112(A) following the verba legis rule. The necessary before a taxpayer could
Mirant ruling, which abandoned the avail of the 2% transitional input VAT.
Atlas doctrine, adopted the verba legis
rule, thus applying Section 112(A) in Sec 105 of old Tax Code clearly provides
computing the two-year prescriptive that all that is required from a taxpayer is
period in claiming refund or credit of to file a beginning inventory with the BIR.
input VAT. In this case, the claim for Since the law does not provide for prior
refund was filed on October 6, 2005. Thus, payment of taxes, to require it now (by
it is covered by the rule prior to the regulation) would be tantamount to
advent of either Atlas or Mirant. judicial legislation. A TIT is not a tax refund
Therefore, the proper reckoning date as per se but a tax credit. Logically, prior
provided in Section 112(A) of the NIRC is payment of taxes is not required before
the close of the taxable quarter when a taxpayer could avail of TIT. Tax refund
the relevant sales were made. (CIR vs. is not synonymous to tax credit. (Fort
Mindanao II Geothermal Partnership, Bonifacio Development Corporation v.
G.R. No. 191498, January 15, 2014; CBK CIR, G.R. No. 173425, January 22, 2013)
Power Company Limited vs. CIR, G.R. No.
198729-30, January 15, 2014; also cited in
Philex Mining Corporation v. CIR, G.R. No.
195120, April 19, 2017.) VIII. COURT OF TAX
110. Stamping of the words zero-rated APPEALS
is sufficient compliance of the
requirement that the words “zero- 112. An appeal via a petition for review
rated sale” must appear in the to the CTA en banc must be
invoice. preceded by the filing of a timely
motion for reconsideration or new trial
The words “zero-rated” must appear in with the CTA Division as it is
the invoice covering zero-rated sales. mandatory and not merely directory
Although the same was merely stamped under the Revised Rules of the CTA.
and not pre-printed in the present case, (Asiatrust Development Bank, Inc. v.
the same is sufficient compliance with CIR, G.R. No. 201530. April 19, 2017)

49
 problems. Petitions for writs of certiorari
against the acts and omissions of the said
113. In order for the CTA to acquire quasi- judicial agencies should thus be
jurisdiction over a judicial claim for filed before the Court of Tax Appeals.
refund or tax credit arising from
unutilized input VAT, the said claim Republic Act No. 9282, a special and
must first comply with the mandatory later law than Batas Pambansa Blg. 129
120+30-day waiting period. Any provides an exception to the original
judicial claim for refund or tax credit jurisdiction of the Regional Trial Courts
filed in contravention of said period is over actions questioning the
rendered premature, depriving the constitutionality or validity of tax laws or
CTA of jurisdiction to act on it. (Team regulations. Except for local tax cases,
Sual Corporation vs. CIR, G.R. No. actions directly challenging the
201225-26 / 201132 / 201133 April 18, constitutionality or validity of a tax law or
2018) regulation or administrative issuance
may be filed directly before the Court of
Tax Appeals.

114. Compliance with the 120+30 – Furthermore, with respect to

day periods is jurisdictional before administrative issuances (revenue orders,
the Court of Tax Appeals and cannot revenue memorandum circulars, or
be waived regardless of the rulings), these are issued by the
purported stipulations of the parties. Commissioner under its power to make
(Steag State Power, Inc. vs. CIR, G.R. rulings or opinions in connection with the
No. 205282. January 14, 2019) implementation of the provisions of
internal revenue laws. Tax rulings, on the
other hand, are official positions of the
Bureau on inquiries of taxpayers who
115. Section 7 of Republic Act No. request clarification on certain provisions
1125, as amended, is explicit that, of the National Internal Revenue Code,
except for local taxes, appeals from other tax laws, or their implementing
the decisions of quasi- judicial regulations. Hence, the determination of
agencies (Commissioner of Internal the validity of these issuances clearly falls
Revenue, Commissioner of Customs, within the exclusive appellate jurisdiction
Secretary of Finance, Central Board of the Court of Tax Appeals under
of Assessment Appeals, Secretary of Section 7(l) of Republic Act No. 1125, as
Trade and Industry) on tax-related amended, subject to prior review by the
problems must be brought Secretary of Finance, as required under
exclusively to the Court of Tax Republic Act No. 8424. (CIR vs. CTA and
Appeals. Petron Corporation, G.R. No. 207843,
February 14, 2018 citing Banco de Oro vs.
In other words, within the judicial system, Republic of the Philippines, G.R. No.
the law intends the CTA to have 198756, August 16,2016)
exclusive jurisdiction to resolve all tax

50
116. The CTA En Banc has exclusive exercise its jurisdiction, to the exclusion of
jurisdiction over appeals from the all other courts. (Philippine Ports Authority
decisions of its divisions. vs. The City of Davao, et.al., G.R. No.
190324. June 6, 2018)
Taxpayer was issued by the BIR several
assessment notices for deficiency IX. LOCAL TAXATION
income tax and VAT covering the
taxable year 1999 to 2002. Taxpayer filed
118. Power of taxation is not inherent in
its protest letters, but were eventually
municipal corporations
denied by the BIR. Taxpayer then filed a
petition for review with the CTA,
The power to tax "is an attribute of
questioning the assessments. The CTA
sovereignty," and as such, inheres in the
First Division denied the petition. The CTA
State. Such, however, is not true for
Division likewise denied the motion for
provinces, cities, municipalities and
reconsideration. Taxpayer then
barangays as they are not the sovereign;
appealed directly to the Supreme Court
rather, they are mere "territorial and
under Rule 45 of the 1997 Rules of Civil
political subdivisions of the Republic of
Procedure, assailing the decision and
the Philippines". A municipal corporation
resolution of the CTA Division.
unlike a sovereign state is clothed with no
The Supreme Court ruled that it is without inherent power of taxation. The charter
jurisdiction to review decisions rendered or statute must plainly show an intent to
by a division of the CTA, exclusive confer that power or the municipality,
appellate jurisdiction of which is vested in cannot assume it. And the power when
the CTA en banc. (Duty Free Philippines granted is to be construed in strictissimi
vs. BIR, G.R. No 197228, October 8, 2014) juris. Any doubt or ambiguity arising out
of the term used in granting that power
must be resolved against the
municipality. Inferences, implications,
117. When a tax case is pending on deductions – all these – have no place in
appeal with the CTA, the CTA has the the interpretation of the taxing power of
exclusive jurisdiction to enjoin the a municipal corporation.
levy of taxes and the auction of a
taxpayer's properties in relation to Therefore, the power of a province to tax
that case. is limited to the extent that such power is
delegated to it either by the Constitution
Even if the law had vested the Court of or by statute. (Pelizloy Realty Corporation
Appeals with jurisdiction to issue vs Province of Benguet, GR No. 183137,
injunctive relief in real property tax cases April 10, 2013)
such as this, the Court of Appeals was still
correct in dismissing the petition before it. 119. Resorts, swimming pools, bath
Once a court acquires jurisdiction over a houses, hot springs and tourist spots
case, it also has the power to issue all may not be subjected to amusement
auxiliary writs necessary to maintain and tax by a province

