Tax Ation San Beda College of LAW - ALABANG

TAX ATION
San Beda College of LAW – ALABANG
GENERAL PRINCIPLES d. Encourage Economic Growth – in the realm of tax exemptions

and tax reliefs, for instance, the purpose is to grant incentives or
I. Concepts, Nature and Characteristics of Taxation and Taxes. exemptions in order to encourage investments and thereby promote
the country’s economic growth.
Taxation Defined: e. Protectionism – in some important sectors of the economy, as

in the case of foreign importations, taxes sometimes provide
As a process, it is a means by which the sovereign, through its protection to local industries like protective tariffs and customs.
law-making body, raises revenue to defray the necessary expenses
of the government. It is merely a way of apportioning the costs of Taxes Defined
government among those who in some measures are privileged to
enjoy its benefits and must bear its burdens. Taxes are the enforced proportional contributions from persons
and property levied by the law-making body of the State by virtue of
As a power, ta xation refers to the inherent power of the state to its sovereignty for the support of government and for public needs.
demand enforced contributions for public purpose or purposes.
Essential Characteristic of Taxes [ LEMP3S ]
Rationale of Taxation - The Supreme Court held:
“It is said that taxes are what we pay for civilized society. 1. It is levied by the law-making body of the State
Without taxes, the government would be paralyzed for lack of the The power to tax is a legislative power which under the
motive power to activate and operate it. Hence, despite the natural Constitution only Congress can exercise through the enactment of
reluctance to surrender part of one’s hard-earned income to the laws. Accordingly, the obligation to pay taxes is a statutory liability.
taxing authorities, every person who is able must contribute his share
in the running of the government. The government for its part is 2. It is an enforced contribution
expected to respond in the form of tangible and intangible benefits A tax is not a voluntary payment or donation. It is not
intended to improve the lives of the people and enhance their moral dependent on the will or contractual assent, express or implied, of
and material values. The symbiotic relationship is the rationale of the person taxed. Taxes are not contracts but positive acts of the
taxation and should dispel the erroneous notion that it is an arbitrary government.
method of exaction by those in the seat of power.
Taxation is a symbiotic relationship, whereby in exchange 3. It is generally payable in money
for the protection that the citizens get from the government, taxes are Tax is a pecuniary burden – an exaction to be discharged
paid.” (Commissioner of Internal Revenue vs Allegre, Inc.,et al., L- alone in the form of money which must be in legal tender, unless
28896, Feb. 17, 1988) qualified by law, such as RA 304 which allows backpay certificates
as payment of taxes.
Purposes and Objectives of Taxation
4. It is proportionate in character - It is ordinarily based on the
1. Revenue – to provide funds or property with which the State taxpayer’s ability to pay.
promotes the general welfare and protection of its citizens.
5. It is levied on persons or property - A tax may also be imposed
2. Non-Revenue [PR2EP] on acts, transactions, rights or privileges.
a. Promotion of General Welfare – Taxation may be used as an 6. It is levied for public purpose or purposes - Taxation involves,
implement of police power in order to promote the general welfare of and a tax constitutes, a burden to provide income for public
the people. [see Lutz vs Araneta (98 Phil 148) and Osmeňa vs Orbos purposes.
(G.R. No. 99886, Mar. 31, 1993)]
7. It is levied by the State which has jurisdiction over the persons or
b. Regulation – As in the case of taxes levied on excises and property. - The persons, property or service to be taxed must be
privileges like those imposed in tobacco or alcoholic products or subject to the jurisdiction of the taxing state.
amusement places like night clubs, cabarets, cockpits, etc.
In the case of Caltex Phils. Inc. vs COA (G.R. No. 92585,
May 8, 1992), it was held that taxes may also be imposed for a Theory and Basis of Taxation
regulatory purpose as, for instance, in the rehabilitation and
stabilization of a threatened industry which is affected with public 1. Necessity Theory
industry like the oil industry. Taxes proceed upon the theory that the existence of the
government is a necessity; that it cannot continue without the means
c. Reduction of Social Inequality – this is made possible through to pay its expenses; and that for those means, it has the right to
the progressive system of taxation where the objective is to prevent compel all citizens and properties within its limits to contribute.
the under-concentration of wealth in the hands of few individuals. In a case, the Supreme Court held that:
Taxation is a power emanating from necessity. It is a
necessary burden to preserve the State’s sovereignty and a means
TAX ATION
to give the citizenry an army to resist aggression, a navy to defend its 2. Legislative in character – The power to tax is exclusively
shores from invasion, a corps of civil servants to serve, public legislative and cannot be exercised by the executive or judicial
improvements designed for the enjoyment of the citizenry and those branch of the government.
which come with the State’s territory and facilities, and protection
which a government is supposed to provide. (Phil. Guaranty Co., Inc. 3. Subject to constitutional and inherent limitations – Although in
vs Commissioner of Internal Revenue, 13 SCRA 775). one decided case the Supreme Court called it an awesome power,
the power of taxation is subject to certain limitations. Most of these
2. The Benefits-Protection Theory limitations are specifically provided in the Constitution or implied
The basis of taxation is the reciprocal duty of protection therefrom while the rest are inherent and they are those which spring
between the state and its inhabitants. In return for the contributions, from the nature of the taxing power itself although, they may or may
the taxpayer receives the general advantages and protection which not be provided in the Constitution.
the government affords the taxpayer and his property.
Scope of Legislative Taxing Power [S2 A P K A M]

Qualifications of the Benefit-Protection Theory:
1. subjects of Taxation (the persons, property or occupation etc. to
a. It does not mean that only those who are able to pay and do be taxed)
pay taxes can enjoy the privileges and protection given to a citizen by 2. amount or rate of the tax
the government. 3. purposes for which taxes shall be levied provided they are public
b. From the contributions received, the government renders no purposes
special or commensurate benefit to any particular property or person. 4. apportionment of the tax
c. The only benefit to which the taxpayer is entitled is that derived 5. situs of taxation
from his enjoyment of the privileges of living in an organized society 6. method of collection
established and safeguarded by the devotion of taxes to public
purposes. (Gomez vs Palomar, 25 SCRA 829) Is the Power to Tax the Power to Destroy?
d. A taxpayer cannot object to or resist the payment of taxes
solely because no personal benefit to him can be pointed out as In the case of Churchill, et al. vs Concepcion (34 Phil 969)
arising from the tax. (Lorenzo vs Posadas, 64 Phil 353) it has been ruled that:
The power to impose taxes is one so unlimited in force and
3. Lifeblood Theory so searching in extent so that the courts scarcely venture to declare
Taxes are the lifeblood of the government, being such, that it is subject to any restriction whatever, except such as rest in
their prompt and certain availability is an imperious need. (Collector the discretion of the authority which exercise it. No attribute of
of Internal Revenue vs. Goodrich International Rubber Co., Sept. 6, sovereignty is more pervading, and at no point does the power of
1965) Without taxes, the government would be paralyzed for lack of government affect more constantly and intimately all the relations of
motive power to activate and operate it. life than through the exaction made under it.
And in the notable case of McCulloch vs Maryland, Chief
Justice Marshall laid down the rule that the power to tax involves the
Nature of Taxing Power power to destroy.
According to an authority, the above principle is pertinent
1. Inherent in sovereignty – The power of taxation is inherent in only when there is no power to tax a particular subject and has no
sovereignty as an incident or attribute thereof, being essential to the relation to a case where such right to tax exists. This opt-quoted
existence of every government. It can be exercised by the maxim instead of being regarded as a blanket authorization of the
government even if the Constitution is entirely silent on the subject. unrestrained use of the taxing power for any and all purposes,
a. Constitutional provisions relating to the power of taxation do irrespective of revenue, is more reasonably construed as an
not operate as grants of the power to the government. They merely epigrammatic statement of the political and economic axiom that
constitute limitations upon a power which would otherwise be since the financial needs of a state or nation may outrun any human
practically without limit. calculation, so the power to meet those needs by taxation must not
b. While the power to tax is not expressly provided for in our be limited even though the taxes become burdensome or
constitutions, its existence is recognized by the provisions relating to confiscatory. To say that “the power to tax is the power to destroy” is
taxation. to describe not the purposes for which the taxing power may be used
In the case of Mactan Cebu International Airport Authority but the degree of vigor with which the taxing power may be employed
vs Marcos, Sept. 11, 1996, as an incident of sovereignty, the power in order to raise revenue (I Cooley 179-181)
to tax has been described as “unlimited in its range, acknowledging
in its very nature no limits, so that security against its abuse is to be  Constitutional Restraints Re: Taxation is the Power to
found only in the responsibility of the legislative which imposes the Destroy
tax on the constituency who are to pay it.” While taxation is said to be the power to destroy, it is by no
means unlimited. It is equally correct to postulate that the “power to
tax is not the power to destroy while the Supreme Court sits,”
TAX ATION
because of the constitutional restraints placed on a taxing power that 3. Theoretical Justice – the tax burden should be in proportion to
violated fundamental rights. the taxpayer’s ability to pay (ability-to-pay principle). The 1987
In the case of Roxas, et al vs CTA (April 26, 1968), the SC Constitution requires taxation to be equitable and uniform.
reminds us that although the power of taxation is sometimes called
the power to destroy, in order to maintain the general public’s trust
and confidence in the Government, this power must be used justly II. Classifications and Distinction
and not treacherously. The Supreme Court held:
“The power of taxation is sometimes called also the power Classification of Taxes
to destroy. Therefore it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised A. As to Subject matter
fairly, equally and uniformly, lest the tax collector kill the ‘ hen that
lays the golden egg’. And, in order to maintain the general public’ 1. Personal, capitation or poll taxes – taxes of fixed amount upon all
trust and confidence in the Government this power must be used persons of a certain class within the jurisdiction of the taxing power
justly and not treacherously.” without regard to the amount of their property or occupations or
The doctrine seeks to describe, in an extreme, the businesses in which they may be engaged in.
consequential nature of taxation and its resulting implications, to wit: example: community tax
a. The power to tax must be exercised with caution to minimize
injury to proprietary rights of a taxpayer; 2. Property Taxes – taxes on things or property of a certain class
b. If the tax is lawful and not violative of any of the inherent and within the jurisdiction of the taxing power.
constitutional limitations, the fact alone that it may destroy an activity example: real estate tax
or object of taxation will not entirely permit the courts to afford any
relief; and 3. Excise Taxes – charges imposed upon the performance of an
c. A subject or object that may not be destroyed by the taxing act, the enjoyment of a privilege, or the engaging in an occupation.
authority may not likewise be taxed. (e.g. exercise of a constitutional examples: income tax, value-added tax, estate tax or
right) donor’s tax
Power of Judicial Review in Taxation

The courts cannot review the wisdom or advisability or B. As to Burden
expediency of a tax. The court’s power is limited only to the
application and interpretation of the law. 1. Direct Taxes – taxes wherein both the “incidence” as well as the
Judicial action is limited only to review where involves: “impact” or burden of the tax faces on one person.
1. The determination of validity on the tax in relation to examples: income tax, community tax, donor’s tax, estate
constitutional precepts or provisions. tax
2. The determination, in an appropriate case, of the application of
the law. 2. Indirect Taxes – taxes wherein the incidence of or the liability for
the payment of the tax falls on one person, but the burden thereof
can be shifted or passed to another person.
Aspects of Taxation examples: VAT, percentage taxes, customs duties excise
1. Levy – determination of the persons, property or excises to be taxes on certain specific goods
taxed, the sum or sums to be raised, the due date thereof and the
time and manner of levying and collecting taxes (strictly speaking, Important Points to Consider regarding Indirect Taxes:
such refers to taxation) 1. When the consumer or end-user of a manufacturer product is
tax-exempt, such exemption covers only those taxes for which such
2. Collection – consists of the manner of enforcement of the consumer or end-user is directly liable. Indirect taxes are not
obligation on the part of those who are taxed. (this includes payment included. Hence, the manufacturer cannot claim exemption from the
by the taxpayer and is referred to as tax administration) payment of sales tax, neither can the consumer or buyer of the
The two processes together constitute the “taxation product demand the refund of the tax that the manufacturer might
system”. have passed on to him. (Phil. Acetylene Co. inc. vs Commissioner of
Internal Revenue et. al., L-19707, Aug.17, 1987)
Basic Principles of a Sound Tax System [FAT]
1. Fiscal Adequacy – the sources of tax revenue should coincide 2. When the transaction itself is the one that is tax-exempt but
with, and approximate the needs of government expenditure. Neither through error the seller pays the tax and shifts the same to the buyer,
an excess nor a deficiency of revenue vis-à-vis the needs of the seller gets the refund, but must hold it in trust for buyer.
government would be in keeping with the principle. (American Rubber Co. case, L-10963, April 30, 1963)
2. Administrative Feasibility – tax laws should be capable of 3. Where the exemption from indirect tax is given to the contractee,
convenient, just and effective administration. but the evident intention is to exempt the contractor so that such
contractor may no longer shift or pass on any tax to the contractee,
the contractor may claim tax exemption on the transaction
TAX ATION
(Commissioner of Internal Revenue vs John Gotamco and Sons, 1. National Tax – tax imposed by the National Government.
Inc., et.al., L-31092, Feb. 27, 1987) examples: national internal revenue taxes, customs duties
4. When the law granting tax exemption specifically includes 2. Municipal/Local Tax – tax imposed by Local Government units.
indirect taxes or when it is clearly manifest therein that legislative examples: real estate tax, professional tax
intention to exempt embraces indirect taxes, then the buyer of the
product or service sold has a right to be reimbursed the amount of  Regressive System of Taxation vis-à-vis Regressive Tax
the taxes that the sellers passed on to him. (Maceda vs A regressive tax, must not be confused with regressive
Macaraig,supra) system of taxation.
Regressive Tax: tax the rate of which decreases as the tax
base increases.
C. As to Purpose Regressive System of Taxation: focuses on indirect taxes,
it exists when there are more indirect taxes imposed than direct
1. General/Fiscal/Revenue – tax imposed for the general purposes taxes.
of the government, i.e., to raise revenues for governmental needs.
Examples: income taxes, VAT, and almost all taxes Taxes distinguished from other Impositions
2. Special/Regulatory – tax imposed for special purposes, i.e., to a. Toll vs Tax