51
Section 131 (c) of the LGC already Realty Corporation vs Province of
provides a clear definition of Benguet, GR No. 183137, April 10, 2013)
‘amusement places’. Indeed, theaters,
cinemas, concert halls, circuses, and 120. Franchise tax can only be
boxing stadia are bound by a common imposed on businesses enjoying a
typifying characteristic in that they are all franchise.
venues primarily for the staging of
spectacles or the holding of public National Power Corporation (Napocor)
shows, exhibitions, performances, and was served a notice of franchise tax
other events meant to be viewed by an delinquency on its sale of electricity. It
audience. Accordingly, “other places of denied liability for franchise tax, arguing
amusement” must be interpreted in light that it had ceased to be liable for the
of the typifying characteristic of being payment of tax after Congress enacted
venues "where one seeks admission to the Electronic Power Industry Reform Act
entertain oneself by seeing or viewing (EPIRA), relieving it of the function of
the show or performances" or being transmitting electricity beginning 2001. Is
venues primarily used to stage Napocor liable to pay franchise tax?
spectacles or hold public shows,
exhibitions, performances, and other Franchise tax can only be imposed on
events meant to be viewed by an businesses enjoying a franchise. Without
audience. a franchise, a local government unit
cannot impose franchise tax. In this case,
It is clear that resorts, swimming pools, EPIRA effectively removed power
bath houses, hot springs and tourist spots generation from the ambit of local
cannot be considered venues primarily franchise taxes. As expressly provided
"where one seeks admission to entertain under Section 6 of EPIRA, power
oneself by seeing or viewing the show or generation is no longer considered a
performances". While it is true that they public utility operation, and companies
may be venues where people are which shall engage in power generation
visually engaged, they are not primarily and supply of electricity are no longer
venues for their proprietors or operators required to secure a national franchise.
to actively display, stage or present (National Power Corporation v.
shows and/or performances. Provincial Government of Bataan, G.R.
No. 180654, March 6, 2017)
Thus, resorts, swimming pools, bath
houses, hot springs and tourist spots do 121. Unlike a city, a municipality is
not belong to the same category or class bereft of authority to levy franchise
as theaters, cinemas, concert halls, tax, thus, the ordinance enacted for
circuses, and boxing stadia. It follows that purpose is void.
that they cannot be considered as
among the “other places of The power to impose franchise tax
amusement” contemplated by Section belongs to the province by virtue of
140 of the LGC and which may properly Section 137 of the LGC.
be subject to amusement taxes. (Pelizloy

52
On the other hand, municipalities are City of Manila filed a motion to quash the
prohibited from levying the taxes writ of execution. The motion was
specifically allocated to provinces, viz.: granted by the RTC.

Section 142. Scope of Taxing Powers. —x On appeal to the Supreme Court (‘SC’),
x x municipalities may levy taxes, fees, the SC ruled that the issuance of a writ of
and charges not otherwise levied by execution is superfluous. Instead of
provinces. moving for a writ of execution, the
taxpayer should have merely requested
Section 32 of Municipal Ordinance No. for the approval of the City of Manila in
25 is, thus, void for being in direct implementing the tax refund or tax
contravention with Section 142 of the credit, whichever is appropriate. In other
LGC. Being void, it cannot be given any words, no writ is necessary for the
legal effect. An assessment and execution thereof since the
collection pursuant to the said implementation of the tax refund will
ordinance is, perforce, legally infirm. effectively be a return of funds by the
City of Manila in favor of the taxpayer
The conversion of the municipality into a while a tax credit will merely serve as a
city does not lend validity to the void deduction of taxpayer’s tax liability in the
ordinance. (City of Pasig v. Manila future. The issuance of a writ of execution
Electric Co., G.R. No. 181710, March 7, is superfluous because the judgment can
2018) neither be considered a judgment for a
specific sum of money susceptible of
122. There is no need for a writ of execution by levy or garnishment under
execution to enforce a decision Section 9, Rule 39 of the Rules of Court
granting a refund or credit of nor a specific judgment under Section
excessively paid local business tax, 11, Rule 39 thereof. (Coca- Cola Bottlers
provided that the taxpayer complies Philippines, Inc. vs. City of Manila et. al.,
with the requirements set by law for a G.R. No. 197561, April 7, 2014)
tax refund or tax credit, whichever is
applicable. 123. For purposes of determining the
situs of local taxation, there is basis to
Taxpayer was granted a favorable presume correct the location stated
decision by the Court for its claim for tax in the Certificate of Title and to rely
refund or credit after finding that there thereon, until it is cancelled or
was double taxation in the imposition of amended.
the local business tax. An entry of
judgment was later issued declaring the Uniwide conducted business in lands
same final and executory. The taxpayer covered by transfer certificates of title,
then filed a motion for execution with the which indicated that these are located
RTC for the enforcement of the decision. in Pasig. In 1997, instead of paying local
The clerk of court of the RTC issued a writ taxes to Pasig, Uniwide paid to Cainta
of execution directing the sheriff to after the latter gave notice that the
cause the execution of the decision. The properties were within Cainta’s territorial