achieve some social or economic needs. Toll – sum of money for the use of something, generally
Examples: educational fund tax under Real Property applied to the consideration which is paid for the use of a road,
Taxation bridge of the like, of a public nature.
D. As to Measure of Application
Tax vs Toll
Specific Tax – tax imposed per head, unit or 1. demand of sovereignty 1. demand of proprietorship
number, or by some standard of weight or 2. paid for the support of the 2. paid for the use of another’s
measurement and which requires no assessment government property
3. generally, no limit as to 3. amount depends on the cost
beyond a listing and classification of the subjects to amount imposed of construction or maintenance
be taxed. of the public improvement used
Examples: taxes on distilled spirits, wines, and fermented 4. imposed only by the 4. imposed by the government
liquors government or private individuals or entities
1. Ad Valorem Tax – tax based on the value of the article or thing b. Penalty vs Tax
subject to tax. Penalty – any sanctions imposed as a punishment for
example: real property taxes, customs duties violations of law or acts deemed injurious.
E. As to Date Tax vs Penalty
1. generally intended to raise 1. designed to regulate conduct
1. Progressive Tax – the rate or the amount of the tax increases as revenue
the amount of the income or earning (tax base) to be taxed
2. imposed only by the 2. imposed by the government
increases.
government or private individuals or entities
examples: income tax, estate tax, donor’s tax
c. Special Assessment vs Tax
2. Regressive Tax – the tax rate decreases as the amount of
Special Assessment – an enforced proportional
income or earning (tax base) to be taxed increases.
contribution from owners of lands especially or peculiarly benefited
Note: We have no regressive taxes (this is according to De
by public improvements.
Leon)
Tax vs Special Assessment
3. Mixed Tax – tax rates are partly progressive and partly
regressive. 1. imposed on persons, 1. levied only on land
property and excise
4. Proportionate Tax – tax rates are fixed on a flat tax base. 2. personal liability of the 2. not a personal liability of the
examples: real estate tax, VAT, and other percentage person assessed person assessed, i.e. his liability
taxes is limited only to the land
involved
3. based on necessity as well 3. based wholly on benefits
F. As to Scope or authority imposing the tax as on benefits received
4. general application (see 4. exceptional both as time and
TAX ATION
Apostolic Prefect vs Treas. Of place

Baguio, 71 Phil 547) e. Debt vs Tax
Debt is based upon juridical tie, created by law, contracts,
Important Points to Consider Regarding Special delicts or quasi-delicts between parties for their private interest or
Assessments: resulting from their own acts or omissions.
1. Since special assessments are not taxes within the constitutional
or statutory provisions on tax exemptions, it follows that the Tax vs Debt
exemption under Sec. 28(3), Art. VI of the Constitution does not 1. based on law 1. based on contracts, express
apply to special assessments. or implied
2. However, in view of the exempting proviso in Sec. 234 of the 2. generally, cannot be 2. assignable
Local Government Code, properties which are actually, directly and assigned
exclusively used for religious, charitable and educational purposes 3. generally payable in money 3. may be paid in kind
are not exactly exempt from real property taxes but are exempt from 4. generally not subject to set- 4. may be subject to set-off or
the imposition of special assessments as well.( see Aban) off or compensation compensation
3 .The general rule is that an exemption from taxation does not 5. imprisonment is a sanction 5. no imprisonment for non-
include exemption from special assessment. for non-payment of tax except payment of debt
poll tax
d. License or Permit Fee vs Tax 6. governed by special 6. governed by the ordinary
License or Permit fee – is a charge imposed under the prescriptive periods provided for periods of prescriptions
police power for the purposes of regulation. in the Tax Code
7. does not draw interest 7. draws interest when so
Tax vs License/Permit Fee except only when delinquent stipulated, or in case of default
1. enforced contribution 1. legal compensation or
assessed by sovereign authority reward of an officer for specific General Rule: Taxes are not subject to set-off or legal compensation.
to defray public expenses purposes The government and the taxpayer are not creditors and debtors or
2. for revenue purposes 2. for regulation purposes each other. Obligations in the nature of debts are due to the
3. an exercise of the taxing 3. an exercise of the police government in its corporate capacity, while taxes are due to the
power power government in its sovereign capacity ( Philex Mining Corp. vs CIR,
4. generally no limit in the 4. amount is limited to the 294 SCRA 687; Republic vs Mambulao Lumber Co., 6 SCRA 622)
amount of tax to be paid necessary expenses of
inspection and regulation Exception: Where both the claims of the government and the
5. imposed also on persons 5. imposed on the right to taxpayer against each other have already become due and
and property exercise privilege demandable as well as fully liquated. (see Domingo vs Garlitos, L-
6. non-payment does not 6. non-payment makes the act 18904, June 29, 1963)
necessarily make the act or or business illegal
business illegal
Three kinds of licenses are recognized in the law: Pertinent Case:

1. Licenses for the regulation of useful occupations.
2. Licenses for the regulation or restriction of non-useful Philex Mining Corp. vs Commissioner of Internal Revenue
occupations or enterprises G.R. No. 125704, Aug. 28, 1998
3. Licenses for revenue only
The Supreme Court held that: “We have consistently ruled
that there can be no offsetting of taxes against the claims that the
Importance of the distinctions between tax and license fee: taxpayer may have against the government. A person cannot refuse
1. Some limitations apply only to one and not to the other, and that to pay a tax on the ground that the government owes him an amount
exemption from taxes may not include exemption from license fees. equal to or greater than the tax being collected. The collection of a
2. The power to regulate as an exercise of police power does not tax cannot await the results of a lawsuit against the government.”
include the power to impose fees for revenue purposes. (see
American Mail Line vs City of Butuan, L-12647, May 31, 1967 and f. Tax Distinguished from other Terms.
related cases)
3. An extraction, however, maybe considered both a tax and a 1. Subsidy – a pecuniary aid directly granted by the government to
license fee. an individual or private commercial enterprise deemed beneficial to
4. But a tax may have only a regulatory purpose. the public.
5. The general rule is that the imposition is a tax if its primary
purpose is to generate revenue and regulation is merely incidental; 2. Revenue – refers to all the funds or income derived by the
but if regulation is the primary purpose, the fact that incidentally government, whether from tax or from whatever source and whatever
revenue is also obtained does not make the imposition of a tax. (see manner.
Progressive Development Corp. vs Quezon City, 172 SCRA 629)
TAX ATION
3. Customs Duties – taxes imposed on goods exported from or - taxes paid - no transfer but - property is taken by
imported into a country. The term taxes is broader in scope as it become part of only restraint on the gov’t upon
includes customs duties. public funds the exercise of payment of just
property right compensation
4. Tariff – it may be used in 3 senses: exists
a. As a book of rates drawn usually in alphabetical order SCOPE
containing the names of several kinds of merchandise with the - affects all - affects all - affects only the
corresponding duties to be paid for the same. persons, persons, particular property
b. As duties payable on goods imported or exported (PD No. 230) property and property, comprehended
c. As the system or principle of imposing duties on the excise privileges, and
importation/exportation of goods. even rights
BASIS
5. Internal Revenue – refers to taxes imposed by the legislative - public - public necessity -public necessity,
other than duties or imports and exports. necessity and the right of private property is
the state and the taken for public use
6. Margin Fee – a currency measure designed to stabilize the public to self-
currency. protection and
self-preservation
7. Tribute – synonymous with tax; taxation implies tribute from the AUTHORITY WHICH EXERCISES THE POWER
governed to some form of sovereignty. - only by the - only by the - may be granted to
government or government or its public service,
8. Impost – in its general sense, it signifies any tax, tribute or duty. its political political companies, or public
In its limited sense, it means a duty on imported goods and subdivisions subdivisions utilities
merchandise.
III. Limitations on the Power of Taxation
Inherent Powers of the State
Limitations, Classified
1. Police Power
2. Power of Eminent Domain a. Inherent Limitations or those which restrict the power although
3. Power of Taxation they are not embodied in the Constitution [P N I T E]
Distinctions among the Three Powers 1. Public Purpose of Taxes
2. Non-delegability of the Taxing Power
Taxation Police Power Eminent Domain 3. Territoriality or the Situs of Taxation
PURPOSE 4. Exemption of the Government from taxes
- levied for the - exercised to - taking of property for 5. International Comity
purpose of promote public public use
raising revenue welfare thru b. Constitutional Limitations or those expressly found in the
regulations constitution or implied from its provision
AMOUNT OF EXACTION
- no limit - limited to the - no exaction, 1. Due process of law
cost of compensation paid by 2. Equal protection of law
regulations, the government 3. Freedom of Speech and of the press
issuance of the 4. Non-infringement of religious freedom
license or 5. Non-impairment of contracts
surveillance 6. Non-imprisonment for debt or non-payment of poll tax
BENEFITS RECEIVED 7. Origin of Appropriation, Revenue and Tariff Bills
- no special or - no direct - direct benefit results 8. Uniformity, Equitability and Progressitivity of Taxation
direct benefits benefits but a in the form of just 9. Delegation of Legislative Authority to Fx Tariff Rates, Import and
received but the healthy economic compensation Export Quotas
enjoyment of standard of 10. Tax Exemption of Properties Actually, Directly, and Exclusively
the privileges of society or used for Religious Charitable
living in an “damnum 11. Voting requirements in connection with the Legislative Grant of
organized absque injuria” is Tax Exemption
society attained 12. Non-impairment of the Supreme Courts’ jurisdiction in Tax Cases
NON-IMPAIRMENT OF CONTRACTS 13. Tax exemption of Revenues and Assets, including Grants,
- the impairment - contract may be - contracts may be Endowments, Donations or Contributions to Education Institutions
rule subsist impaired impaired
TRANSFER OF PROPERTY RIGHTS c. Other Constitutional Provisions related to Taxation
TAX ATION
c. Theoretical Justice – the tax burden should be in proportion to the