53
jurisdiction. Pasig then filed a tax 124. The government-owned and
collection case against Uniwide, which, controlled corporation claiming real
in turn, filed a third-party complaint property tax exemption and
against Cainta for reimbursement of entitlement to the privileges under the
taxes it paid to the latter. The RTC, in LGC must be the entity actually,
ruling for Pasig, upheld the indefeasibility directly, and exclusively using the
of the Torrens title and ruled that the real properties.
location indicated in the TCTs is
conclusive for purposes of the action for Thus, until the transfer of the project to
tax collection. NPC, it does not have anything to do
with the use and operation of the power
The Supreme Court enunciated that the plant. The direct, actual, exclusive, and
location stated in the certificate of title beneficial owner and user of the power
should be followed until amended station, machineries, and equipment
through proper judicial proceedings. The certainly pertains to Mirant. NPC,
land registration court necessarily passes therefore, has no legal personality to
upon the technical description of the question on the assessment or claim for
land and consequently its location. There exemption and privileges with regard to
is thus basis to presume correct the the tax liability attached to the subject
location stated in the Certificate of Title properties.
and to rely thereon for purposes of
determining the situs of local taxation, Neither will NPC find justification in its
until it is cancelled or amended. Odsigue claim that it is NPC, not Mirant, which
v. Court of Appeals held that a utilizes the generated electricity for
certificate of title is conclusive not only of transmission or distribution to the
ownership of the land but also its customers. The clear wordings of the
location. (Municipality Of Cainta v. City above-cited provisions state that it is the
Of Pasig, G.R. No. 176703; Uniwide Sales machinery and equipment which are
V. City Of Pasig G.R. No. 176721 28 June exempted from the payment of real
2017) property tax, not the water or electricity
that such facilities generate for
78. Local business taxes are imposed distribution. (National Power Corp. v.
on banks and financial institutions. "Banks Province of Pangasinan, G.R. No. 210191,
and other financial institutions" are March 4, 2019)
defined under the LGC as to "include
non-bank financial intermediaries”. 125. A government instrumentality is
Holding companies or those companies not liable for the payment of real
which do not actively deal with shares or property taxes on its properties unless
those companies which hold shares it is alleged and proven that the
merely for incidental purposes are not beneficial use of its properties has
included. (City of Davao v. Randy Allied been extended to a taxable person.
Ventures, Inc., G.R. No. 241697, July 29,
2019) Under Sec. 234 (a), the general rule is
that any real property owned by the

54
Republic or its political subdivisions is exemption upon compliance with the
exempt from the payment of real condition that UP's revenues and assets
property tax "except when the beneficial must be used for educational purposes
use thereof has been granted, for or in support thereof. (University of the
consideration or otherwise, to a taxable Philippines vs. City Treasurer of Quezon
person.” (Metropolitan Waterworks and City, G.R. No. 214044. June 19, 2019)
Sewerage System v. Local Government
of Quezon City, G.R. No. 194388, 127. The provision in the LGC limiting
November 7, 2018) the base amount of the 40-percent
share to the national internal revenue
In such case, the corresponding liability tax alone rather than on all national
for the payment of the RPT devolves on taxes is unconstitutional.
the taxable beneficial user.
Article X, Sec. 6 of the Constitution
In real estate taxation, the unpaid tax provides three mandates: (1) the LGUs
attaches to the property. The personal shall have a just share in the national
liability for the tax delinquency is taxes; (2) the just share shall be
generally on whoever is the owner of the determined by law; and (3) the just share
real property at the time the tax accrues. shall be automatically released to the
(Herarc Realty Corporation vs. The LGUs.
Provincial Treasurer of Batangas et al.,
G.R. No. 210736, September 5, 2018) The issue revolved more on the
interpretation of the first mandate. The
126. The University of the Philippines’ SC ruled that there was no issue on what
act of leasing its land to Ayala Land constitutes the LGUs’ just share expressed
Incorporated is not taxable by reason in percentage of the national taxes such
of the enactment of RA 9500. as the 40-percent share provided in the
LGC. Yet, Sec. 6 of the Constitution
RA 9500 is a special law and must prevail mentions “national taxes” as the source
over the LGC’s provisions relating to the of the just share of the LGUs while Sec.
removal of the exemption of 284 of the LGC enacted by Congress
government instrumentalities when the states that the share of the LGUs must be
beneficial use of a property is given to a taken from “national internal revenue
taxable person. There is no longer any taxes.”
need to determine the tax status of the
possessor or of the beneficial user to In other words, the base amount of the
further ascertain whether UP's revenue or IRA must be on national taxes and must
asset is exempt from tax. not be limited to just national internal
revenue taxes. What is the difference
Sec. 25(a) of RA 9500, provided that all of between these two?
UP's "revenues and assets used for
educational purposes or in support National internal revenue taxes are as
thereof shall be exempt from all taxes follows: (a) income tax; (b) estate and
and duties." RA 9500 bases UP's tax donor’s taxes; (c) value-added tax; (d)

55
other percentage taxes; (e) excise taxes; the respondent as the surviving
(f) documentary stamp taxes and (g) all corporation. The respondent requested
other taxes collected by the Bureau of from the BIR for a confirmation of the tax-
Internal Revenue (BIR). National taxes, on free nature of the merger. On September
the other hand, are broader as they 26, 2001, the BIR issued a ruling stating
include all taxes collected by the NG, that pursuant to Section 40(C)(2) and
including customs duties and other taxes (6)(b) of the 1997 NIRC, no gain or loss
collected by the BOC and all other shall be recognized by the absorbed
agencies. So, the LGUs, according to the corporations.
high court, were deprived of their just
share. Section 196 of the NIRC pertains only to
transactions where real property is
But realizing the financial impact of this conveyed to a purchaser for a
decision to the country, the SC struck consideration. The phrase “granted,
down the demand of Mandanas for P500 assigned, transferred or otherwise
billion citing the doctrine of operative conveyed” is qualified by the word
fact and declared that the application “sold” which means that documentary
of its decision was prospective, not stamp tax under Section 196 is imposed
retroactive. Otherwise, it would have put on the transfer of real property by way of
the Republic of the Philippines bankrupt. sale and does not apply to all
(Congressman Mandanas, et al. vs. conveyances of real property. Thus,
Executive Secretary Ochoa, Jr., et al., respondent is not liable to DST as the
G.R. No. 199802. April 10, 2019) transfer of real properties from the
absorbed corporations to respondent
was pursuant to a merger. (CIR vs. La
Tondena Distillers, Inc., G.R. Nos. 175188,
July 05, 2015)

129. Registration with the Cooperative

Development Authority is NOT
necessary for the enjoyment of
exemption from percentage tax and
IX. DOCUMENTARY DST of mutual life insurance company
under Section 199(a) of the Tax Code.
STAMP TAX
Taxpayer is a registered non-stock
128. Transfer of real property is subject mutual life insurer. It was assessed by the
to documentary stamp taxes only in BIR for deficiency DST on direct
cases of sale. business/sums assured for the year 2002.
It is the BIR’s contention that since
Respondent La Tondena Distillers, Inc. taxpayer is not registered with the
entered into a Plan of Merger with Cooperative Development Authority
Sugarland Beverage Corporation and (‘CDA’), it should not be considered a
Metro Bottled Water Corporation, with cooperative company that is entitled to