1. Subject and Title of Bills taxpayer’s ability to pay (ability-to-pay principle). The 1987
2. Power of the President to Veto an items in an Appropriation, Constitution requires taxation to be equitable and uniform.
Revenue or Tariff Bill
3. Necessity of an Appropriation made before money
4. Appropriation of Public Money B. Non-delegability of Taxing Power
5. Taxes Levied for Special Purposes
6. Allotment to LGC 1. Rationale: Doctrine of Separation of Powers; Taxation is
purely legislative, Congress cannot delegate
Inherent Limitations the power to others.
A. Public Purpose of Taxes 2. Exceptions:

1. Important Points to Consider: a. Delegation to the President (Art.VI. Sec. 28(2) 1987
a. If taxation is for a public purpose, the tax must be used: Constitution)
a.1) for the support of the state or The power granted to Congress under this constitutional
a.2) for some recognized objects of governments or provision to authorize the President to fix within specified limits and
a.3) directly to promote the welfare of the community subject to such limitations and restrictions as it may impose, tariff
(taxation as an implement of police power) rates and other duties and imposts include tariffs rates even for
revenue purposes only. Customs duties which are assessed at the
b. The term “public purpose” is synonymous with prescribed tariff rates are very much like taxes which are frequently
“governmental purpose”; a purpose affecting the inhabitants of the imposed for both revenue-raising and regulatory purposes (Garcia vs
state or taxing district as a community and not merely as individuals. Executive Secretary, et. al., G.R. No. 101273, July 3, 1992)
c. A tax levied for a private purpose constitutes a taking of b. Delegations to the Local Government (Art. X. Sec. 5,
property without due process of law. 1987 Constitution)
It has been held that the general principle against the
d. The purposes to be accomplished by taxation need not be delegation of legislative powers as a consequence of the theory of
exclusively public. Although private individuals are directly benefited, separation of powers is subject to one well-established exception,
the tax would still be valid provided such benefit is only incidental. namely, that legislative power may be delegated to local
governments. The theory of non-delegation of legislative powers
e. The test is not as to who receives the money, but the does not apply in maters of local concern. (Pepsi-Cola Bottling Co. of
character of the purpose for which it is expended; not the immediate the Phil, Inc. vs City of Butuan, et . al., L-22814, Aug. 28, 1968)
result of the expenditure but rather the ultimate.
c. Delegation to Administrative Agencies with respect to
g. In the imposition of taxes, public purpose is presumed. aspects of Taxation not legislative in character.
example: assessment and collection
2. Test in determining Public Purposes in tax 3. Limitations on Delegation
a. Duty Test – whether the thing to be threatened by the a. It shall not contravene any Constitutional provisions or
appropriation of public revenue is something which is the duty of the inherent limitations of taxation;
State, as a government. b. The delegation is effected either by the Constitution or
by validly enacted legislative measures or statute; and
b. Promotion of General Welfare Test – whether the law providing the c. The delegated levy power, except when the delegation is
tax directly promotes the welfare of the community in equal measure. by an express provision of Constitution itself, should only be in favor
of the local legislative body of the local or municipal government
concerned.
Basic Principles of a Sound Tax System (FAT)
4. Tax Legislation vis-à-vis Tax Administration - Every system
a. Fiscal Adequacy – the sources of tax revenue should coincide of taxation consists of two parts:
with, and approximate the needs of government expenditure. Neither a. the elements that enter into the imposition of the tax [S 2
an excess nor a deficiency of revenue vis-à-vis the needs of A P K A M], or tax regulation; and
government would be in keeping with the principle. b. the steps taken for its assessment and collection or tax
administration
b. Administrative Feasibility – tax laws should be capable of If what is delegated is tax legislation, the delegation is
convenient, just and effective administration. invalid; but if what is involved is only tax administration, the non-
delegability rule is not violated.
TAX ATION
C. Territoriality or Situs of Taxation b. The grounds for the above rule are:
b.1) sovereign equality among states
1. Important Points to Consider: b.2) usage among states that when one enter into the
a. Territoriality or Situs of Taxation means “place of taxation” territory of another, there is an implied understanding that the power
depending on the nature of taxes being imposed. does not intend to degrade its dignity by placing itself under the
b. It is an inherent mandate that taxation shall only be jurisdiction of the latter
exercised on persons, properties, and excise within the territory of b.3) foreign government may not be sued without its
the taxing power because: consent so that it is useless to assess the tax since it cannot be
b.1) Tax laws do not operate beyond a country’s territorial collected
limit. b.4) reciprocity among states
b.2) Property which is wholly and exclusively within the
jurisdiction of another state receives none of the protection Constitutional Limitations
for which a tax is supposed to be compensation.
1. Due Process of Law
c. However, the fundamental basis of the right to tax is the
capacity of the government to provide benefits and protection a. Basis: Sec. 1 Art. 3 “No person shall be deprived of life,
to the object of the tax. A person may be taxed, even if he is liberty or property without due process of law x x x.”
outside the taxing state, where there is between him and the
taxing state, a privity of relationship justifying the levy. Requisites :
1. The interest of the public generally as
2. Factors to Consider in determining Situs of Taxation distinguished from those of a particular class require the intervention
a. kind and Classification of the Tax of the state;
b. location of the subject matter of the tax 2. The means employed must be reasonably
c. domicile or residence of the person necessary to the accomplishment for the purpose and not unduly
d. citizenship of the person oppressive;
e. source of income 3. The deprivation was done under the authority of
f. place where the privilege, business or occupation is being a valid law or of the constitution; and
exercised 4. The deprivation was done after compliance with
fair and reasonable method of procedure prescribed by law.
In a string of cases, the Supreme Court held that in
D. Exemption of the Government from Taxes order that due process of law must not be done in an arbitrary,
despotic, capricious, or whimsical manner.
1. Important Points to Consider:
Reasons for Exemptions: 2. Equal Protection of the Law
a.1) To levy tax upon public property would render
necessary new taxes on other public property for the a. Basis: Sec.1 Art. 3 “ xxx Nor shall any person be denied
payment of the tax so laid and thus, the government would the equal protection of the laws.
be taxing itself to raise money to pay over to itself; Important Points to Consider:
a.2) In order that the functions of the government shall not 1. Equal protection of the laws signifies that all
be unduly impede; and persons subject to legislation shall be treated under circumstances
a.3) To reduce the amount of money that has to be handed and conditions both in the privileges conferred and liabilities imposed
by the government in the course of its operations. 2. This doctrine prohibits class legislation which
2. Unless otherwise provided by law, the exemption applies discriminates against some and favors others.
only to government entities through which the government
immediately and directly exercises its sovereign powers b. Requisites for a Valid Classification
(Infantry Post Exchange vs Posadas, 54 Phil 866) 1. Must not be arbitrary
3. Notwithstanding the immunity, the government may tax itself 2. Must not be based upon substantial distinctions
in the absence of any constitutional limitations. 3. Must be germane to the purpose of law.
4. Government-owned or controlled corporations, when 4. Must not be limited to exiting conditions only; and
performing proprietary functions are generally subject to tax in 5. Must play equally to all members of a class.
the absence of tax exemption provisions in their charters or
law creating them. 3. Uniformity, Equitability and Progressivity of Taxation
E. International Comity a. Basis: Sec. 28(1) Art. VI. The rule of taxation shall be
uniform and equitable. The Congress shall evolve a
1. Important Points to Consider: progressive system of taxation.
a. The property of a foreign state or government may not be b. Important Points to Consider:
taxed by another. 1. Uniformity (equality or equal protection of the laws)
means all taxable articles or kinds or property of the same class shall
TAX ATION
be taxed at the same rate. A tax is uniform when the same force and
effect in every place where the subject of it is found. 7. Non-imprisonment for non-payment of poll tax
2. Equitable means fair, just, reasonable and
proportionate to one’s ability to pay. a. Basis: Sec. 20 Art. III. “No person shall be imprisoned for
3. Progressive system of Taxation places stress on debt or non-payment of poll tax.”
direct rather than indirect taxes, or on the taxpayers’ ability to pay b. Important Points to Consider:
4. Inequality which results in singling out one particular 1. The only penalty for delinquency in payment is
class for taxation or exemption infringes no constitutional limitation. the payment of surcharge in the form of interest at the rate of 24%
(see Commissioner vs. Lingayen Gulf Electric, 164 SCRA 27) per annum which shall be added to the unpaid amount from due date
5. The rule of uniformity does not call for perfect until it is paid. (Sec. 161, LGC)
uniformity or perfect equality, because this is hardly attainable. 2. The prohibition is against “imprisonment” for
“non-payment of poll tax”. Thus, a person is subject to imprisonment
4. Freedom of Speech and of the Press for violation of the community tax law other than for non-payment of
the tax and for non-payment of other taxes as prescribed by law.
a. Basis: Sec. 4 Art. III. No law shall be passed abridging the
freedom of speech, of expression or of the pressx x x “ 8. Origin or Revenue, Appropriation and Tariff Bills
b. Important Points to Consider:
1. There is curtailment of press freedom and a. Basis: Sec. 24 Art. VI. “All appropriation, revenue or tariff
freedom of thought if a tax is levied in order to suppress the basic bills, bill authorizing increase of the public debt, bills of local
right of the people under the Constitution. application, and private bills shall originate exclusively in the
2. A business license may not be required for the House of Representatives, but the Senate may propose or
sale or contribution of printed materials like newspaper for such concur with amendments.”
would be imposing a prior restraint on press freedom b. Under the above provision, the Senator’s power is not only
3. However, an annual registration fee on all to “only concur with amendments” but also “to propose
persons subject to the value-added tax does not constitute a restraint amendments”. (Tolentino vs Sec. of Finance, supra)
on press freedom since it is not imposed for the exercise of a
privilege but only for the purpose of defraying part of cost of 9. Delegation of Legislative Authority to Fix Tariff Rates, Imports
registration. and Export Quotas
5. Non-infringement of Religious Freedom a. Basis: Sec. 28(2) Art. VI “x x x The Congress may, by law,
authorize the President to fix within specified limits, and subject
a. Basis: Sec. 5 Art. III. “No law shall be made respecting an to such limitations and restrictions as it may impose, tariff rates,
establishment of religion or prohibiting the free exercise import and export quotas, tonnage and wharfage dues, and
thereof. The free exercise and enjoyment of religious other duties or imposts within the framework of the national
profession and worship, without discrimination or preference, development program of the government.
shall be forever be allowed. x x x”
b. Important Points to Consider: 10. Tax Exemption of Properties Actually, Directly and
1. License fees/taxes would constitute a restraint on the Exclusively used for Religious, Charitable and Educational Purposes
freedom of worship as they are actually in the nature of a condition or
permit of the exercise of the right. a. Basis: Sec. 28(3) Art. VI. “Charitable institutions, churches
2. However, the Constitution or the Free Exercise of and parsonages or convents appurtenant thereto, mosques,
Religion clause does not prohibit imposing a generally applicable non-profit cemeteries, and all lands, building, and
sales and use tax on the sale of religious materials by a religious improvements actually, directly and exclusively used for
organization. (see Tolentino vs Secretary of Finance, 235 SCRA religious, charitable or educational purposes shall be exempt
630) from taxation.”
b. Important Points to Consider:
6. Non-impairment of Contracts 1. Lest of the tax exemption: the use and not
ownership of the property
a. Basis: Sec. 10 Art. III. “No law impairing the obligation of 2. To be tax-exempt, the property must be actually,
contract shall be passed.” directly and exclusively used for the purposes mentioned.
b. Important Points to Consider: 3. The word “exclusively” means “primarily’.
1. A law which changes the terms of the contract by 4. The exemption is not limited to property actually
making new conditions, or changing those in the contract, or indispensable but extends to facilities which are incidental to and
dispenses with those expressed, impairs the obligation. reasonably necessary for the accomplishment of said purposes.
2. The non-impairment rule, however, does not apply to 5. The constitutional exemption applies only to
public utility franchise since a franchise is subject to amendment, property tax.
alteration or repeal by the Congress when the public interest so 6. However, it would seem that under existing law,
requires. gifts made in favor or religious charitable and educational
TAX ATION
organizations would nevertheless qualify for donor’s gift tax and other miscellaneous feed such as matriculation, library, ROTC,
exemption. (Sec. 101(9)(3), NIRC) etc. fees, but it also extends to incidental income derived from
canteen, bookstore and dormitory facilities.
11. Voting Requirements in connection with the Legislative 2. In the case, however, of incidental income, the facilities
Grant for tax exemption mentioned must not only be owned and operated by the school itself
but such facilities must be located inside the school campus.
a. Basis: Sec. 28(4) Art. VI. “No law granting any tax Canteens operated by mere concessionaires are taxable.
exemption shall be passed without the concurrence of a 3. Income which is unrelated to school operations like income
majority of all the members of the Congress.” from bank deposits, trust fund and similar arrangements, royalties,
b. The above provision requires the concurrence of a majority dividends and rental income are taxable.
not of attendees constituting a quorum but of all members of 4. The use of the school’s income or assets must be in
the Congress. consonance with the purposes for which the school is created; in
short, use must be school-related, like the grant of scholarships,
12. Non-impairment of the Supreme Courts’ jurisdiction in Tax faculty development, and establishment of professional chairs,
Cases school building expansion, library and school facilities.
a. Basis: Sec. 5 (2) Art. VIII. “The Congress shall have the
power to define, prescribe, and apportion the jurisdiction of the Other Constitutional Provisions related to Taxation
various courts but may not deprive the Supreme Court of its
jurisdiction over cases enumerated in Sec. 5 hereof.” 1. Subject and Title of Bills (Sec. 26(1) 1987 Constitution)
Sec. 5 (2b) Art. VIII. “The Supreme Court shall have
the following powers: x x x(2) Review, revise, modify or affirm “Every Bill passed by Congress shall embrace only
on appeal or certiorari x x x final judgments and orders of lower one subject which shall be expressed in the title thereof.”
courts in x x x all cases involving the legality of any tax, impost,
assessment, or toll or any penalty imposed in relation thereto.”  in the Tolentino E-VAT case, supra, the E-vat, or the
Expanded Value Added Tax Law (RA 7716) was also questioned
13. Tax Exemptions of Revenues and Assets, including grants, on the ground that the constitutional requirement on the title of a
endowments, donations or contributions to Educational Institutions bill was not followed.
a. Basis: Sec. 4(4) Art. XIV. “Subject to the conditions 2. Power of the President to Veto items in an Appropriation,
prescribed by law, all grants, endowments, donations or Revenue or Tariff Bill (Sec. 27(2), Art. VI of the 1987 Constitution)
contributions used actually, directly and exclusively for
educational purposes shall be exempt from tax.” “The President shall have the power to veto any
b. Important Points to Consider: particular item or items in an Appropriation, Revenue or Tariff bill but
1. The exemption granted to non-stock, non-profit educational the veto shall not affect the item or items to which he does not
institution covers income, property, and donor’s taxes, and custom object.”
duties.
2. To be exempt from tax or duty, the revenue, assets, property 3. Necessity of an Appropriation made before money may be
or donation must be used actually, directly and exclusively for paid out of the Treasury (Sec. 29(1), Art. VI of the 1987 Constitution)
educational purpose.
3. In the case or religious and charitable entities and non-profit “No money shall be paid out of the Treasury except in
cemeteries, the exemption is limited to property tax. pursuance of an appropriation made by law.”
4. The said constitutional provision granting tax exemption to
non-stock, non-profit educational institution is self-executing. 4. Appropriation of Public Money for the benefit of any Church,
5. Tax exemptions, however, of proprietary (for profit) Sect, or System of Religion (Sec. 29(2), Art. VI of the 1987
educational institutions require prior legislative implementation. Their Constitution)
tax exemption is not self-executing.
6. Lands, Buildings, and improvements actually, directly, and ”No public money or property shall be appropriated,
exclusively used for educational purposed are exempt from property applied, paid or employed, directly or indirectly for the use, benefit,
tax, whether the educational institution is proprietary or non-profit. support of any sect, church, denomination, sectarian institution, or
system of religion or of any priest, preacher, minister, or other
c. Department of Finance Order No. 137-87, dated Dec. 16, religious teacher or dignitary as such except when such priest,
1987 preacher, minister or dignitary is assigned to the armed forces or to
any penal institution, or government orphanage or leprosarium.”
The following are some of the highlights of the DOF order
governing the tax exemption of non-stock, non-profit educational 5. Taxes levied for Special Purpose (Sec. 29(3), Art. VI of the
institutions: 1987 Constitution)
1. The tax exemption is not only limited to revenues and
assets derived from strictly school operations like income from tuition
TAX ATION
“All money collected or any tax levied for a special 3. Legislative Power to Fix Situs
purpose shall be treated as a special fund and paid out for such If no constitutional provisions are violated, the power of the
purpose only. It the purpose for which a special fund was created has legislative to fix situs is undoubted.
been fulfilled or abandoned the balance, if any, shall be transferred to
the general funds of the government.” Example: our law fixes the situs of intangible personal
property for purposes of the estate and gift taxes. (see Sec. 104,
 An example is the Oil Price Stabilization Fund created under 1997 NIRC)
P.D. 1956 to stabilize the prices of imported crude oil. In a decide
case, it was held that where under an executive order of the Note: In those cases where the situs for certain intangibles
President, this special fund is transferred from the general fund to are not categorically spelled out, there is room for applying the
a “trust liability account,” the constitutional mandate is not mobilia rule.
violated. The OPSF, according to the court, remains as a special
fund subject to COA audit (Osmeňa vs Orbos, et al., G.R. No. 4. Double Taxation and the Situs Limitation (see later topic)
99886, Mar. 31, 1993)
Criteria in Fixing Tax Situs of Subject of Taxation
6. Allotment to Local Governments
 Basis: Sec. 6, Art. X of the 1987 Constitution a. Persons – Poll tax may be levied upon persons who are
“Local Government units shall have a just share, as residents of the State.
determined by law, in the national taxes which shall be b. Real Property – is subject to taxation in the State in which it
automatically released to them.” is located whether the owner is a resident or non-resident, and is
taxable only there.
 Rule of Lex Rei Sitae
c. Tangible Personal property – taxable in the state where it
IV. Situs of Taxation and Double Taxation has actual situs – where it is physically located. Although the owner
resides in another jurisdiction.
Situs of Taxation
 Rule of Lex Rei Sitae
1. Situs of Taxation literally means the Place of Taxation.
2. Basic Rule – state where the subject to be taxed has a situs d. Intangible Personal Property – situs or personal property is
may rightfully levy and collect the tax the domicile of the owner, in accordance with the principle “MOBILIA
SEQUUNTUR PERSONAM”, said principle, however, is not
 Some Basic Considerations Affecting Situs of Taxation controlling when it is inconsistent with express provisions of statute
1. Protection or when justice demands that it should be, as where the property has
A legal situs cannot be given to property for the purpose of in fact a situs elsewhere. (see Wells Fargo Bank v. Collector 70 PHIL
taxation where neither the property nor the person is within the 325; Collector v. Fisher L-11622, January, 1961)
protection of the taxing state
In the case of Manila Electric Co. vs Yatco (69 Phil 89) , the e. Income – properly exacted from persons who are residents
Supreme Court ruled that insurance premium paid on a fire insurance or citizens in the taxing jurisdiction and even those who are neither
policy covering property situated in the Phils. are taxable in the Phils. residents nor citizens provided the income is derived from sources
Even though the fire insurance contract was executed outside the within the taxing state.
Phils. and the insurance policy is delivered to the insured therein.
This is because the Philippines Government must get something in f. Business, Occupation, and Transaction – power to levy an
return for the protection it gives to the insured property in the Phils. excise tax depends upon the place where the business is done, of
and by reason of such protection, the insurer is benefited thereby. the occupation is engaged in of the transaction not place.
2. The maxim of Mobilia Sequuntur Personam and Situs of