56
the exemption provided under Section Note: Special Savings Deposit involving
199(a) of the NIRC. According to the the use of passbook and Time Deposit
Court, although the taxpayer is a involving the use of certificate of time
cooperative, it is not necessary in order deposits are both subject to the DST. Both
for it to be exempt from the payment of the passbook and certificate of time
both the percentage taxes on insurance deposits are evidence of transactions,
premiums under Section 121 and hence, subject to DST (CIR v. Traders
documentary stamp taxes on policies of Royal Bank, G.R. No. 167134, March 18,
insurance or annuities on its grants under 2015)
Section 199 of the NIRC. (CIR vs. The
Insular Life Assurance Co. Ltd., G.R. No. 131. Pawn Tickets are subject to DST
197192, June 4, 2014)
The pawn ticket is neither a security nor a
130. Trust Indenture Agreements (TIA) printed evidence of indebtedness. But,
were treated as certificates of deposit precisely being a receipt for a pawn, it
for failure of TRB to present a copy of documents the pledge. A pledge is a
the TIA. As such, it was subjected to real contract, hence, it is necessary in
Documentary Stamp Tax (DST) order to constitute the contract of
pledge, that the thing pledged be
In the interpretation of contracts, the placed in the possession of the creditor,
ascertainment of the intention of the or of a third person by common
contracting parties is to be discharged agreement.
by looking to the words they used to
project that intention in their contract, all Consequently, the issuance of the pawn
the words, not just a particular word or ticket by the pawnshop means that the
two, and words in context, not words thing pledged has already been placed
standing alone. in its possession and that the pledge has
been constituted. (H. Tambunting
The burden fell upon TRB to produce the Pawnshop, Inc. v. CIR, G.R. No. 173373,
Trust Indenture Agreements, not only July 29, 2013)
because the said Agreements were in its
possession, but more importantly,
because its protest against the DST
assessments was entirely grounded on 132. Documentary stamp tax applies
the allegation that said Agreements only to the sale of real property, not to
were trusts. all other kinds of transfers or
conveyances of real properties.
Records show that the BIR examiners
conducted a thorough audit and On April 27, 1999, a merger took place
investigation of the books of account of between two corporations whereby all
TRB. Given the failure of TRB to present the assets and liabilities of the absorbed
proof of error in the tax assessments of corporation were transferred to the
the BIR, the Court affirms the same. surviving entity. Among the assets
transferred were real properties. For the

57
transfer of these real properties, a conveyance of Fort Bonifacio Lands
documentary stamp tax was paid by the by the Republic of the Philippines
surviving corporation under Section 196 (Republic) to the Fort Bonifacio
of the 1997 Tax Code. Realizing that the Development Corporation (FBDC) is
documentary stamp tax was erroneously not subject to documentary stamp
paid on the transfer of the real property tax.
as a result of the merger, the surviving
corporation applied for the refund of the The two documents – Special Patent and
DST paid. The claim was granted by the Deed of Absolute Sale – covered the
CTA. On appeal to the Supreme Court, Republic’s conveyance to FBDC of the
the Supreme Court held that the DST is same Fort Bonifacio land for the same
only imposed on all conveyances, price that FBDC paid but once. It is one
deeds, instruments or writing where realty transaction, twice documented.
sold shall be conveyed to a purchaser or
purchasers for a consideration under On Feb 7, 1995, the Republic, thru the
Section 196 of Tax Code of 1997 Tax President, issued Special Patent to FBDC
Code. Section 196 of the 1997 Tax Code pursuant to RA 7227. That legislative act
does not apply to all kinds of transfers removed the public character of the Fort
and conveyances of real property for Bonifacio land and allowed the
valuable consideration. It is imposed on President to cede ownership to FBDC,
the transfer of realty by way of sale and then a wholly‐owned government
does not apply to all conveyances of corporation under BCDA. The Republic
real property. The fact that Section 196 could not just spend or use the money it
refers to words “sold”, “purchaser” and received from the sale without authority
“consideration” undoubtedly leads from Congress. In this case, the basis for
to the conclusion that only sales of real appropriation is found also in RA 7227,
property are contemplated therein. In a which earmarked the proceeds of sale
merger, the real properties are not of the land for use in capitalizing the
deemed “sold” to the surviving BCDA.
corporation and the latter could not be
considered as “purchaser” of realty since The Republic sold the land to FBDC and
the real properties subject of the merger the latter paid it with a promissory note.
were merely absorbed by the surviving When the Republic in turn assigned the
corporation by operation of law and note to BCDA, not only did it comply with
these properties are deemed its obligation under the above provision
automatically transferred to and vested to capitalize BCDA from the proceeds of
in the surviving corporation without sale and also enabled the latter to fully
further act or deed. Therefore, this is not pay for its subscription to FBDC’s capital
subject to DST. (CIR vs. Pilipinas Shell stock. Thus, to tax the proceeds of sale
Petroleum Corporation, G.R. No. 192398, would be to tax an appropriation made
September 29, 2014) by law, a power that CIR does not have.

133. The Special Patent and Deed of The Special Patent absolutely and
Absolute Sale covering the irrevocably grant and convey legal title

58
over the land to FBDC. In effect, the Philacor did not make, sign, issue,
Republic admitted that the Deed of Sale accept or transfer the prom notes. The
was only a formality, not a vehicle for acts of making, signing, issuing and
conveying ownership. transferring are unambiguous. The buyers
of appliances made, signed and issued
DST is by nature, an excise tax since it is the promissory notes, while the
levied on the exercise by persons of appliance dealer transferred these notes
privileges conferred by law. These to Philacor, which received or accepted
privileges may cover the creation, them. “Acceptance” is, however, an act
modification or termination of that is not even applicable to promissory
contractual relationships by executing notes, but only to bills of exchange. Its
specific documents. The sale of Fort object to bind the drawee of a bill and
Bonifacio land was not a privilege but an make him an actual and bound party
obligation imposed by law which was to to the instrument. As an assignee or
sell lands in order to fulfill a public transferee of the prom notes, Philacor is
purpose. Sec 8 of RA 7227 exempted the not liable as this transaction is not taxed
proceeds of sale of land from all forms of under the law.
taxes, including DST. Moreover, the
payment of DST would have resulted in Philacor correctly pointed out that there
diminishing the proceeds of sale that the are provisions in the 1997 Tax Code that
Republic turned over to BCDA to specifically impose the DST on the
capitalize it. Indeed, government transfer and/or assignment of
warranted in the Deed of Absolute Sale documents evidencing particular
that “there are no taxes due and owing transactions (Secs. 175, 176, 178, 198,
in respect of subject property or transfer 183‐185, 194‐195). We can safely
thereof in favor of the buyer.” (Fort conclude that where the law did not
Bonifacio Development Corporation v. specify that such transfer and/or
CIR, G.R. No. 173425, January 22, 2013) assignment is to be taxed, there would
be no basis to recognize an imposition.
The list does not include the assignment
or transfer of evidence of indebtedness;
134. Assignment of a loan (promissory rather, it is the renewal of these that is
note) is not a renewal or continuance taxable. (PHILACOR Credit Corporation
thereof, thus, it is not subject to DST. v. CIR, G.R. No. 169899, February 6, 2013)

Sec 173 names those who are primarily

liable for DST and those who would be
X.DOCTRINES
secondarily liable. The persons primarily
liable are the person (1) making, (2) 135. It is in the exercise of its police
signing, (3) issuing, (4) accepting, or(5) power that the Congress enacted
transferring the taxable document. R.A. Nos. 9257 and 9442, the laws
Should these parties be exempted from mandating a 20% discount on
paying tax, the other party who is not purchases of medicines made by
exempt would then be liable. senior citizens and PWDs. It is also in
further exercise of this power that the

59
 legislature opted that the said The definitions of "disabilities" and "PWDs"
discount be claimed as tax are clear and unequivocal under the law
deduction, rather than tax credit, by granting incentives to PWDs. (Southern
covered establishments. Luzon Drug Corporation v. DSWD, et. al.,
G.R. No. 199669, April 25, 2017)
Petitioner argues that the law is
confiscatory in the sense that the State 137. Tax assumption is different from
takes away a portion of its supposed tax exemption. Thus, tax assumption
profits which could have gone into its does not need the concurrence of
coffers and utilizes it for public purpose. the majority of the members of
The petitioner claims that the action of Congress.
the State amounts to taking for which it
should be compensated. To reiterate, An Exchange of Notes was executed
the subject provisions only affect the covering the grant by the Government
petitioner's right to profit, and not earned of Japan for the construction and
profits. Unfortunately for the petitioner, implementation of a Coal-Fired Thermal
the right to profit is not a vested right or Power Plant Project. In the Exchange of
an entitlement that has accrued on the Notes, the Philippine Government,
person or entity such that its invasion or through its executing agency, undertook
deprivation warrants compensation. to assume all taxes imposed by the
Vested rights are "fixed, unalterable, or Philippines on Japanese contractors
irrevocable." engaged in the project. To implement
the Project, the Philippine Government
136. The subject laws do not violate the entered into a contract with Mitsubishi
equal protection clause Corporation for the engineering,
construction, and other associated civil
To recognize all senior citizens as a works for the Project.
group, without distinction as to income, is
a valid classification. The Constitution Upon completion and acceptance of
itself considered the elderly as a class of the Project, Mitsubishi remitted taxes to
their own and deemed it a priority to the BIR. Since all taxes are assumed by
address their needs. When the the Philippine government agency,
Constitution declared its intention to Mitsubishi Corporation filed an
prioritize the predicament of the administrative claim for a refund with the
underprivileged sick, elderly, disabled, BIR to recover the erroneously paid
women, and children, it did not make amount. Subsequently, it filed a petition
any reservation as to income, race, for review before the CTA, which
religion or any other personal decided against Mitsubishi Corporation
circumstances. It was a blanket privilege and ruled that the Exchange of Notes
afforded the group of citizens in the cannot be read as a treaty validly
enumeration in view of the vulnerability granting tax exemption considering the
of their class. lack of Senate concurrence.

60
The Supreme court held that it is fairly However, such immunities and privileges
apparent that the subject taxes were shall cease to apply if, in their SALN, it was
erroneously collected from Mitsubishi proven that the taxpayer has
Corporation, considering that the understated his net worth by 30% or
obligation to pay had already been more. The SALN is presumed to be
assumed by the Philippine government correct unless there is: (1) under-
by virtue of the Exchange of Notes with declaration of net worth by 30%; (2) the
the Japanese government. An under-declaration is established in
Exchange of Notes is considered an proceedings initiated by parties other
executive agreement, which is binding than the BIR; and (3) the proceedings
on the State even without the Senate’s were initiated within one year from filing
concurrence. There is no tax exemption of the tax amnesty. (CIR v. Apo Cement
to speak of because the said taxes shall Corporation, G.R. No. 193381, February 8,
be assumed by the Philippine 2017)
Government; hence, the said provision is
not violative of the Constitutional 139. Section 8 (f) of RA 9480 is clear:
prohibition against the grants of tax only persons with "tax cases subject
exemption without the concurrence of of final and executory judgment by
the majority of the members of Congress. the courts" are disqualified to avail of
the Tax Amnesty Program under RA
To "assume" means "to take on, become 9480. Thus, the issuance by the BIR of
bound as another is bound, or put a Final Decision on Disputed
oneself in place of another as to an Assessment (FDDA) to a taxpayer
obligation or liability." This means that the does not preclude the latter from
obligation or liability remains, although availing the benefits of the Tax
the same is merely passed on to a Amnesty Program.
different person. In this light, the concept
of an assumption is therefore different Section 8 of RA 9480 outlines the
from an exemption, the latter being the exceptions when the Tax Amnesty
"freedom from a duty, liability or other Program may not be availed of. In
requirement" or "[a] privilege given to a particular, Section 8 (f) of RA 9480
judgment debtor by law, allowing the provides that persons with "tax cases
debtor to retain [a] certain property subject of final and executory judgment
without liability." (Mitsubishi Corp. -Manila by the courts" are disqualified to avail of
Branch v. Commissioner of Internal the Tax Amnesty Program under RA 9480.
Revenue, G.R. No. 175772, June 5, 2017) As such, there must be a judgment
promulgated by a court and the
138. Submission of the documentary judgment must have become final and
requirements and payment of executory. The Final Decision on
amnesty tax is considered full Disputed Assessment (FDDA) issued by
compliance with R.A. No. 9480 (Tax the BIR is NOT a tax case "subject to a
Amnesty Program) and the taxpayer final and executory judgment by the
can immediately enjoy the courts" as contemplated by Section 8 (f)
immunities and privileges.