Taxation g. Gratuitous Transfer of Property – transmission of property
According to this maxim, which means ”movable follow the from donor to donee, or from a decedent to his heirs may be subject
person,” the situs of personal property is the domicile of the owner. to taxation in the state where the transferor was a citizen or resident,
This is merely a fiction of law and is not allowed to stand in the way or where the property is located.
of taxation of personalty in the place where it has its actual situs and
the requisite legislative jurisdiction exists. V. Multiplicity of Situs
Example: shares of stock may have situs for purposes of There is multiplicity of situs when the same subject of
taxation in a state in which they are permanently kept regardless of taxation, like income or intangible, is subject to taxation in several
the domicile of the owner, or the state in which he corporation is taxing jurisdictions. This happens due to:
organized. a. Variance in the concept of “domicile” for tax purposes;
b. Multiple distinct relationship that may arise with respect to
intangible personality; and
TAX ATION
c. The use to which the property may have been devoted, all Double Taxation in its stricter sense is undoubtedly
of which may receive the protection of the laws of jurisdiction other unconstitutional but that in the broader sense is not necessarily so.
than the domicile of the owner General Rule: Our Constitution does not prohibit double taxation;
hence, it may not be invoked as a defense against the validity of tax
Remedy – taxation jurisdiction may provide: laws.
a. Exemption or allowance of deductions or tax credit for a. Where a tax is imposed by the National Government and
foreign taxes another by the city for the exercise of occupation or business as the
b. Enter into treaties with other states taxes are not imposed by the same public authority ( City of Baguio
vs De Leon, Oct. 31, 1968)
b. When a Real Estate dealer’s tax is imposed for engaging in
Double Taxation the business of leasing real estate in addition to Real Estate Tax on
the property leased and the tax on the income desired as they are
Two (2) Kinds of Double Taxation different kinds of tax
1. Obnoxious or Direct Duplicate Taxation (Double taxation in its c. Tax on manufacturer’s products and another tax on the
strict sense) - In the objectionable or prohibited sense means that the privilege of storing exportable copra in warehouses within a
same property is taxed twice when it should be taxed only once. municipality are imposed as first tax is different from the second
d. Where, aside from the tax, a license fee is imposed in the
Requisites: exercise of police power.
1. Same property is taxed twice
2. Same purpose Exception: Double Taxation while not forbidden, is something not
3. Same taxing authority favored. Such taxation, it has been held, should, whenever possible,
4. Within the same jurisdiction be avoided and prevented.
5. During the same taxing period a. Doubts as to whether double taxation has been imposed
6. Same kind or character of tax should be resolved in favor of the taxpayer. The reason is to avoid
injustice and unfairness.
2. Permissive or Indirect Duplicate Taxation (Double taxation in b. The taxpayer may seek relief under the Uniformity Rule or
its broad sense) – This is the opposite of direct double taxation and is the Equal Protection guarantee.
not legally objectionable. The absence of one or more of the Forms of Escape from Taxation
foregoing requisites of the obnoxious direct tax makes it indirect.
 Six Basic Forms of Escape from Taxation
 Instances of Double Taxation in its Broad Sense 1. Shifting
1. A tax on the mortgage as personal property when the 2. Capitalization
mortgaged property is also taxed at its full value as real estate; 3. Transformation
2. A tax upon a corporation for its capital stock as a whole and 4. Evasion
upon the shareholders for their shares; 5. Avoidance
3. A tax upon a corporation for its capital stock as a whole and 6. Exemption
upon the shareholders for their shares;
4. A tax upon depositions in the bank for their deposits and a 1. Shifting – Transfer of the burden of a tax by the original payer
tax upon the bank for their property in which such deposits are or the one on whom the tax was assessed or imposed to another or
invested someone else
5. An excise tax upon certain use of property and a property tax Impact of taxation – is the point at which a tax is originally
upon the same property; and imposed.
6. A tax upon the same property imposed by two different Incidence of Taxation – is the point on which a tax burden
states. finally rests or settles down.
Relations among Shifting, Impact and Incidence of
 Means to Reduce the Harsh Effect of Taxation Taxation – the impact is the initial phenomenon, the shifting is the
1. Tax Deduction – subtraction from gross income in arriving a intermediate process, and the incidence is the result.
taxable income Kinds of Shifting:
2. Tax Credit – an amount subtracted from an individual’s or a. Forward Shifting – the burden of tax is transferred
entity’s tax liability to arrive at the total tax liability from a factor of production through the factors of distribution until it
finally settles on the ultimate purchaser or consumer
 A deduction differ from a tax credit in that a deduction b. Backward Shifting – effected when the burden of
reduces taxable income while credit reduces tax liability tax is transferred from the consumer or purchaser through the factors
of distribution to the factor of production
3. Exemptions c. Onward Shifting – this occurs when the tax is
4. Treaties with other States shifted two or more times either forward or backward
5. Principle of Reciprocity
 Constitutionality
TAX ATION
2. Capitalization, defined – the reduction in the price of the