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of RA 9480. (CIR v. Philippine Aluminum Sec. 8 Exceptions. — x x x
Wheels, G.R. No. 216161, August 9, 2017)
(a) Withholding agents with respect
140. Section 6 of the DO 29-07 to their withholding tax liabilities;
(implementing rules of RA 9480) laid
down the procedure for availing of (b) Those with pending cases falling
the tax amnesty under RA 9480. Upon under the jurisdiction of the Presidential
the taxpayer's full compliance with Commission on Good Government;
such requirements, the taxpayer is
immediately entitled to the (c) Those with pending cases
enjoyment of the immunities and involving unexplained or unlawfully
privileges of the tax amnesty acquired wealth or under the Anti-Graft
program. But when: (a) the taxpayer and Corrupt Practices Act;
fails to file a SALN and the Tax
(d) Those with pending cases filed in
Amnesty Return; or (b) the net worth
court involving violation of the Anti-
of the taxpayer in the SALN as of
Money Laundering Law;
December 31, 2005 is proven to be
(e) Those with pending criminal cases
understated to the extent of 30% or
for tax evasion and other criminal
more, the taxpayer shall cease to enjoy
offenses under Chapter II of Title X of the
these immunities and privileges. (CIR v.
National Internal Revenue Code of 1997,
Covanta Energy Philippine Holdings, Inc.,
as amended, and the felonies of frauds,
G.R. No. 203160, January 24, 2018)
illegal exactions and transactions, and
malversation of public funds and
141. To give effect to the exception
property under Chapters III and IV of Title
under RMC No. 19-2008 of
VII of the Revised Penal Code; and
"delinquent accounts or accounts
receivable considered as assets by (f) Tax cases subject of final and
the BIR or the Government, including executory judgment by the courts.
self-assessed tax", as interpreted by
the BIR, would unlawfully create a (CIR v. Transfield Philippines, Inc., G.R. No.
new exception for availing of the Tax 211449. January 16, 2019)
Amnesty Program under RA 9480.

In case there is a discrepancy between XI. MISCELLANEOUS

the law and a regulation issued to
implement the law, the law prevails 142. “Classification Freeze Provision” –
because the rule or regulation cannot a provision in a law which provides
go beyond the terms and provisions of that once a sin product has been
the law. Moreover, it must be noted that classified under low- priced,
under Section 8 of RA 9480, only the medium-priced, high-priced, or
following persons are disqualified from premium priced tax bracket based
availing of the tax amnesty: on its current net retail price, its
classification is frozen unless

62
 Congress reclassifies it. As such, the extended by PAGCOR to its qualified
DOF or the BIR cannot change its officers. For failure to sufficiently establish
classification. that the fringe benefit is required by the
nature of, or is necessary to the trade,
The questioned provision addressed business or profession of the employer, or
Congress' administrative concerns when the fringe benefit is for the
regarding delegating too much convenience or advantage of the
authority to the DOF and BIR as this will employer, PAGCOR should have
open the tax system to potential areas of withheld a tax on Fringe Benefits.
abuse and corruption. Congress may
have reasonably conceived that a tax PAGCOR is also liable for the expanded
system which would give the least withholding tax for: (1) its payments for
amount of discretion to the tax the services of its contractual, casual,
implementers would address the clerical and messengerial employees; (2)
problems of tax avoidance and tax reimbursements for over-the- counter
evasion. purchases; (3) security deposits; and (4)
importations for failure to show proof of
As previously ruled, the classification its non- liability.
freeze provision does not violate the
constitutional provisions on equal 144. To warrant the forfeiture of the
protection. (CIR v. San Miguel 15,000 bags of rice and its carrying
Corporation, G.R. No. 205045. January vessel, there must be a prior showing
25, 2017) of probable cause that: (1) the
importation or exportation of the
143. PAGCOR is exempt from the 15,000 bags of rice was effected or
payment of VAT, because its charter, attempted contrary to law, or that the
P.D. No. 1869, is a special law that shipment of the 15,000 bags of rice
grants PAGCOR exemption from constituted prohibited importation or
taxes. Hence, it is not liable for exportation; and (2) the vessel was
expended withholding VAT on used unlawfully in the importation or
payments to its catering service exportation of the rice, or in
contractors. (CIR v. PAGCOR, G.R. No. conveying or transporting the rice, if
177387. November 9, 2016) considered as contraband or
smuggled articles in commercial
Also, PAGCOR is not liable for deficiency quantities, into or from any Philippine
expanded withholding tax on its port or place. (Commissioner of
payment for: (1) audit services by COA Customs v. Singson, G.R. No. 181007.
as this is exempted under existing November 21, 2016)
regulations, and (2) prizes and other
promo items which are already
subjected to 20% final withholding tax.
145. A revenue memorandum circular
PAGCOR is liable for final withholding tax is an administrative ruling issued by
on fringe benefits of the car plan the CIR to interpret tax laws. It is

63
 widely accepted that an 147. Excise tax on petroleum products
interpretation by the executive is essentially a tax on property, the
officers, whose duty is to enforce the direct liability for which pertains to the
law, is entitled to great respect from statutory taxpayer (i.e.,
the courts. However, such manufacturer, producer or importer).
interpretation is not conclusive and Any excise tax paid by the statutory
will be disregarded if judicially found taxpayer on petroleum products sold
to be incorrect. Verily, courts will not to any of the entities or agencies
tolerate administrative issuances that named in Section 135 of the NIRC
override, instead of remaining exempt from excise tax is deemed
consistent and in harmony with, the illegal or erroneous, and should be
law they seek to implement, as in this credited or refunded to the payor.
case. Thus, Item B(3) of RMC No. 42-
99, an administrative issuance Under Section 129 of the NIRC, as
directing petitioner to claim the amended, excise taxes are imposed on
refund from NPC, cannot prevail over two kinds of goods, namely:
Sections 204 and 229 of the NIRC,
which provide that claims for refund (a) goods manufactured or
of erroneously collected taxes must produced in the Philippines for domestic
be filed with the CIR. (Mitsubishi sales or consumption or for any other
Corporation-Manila Branch v. CIR, disposition; and (b) things imported.
G.R. No. 175772, June 5, 2017) Undoubtedly, the excise tax imposed
under Section 129 of the NIRC is a tax on
property.

146. Other accounting methods Pursuant to Section 135(c) of the NIRC

approved by the CIR, even when not petroleum products sold to entities that
expressly mentioned in the NIRC, are by law exempt from direct and
may be adopted if such method indirect taxes are exempt from excise
would enable the taxpayer to tax.
properly reflect its income. Section 43
of the NIRC authorizes the CIR to allow Clark Development Corporation
the use of a method of accounting (“CDC”) was created to be the
that in its opinion would clearly reflect implementing and operating arm of the
the income of the taxpayer. An Bases Conversion and Development
example of such method not Authority to manage the Clark Special
expressly mentioned in the NIRC, but Economic Zone (CSEZ). As a duly-
duly approved by the CIR, is the registered enterprise in the CSEZ, CDC
“crop method of accounting”. (CIR v. has been exempt from paying direct
Lancaster Philippines, Inc. G.R. No. and indirect taxes pursuant to Section 24
183408. July 12, 2017) of Republic Act No. 7916 (The Special
Economic Zone Act of 1995).

64
Inasmuch as its liability for the payment excise taxes erroneously paid on 3
of the excise taxes accrued immediately different dates. Subsequently, it filed
upon importation and prior to the Petition for review before the CTA to
removal of the petroleum products from forestall the running of the 2-year
the customs house, Chevron was bound prescriptive period. The CTA granted the
to pay, and actually paid such taxes. But petition. In the CTA En Banc, it held that
the status of the petroleum products as the “in lieu of all taxes” clause in PAL’s
exempt from the excise taxes would be franchise exempts it from excise tax.
confirmed only upon their sale to CDC in Upholding the decision of CTA En Banc,
2007 (or, for that matter, to any of the the Supreme Court held that in view of
other entities or agencies listed in Section PAL’s payment of either the basic
135 of the NIRC). Before then, Chevron corporate income tax or franchise tax,
did not have any legal basis to claim the whichever is lower, PAL is exempt from
tax refund or the tax credit as to the paying:
petroleum products.
(a) taxes directly due from or imposable
Consequently, the payment of the upon it as the purchaser of the subject
excise taxes by Chevron upon its petroleum products; and (b) the cost of
importation of petroleum products was the taxes billed or passed on to it by the
deemed illegal and erroneous upon the seller, producer, manufacturer or
sale of the petroleum products to CDC. importer of the said products either as
part of the purchase price or by mutual
In cases involving excise tax exemptions agreement or other arrangement. (CIR
on petroleum products under Section vs. PAL, Inc., G.R. No. 212536-37, August
135 of the NIRC, the Court has 27, 2014)
consistently held that it is the statutory
taxpayer, not the party who only bears 149. The tax privilege of PAL under its
the economic burden, who is entitled to charter has not been revoked by the
claim the tax refund or tax credit. Hence, amendment of the NIRC.
Chevron is entitled to the refund.
[Chevron Philippines, Inc. v. CIR, G.R. No.
210836, September 1, 2015 (en banc)
Upon the amendment of the 1997 NIRC,
148. PAL’s franchise includes Section 22 of R.A. 9337 abolished the
exemption from excise taxes. franchise tax and subjected PAL and
similar entities to corporate income tax
PAL was assessed excise taxes on its and VAT. PAL nevertheless remains
February and March 2007 importation of exempt from taxes, duties, royalties,
cigarettes and alcoholic drinks for its registrations, licenses, and other fees and
commissary supplies used in its charges, provided it pays corporate
international flights. PAL paid the income tax as granted in its franchise
amounts under protest. Thereafter, it filed agreement. Accordingly, PAL is left with
3 separate administrative claims for no other option but to pay its basic
refund before the BIR for the alleged corporate income tax, the payment of

65
which shall be in lieu of all other taxes, a) The person or entity is authorized
except VAT, and subject to certain by the BSP to perform quasi-
conditions provided in its charter. banking functions;

Between the provisions under PD 1590 as b) The principal functions of said

against the provisions under the NIRC of person or entity include the
1997, as amended by RA 9334, which is a lending, investing or placement of
general law, the former necessary funds or evidences of
prevails. A later law, general in terms and indebtedness or equity deposited
not expressly repealing or amending a to them, acquired by them, or
prior special law, will not ordinarily affect otherwise coursed through them,
the special provisions of such earlier either for their own account or for
statute. While it is true that Sec. 6 of RA the account of others;
9334 states that "the provisions of any
special or general law to the contrary c) The person or entity must perform
notwithstanding," such phrase left alone any of the following functions on a
cannot be considered as an express regular and recurring, not on an
repeal of the exemptions granted under isolated basis, to wit:
PAL's franchise because it fails to
specifically identify PD 1590 as one of the a. Receive funds from one (1)
acts intended to be repealed. (CIR v. group of persons,
Philippine Airlines, Inc., G.R. Nos. 215705- irrespective of number,
07, February 22, 2017) through traditional
deposits, or issuance of
150. "Doing Business" as a bank or debt or equity securities;
other financial institution and make available/lend
these funds to another
The act of placing dividends from person or entity, and in the
preferred shares in a trust account, which process acquire debt or
incidentally earns interest, does not equity securities;
automatically convert one into an active
investor or dealer in securities. The b. Use principally the funds
primary test is regularity of function, not received for acquiring
on an isolated basis, with the end in mind various types of debt or
for self-profit. equity securities;

In order to be considered as a non-bank c. Borrow against, or lend on,

financial intermediary, subject to LBT or buy or sell debt or equity
under the NIRC, banking laws, and securities. (City of Davao v.
pertinent regulations, the following must Randy Allied Ventures, Inc.,
concur: G.R. No. 241697, July 29,
2019)

66
151. Clear and convincing proof is for that liability. The entitlement to a
necessary to overthrow findings of refund or credit of excess input tax is
fact by the Court of Tax Appeals solely based on the distinctive nature of
the VAT system. At the time of payment
It is doctrinal that the Court will not lightly of the input VAT, the amount paid was
set aside the conclusions reached by the correct and proper. (CBK Power
CTA which, by the very nature of its Company Limited vs. CIR, G.R. No.
function of being dedicated exclusively 198729-30, January 15, 2014)
to the resolution of tax problems, has
developed an expertise on the subject, 153. Petition for declaratory relief is the
unless there has been an abuse or proper remedy to question the
improvident exercise of authority. We validity and constitutionality of the
thus accord the findings of fact by the revenue memorandum circular.
CTA with the highest respect. These
findings of facts can only be disturbed on CIR issued RMC 65‐2012 dated Oct 31,
appeal if they are not supported by 2012 which imposes income tax and VAT
substantial evidence or there is a on association dues, membership fees
showing of gross error or abuse on the and other charges of condominium
part of the CTA. In the absence of any corporations, which are non‐stock, non‐
clear and convincing proof to the profit corporations. Hence, petitioner
contrary, this Court must presume that filed petition for declaratory relief with
the CTA rendered a decision which is RTC on Dec 26, 2013 and averred the
valid in every respect. (CIR v. De La Salle operative mandate of RMC is unjust,
University, Inc., G.R. Nos. 196596, 198841 oppressive and confiscatory.
& 198941, November 9, 2016)
Petitioner has not committed any willful
152. Solutio indebiti is not a valid breach of the RMC. Petitioner is not
ground to claim for refund/credit of assailing any assessment, because there
excess input tax. is yet no tax assessment made. In
previous years, petitioner has not been
There is solutio indebiti when: (1) subjected to payment of the tax on the
Payment is made when there exists no dues and fees. Petitioner seeks relief from
binding relation between the payor, who the court to determine whether the
has no duty to pay, and the person who
received the payment; and (2) Payment RMC is validly issued or not.
is made through mistake, and not
The assailed RMC not merely interpreted
through liberality or some other cause.
or clarified the existing BIR ruling, but in
Solutio indebiti does not apply in this
fact legislated or introduced new
case because there exists a binding
legislation under the mantle of its quasi-
relation between petitioner and the CIR,
legislative authority. The RMC failed to
the former being a taxpayer obligated to
show what particular law it clarified; it
pay VAT and the payment of input tax
shows it merely departed from the
was not made through mistake since
several rulings of the BIR exempting from
petitioner was legally obligated to pay