taxed object equal to the capitalized value of future taxes which the C. Rationale of tax Exemption
purchaser expects to be called upon to pay Public interest would be subserved by the exemption
allowed which the law-making body considers sufficient to offset
3. Transformation – The method whereby the manufacturer or monetary loss entailed in the grant of the exemption. (CIR vs
producer upon whom the tax has been imposed, fearing the loss of Bothelo Shipping Corp., L-21633, June 29, 1967; CIR vs PAL,
his market if he should add the tax to the price, pays the tax and L-20960, Oct. 31, 1968)
endeavors to recoup himself by improving his process of production
thereby turning out his units of products at a lower cost. D. Grounds for Tax Exemptions
1. May be based on a contract in which case, the public
4. Tax Evasion – is the use of the taxpayer of illegal or represented by the Government is supposed to receive a full
fraudulent means to defeat or lessen the payment of a tax. equivalent therefore
2. May be based on some ground of public policy, such as, for
 Indicia of Fraud in Taxation example, to encourage new and necessary industries.
a. Failure to declare for taxation purposes true and actual 3. May be created in a treaty on grounds of reciprocity or to
income derived from business for two consecutive years, and lessen the rigors of international double or multiple taxation which
b. Substantial underdeclaration of income tax returns of the occur where there are many taxing jurisdictions, as in the taxation of
taxpayer for four consecutive years coupled with overstatement of income and intangible personal property
deduction.
E. Equity, not a ground for Tax Exemption
 Evasion of the tax takes place only when there are no There is no tax exemption solely on the ground of equity,
proceeds. Evasion of Taxation is tantamount, fiscally speaking, to the but equity can be used as a basis for statutory exemption. At times
absence of taxation. the law authorizes condonation of taxes on equitable considerations.
(Sec 276, 277, Local Government Code)
5. Tax Avoidance – is the use by the taxpayer of legally
permissible alternative tax rates or method of assessing taxable F. Kinds of Tax Exemptions
property or income in order to avoid or reduce tax liability. 1. As to basis
 Tax Avoidance is not punishable by law, a taxpayer has the a. Constitutional Exemptions – Immunities from taxation
legal right to decrease the amount of what otherwise would be his which originate from the Constitution
taxes or altogether avoid by means which the law permits. b. Statutory Exemptions – Those which emanate from
Legislation
Distinction between Tax Evasion and Avoidance
2. As to form
Tax Evasion vs Tax Avoidance a. Express Exemption – Whenever expressly granted by
accomplished by breaking accomplished by legal organic or statute of law
the letter of the law procedures or means which b. Implied Exemption – Exist whenever particular persons,
maybe contrary to the intent of properties or excises are deemed exempt as they fall outside the
the sponsors of the tax law but scope of the taxing provision itself
nevertheless do not violate the
letter of the law 3. As to extent
a. Total Exemption – Connotes absolute immunity
b. Partial Exemption – One where collection of a part of the
VI. Exemption from Taxation tax is dispensed with
A. Tax Exemption – is a grant of immunity, express or implied, to G. Principles Governing the Tax Exemption
particular persons or corporations from the obligations to pay taxes. 1. Exemptions from taxation are highly disfavored by law, and
he who claims an exemption must be able to justify by the clearest
B. Nature of Tax Exemption grant of organic or statute of law. (Asiatic Petroleum vs Llanes, 49
1. It is merely a personal privilege of the grantee PHIL 466; Collector of Internal Revenue vs. Manila Jockey Club, 98
2. It is generally revocable by the government unless the PHIL 670)
exemption is founded on a contract which is protected from 2. He who claims an exemption must justify that the legislative
impairment, but the contract must contain the other essential intended to exempt him by words too plain to be mistaken. (Visayan
elements of contracts, such as, for example, a valid cause or Cebu Terminal vs CIR, L-19530, Feb. 27, 1965)
consideration. 3. He who claims exemptions should convincingly proved that
3. It implies a waiver on the part of the government of its right he is exempt
to collect what otherwise would be due to it, and in this sense is 4. Tax exemptions must be strictly construed (Phil. Acetylene
prejudicial thereto. vs CIR, L-19707, Aug. 17, 1967)
4. It is not necessarily discriminatory so long as the 5. Tax Exemptions are not presumed. (Lealda Electric Co. vs
exemption has a reasonable foundation or rational basis. CIR, L-16428, Apr. 30, 1963)
TAX ATION
6. Constitutional grants of tax exemptions are self-executing