67
income such assessments/charges As provided under Sec. 1603 of the Tariff
because these amounts were held in and Customs Code (TCC), "When articles
trust to be used solely for administrative have been entered and passed free of
purposes. The RMC changed and duty or final adjustments of duties made,
departed from the long-standing ruling with subsequent delivery, such entry and
of the BIR and what is worse, it was made passage free of duty or settlements of
immediately effective. In so doing, the duties will, after the expiration of one (1)
passage contravenes the constitutional year, from the date of the final payment
mandate of due process of law. (First e‐ of duties, in the absence of fraud or
Bank Tower Condominium Corporation protest or compliance audit pursuant to
v. BIR, SCA 12‐1236, Sept 5,2013) the provisions of this Code, be final and
conclusive upon all parties, unless the
154. In the absence of fraud, the liquidation of the import entry was merely
prescriptive period for the tentative."
government to assess and collect
duties is one (1) year from the date of Pursuant to the above-quoted provision,
the final payment of duties. After the attendance of fraud would remove
such, the liquidation of the import the case from the ambit of the statute of
entry shall be final and conclusive limitations and would consequently
upon all parties. allow the government to exercise its
power to assess and collect duties even
The failure to file the IEIRD within 30 days beyond the one-year prescriptive
from entry is not the only requirement for period, rendering it virtually
the doctrine of ipso facto abandonment imprescriptible.
to apply. The law categorically requires
that this be preceded by due notice However, in an attempt to remove the
demanding compliance. instant case from the purview of the
provision, the Commissioner of Customs
Taxpayer filed its Import Entry and claims that the government is no longer
Internal Revenue Declaration (IEIRD) and collecting tariff duties. Rather, it is
paid the import duty of its shipments on exercising its ownership right over the
23 May 1996. A demand letter was sent shipments, which were allegedly
by the BOC on 27 July 2000, demanding deemed abandoned by taxpayer
for the deficiency of taxpayer’s import because of the latter's failure to timely file
duties. the IEIRD.

The Supreme Court held that in the The Supreme Court disagreed. The
absence of fraud, the prescriptive period absence of fraud not only allows the
for liquidation has already elapsed and finality of the liquidations; it also calls for
the assessment against taxpayer’s the strict observance of the requirements
shipment has already become final and for the doctrine of ipso facto
conclusive. abandonment to apply. As expressly
provided in Sec. 1801 (b) of the TCC, the
failure to file the IEIRD within 30 days from

68
entry is not the only requirement for the Justice who has jurisdiction. (Power
doctrine of ipso facto abandonment to Sector Assets and Liabilities
apply. The law categorically requires Management Corporation v. CIR, G.R.
that this be preceded by due notice No. 198146, 8 August 2017)
demanding compliance.

To recapitulate, the notice in this case

was only served upon taxpayer four (4) 156. It is improper for the CIR to collect,
years after it has already filed its IEIRD. or even attempt to collect, deficiency
Under this circumstance, the Court taxes from a taxpayer outside of the
cannot rule that due notice was given, rehabilitation proceedings
for when the Commissioner served the concerning the latter, and in the
notice demanding payment from process, willfully disregard the
taxpayer, it no longer had the right to do Commencement Order lawfully
so. By that time, the prescriptive period issued by the Rehabilitation Court.
for liquidation had already elapsed, and
the assessment against taxpayer's Delinquent taxpayer was under
shipment had already become final and corporate rehabilitation under RA 10142.
conclusive. Consequently, Sec. 1801 (b) The Rehabilitation Court issued a
failed to operate in favor of the Commencement Order which, among
government for failure to demand others, suspended all actions or
payment for the discrepancy prior to the proceedings for the enforcement of
finality of the liquidation. The claims against the taxpayer, and
government cannot deem the imported directed the BIR to file and serve on the
articles as abandoned without due taxpayer its comment or opposition to
notice. (Pilipinas Shell Petroleum Corp. v. the petition or its claims against the
Commissioner of Customs, G.R. No. taxpayer.
195876, 19 June 2017)
Despite the foregoing, the BIR still opted
155. Under Presidential Decree No. 242 to send the delinquent taxpayer a notice
24 (PD 242), all disputes and claims of informal conference informing the
solely between government latter of its deficiency tax liabilities, and
agencies and offices, including sent a formal demand letter requiring it
government-owned or controlled to pay deficiency taxes. According to
corporations, shall be the BIR, they only performed such acts to
administratively settled or toll the prescriptive period for the
adjudicated by the Secretary of collection of deficiency taxes.
Justice, the Solicitor General, or the
Government Corporate Counsel, The Supreme Court ruled that the BIR
depending on the issues and could have easily tolled the running of
government agencies involved. the prescriptive period, and at the same
According to Sections 1, 2, and 3 of time, perform their functions as officers of
PD 242, in cases involving only the BIR, without defying the
questions of law, it is the Secretary of Commencement Order and without

69
violating the laudable purpose of RA
10142 by simply ventilating their claim
before the Rehabilitation Court. After all,
they were adequately notified of the
delinquent taxpayer's corporate
rehabilitation and the issuance of the
corresponding Commencement Order.
(BIR v. Lepanto Ceramics, Inc., G.R. No.
224764, April 24, 2017)

Courage, above all things, is the first quality of a warrior.

-Carl von Clausewitz

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