(Opinion No. 130, 1987, Sec. Of Justice) Taxpayer’s Suit - It is only when an act complained of, which may
7. Tax exemption are personal. include legislative enactment, directly involves the illegal
8. Deductions for income tax purposes partake of the nature of disbursement of public funds derived from taxation that the
tax exemptions, hence, they are strictly construed against the tax taxpayer’s suit may be allowed.
payer
9. A tax amnesty, much like a tax exemption is never favored VIII. Interpretation and Construction of Tax Statutes
or presumed by law (CIR vs CA, G.R. No. 108576, Jan. 20, 1999) Important Points to Consider:
10. The rule of strict construction of tax exemption should not be 1. On the interpretation and construction of tax statutes,
applied to organizations performing strictly religious, charitable, and legislative intention must be considered.
educational functions
2. In case of doubt, tax statutes are construed strictly against
VII. Other Doctrines in Taxation the government and liberally construed in favor of the taxpayer.
Prospectivity of Tax Laws 3. The rule of strict construction against the government is not
applicable where the language of the tax law is plain and there is no
General Rule: Taxes must only be imposed prospectively doubt as to the legislative intent.
Exception: The language of the statute clearly demands or express 4. The exemptions (or equivalent provisions, such as tax
that it shall have a retroactive effect. amnesty and tax condonation) are not presumed and when granted
are strictly construed against the grantee.
Important Points to Consider 5. The exemptions, however, are construed liberally in favor of
1. In order to declare a tax transgressing the due process clause the grantee in the following:
of the Constitution it must be so harsh and oppressive in its a. When the law so provides for such liberal construction;
retroactive application (Fernandez vs Fernandez, 99 PHIL934) b. Exemptions from certain taxes granted under special
2. Tax laws are neither political nor penal in nature they are circumstances to special classes of persons;
deemed laws of the occupied territory rather than the occupying c. Exemptions in favor of the Government, its political
enemy. (Hilado vs Collector, 100 PHIL 288) subdivisions;
3. Tax laws not being penal in character, the rule in the d. Exemptions to traditional exemptees, such as, those in
Constitution against the passage of the ex post facto laws cannot be favor of charitable institutions.
invoked, except for the penalty imposed.
6. The tax laws are presumed valid.
Imprescriptibility of Taxes
7. The power to tax is presumed to exist.
General Rule: Taxes are imprescriptible
TAX ADMINISTRATION AND ENFORCEMENT
Exception: When provided otherwise by the tax law itself.
Example: NIRC provides for statutes of limitation in the
assessment and collection of taxes therein imposed Agencies Involved in Tax Administration
Important Point to Consider 1. Bureau of Internal Revenue and the Bureau of

1. The law on prescription, being a remedial measure, should be Customs for internal revenue and customs law
liberally construed to afford protection as a corollary, the exceptions enforcement. It is noteworthy to note that the BIR is
to the law on prescription be strictly construed. (CIR vs CA. G.R. No. largely decentralized in that a great extent of tax
104171, Feb. 24, 1999) enforcement duties are delegated to the Regional
Directors and Revenue District Officers.
Doctrine of Equitable Recoupment
It provides that a claim for refund barred by prescription may 2. Provincial, City and Municipal assessors and
be allowed to offset unsettled tax liabilities should be pertinent only to treasures for local and real property taxes.
taxes arising from the same transaction on which an overpayment is
made and underpayment is due.
Agents and Deputies for Collection of National Internal Revenue
This doctrine, however, was rejected by the Supreme Taxes
Court, saying that it was not convinced of the wisdom and proprietary
thereof, and that it may work to tempt both the collecting agency and
Under Sec. 12 of the 1997 NIRC, the following are
the taxpayer to delay and neglect their respective pursuits of legal
constituted as agents of the Commissioner:
action within the period set by law. (Collector vs UST, 104 PHIL
1062)
TAX ATION
a. The Commissioner of Customs and his subordinates exceptions in the interest of justice and fair play, as where injustice
with respect to the collection of national internal will result to the taxpayer.
revenue taxes on imported goods;
b. The head of the appropriate government office and his Estoppel Against the Taxpayer
subordinates with respect to the collection of energy
tax; and While the principle of estoppel may not be invoked against
c. Banks duly accredited by the Commissioner with the government, this is not necessarily true in case of the taxpayer.
respect to receipt of payments of internal revenue In CIR vs. Suyac, 104 Phil 819 , the taxpayer made several requests
taxes authorized to be made through banks. for the reinvestigation of its tax liabilities such that the government,
acceding to the taxpayers request, postponed the collection of its
liability. The taxpayer cannot later on be permitted to raise the
Bureau of Internal Revenue defense of prescription inasmuch as his previous requests for
reinvestigation have the effect of placing him in estoppel.
 Powers and Duties
a. Exclusive and original power to interpret provisions of

the NIRC and other tax laws, subject to review by the Nature and Kinds of Assessments
Secretary of Finance;
b. Assessment and Collection of all national internal An assessment is the official action of an administrative
revenue taxes, fees and charges; officer determining the amount of tax due from a taxpayer, or it may
c. Enforcement of all forfeitures, penalties and fines be the notice to the effect that the amount therein stated is due from
connected therewith; the taxpayer that the payment of the tax or deficiency stated therein.
d. Execution of judgment in all cases decided in its favor (Bisaya Land Transportation Co. vs CIR, 105 Phil 1338)
by the Court of Tax Appeals and the ordinary courts.
e. Effecting and administering the supervisory and police Classifications:
powers conferred to it by the Tax Code or other laws.
f. Obtaining information, summoning, examining and a. Self-assessment- Tax is assessed by the taxpayer
taking testimony of persons for purposes of himself. The amount is reflected in the tax return that
ascertaining the correctness of any return or in is filed by him and the tax is paid at the time he files
determining the liability of any person for any internal his return. (Sec. 56 [A] {1], 1997 NIRC)
revenue tax, or in collecting any such liability. b. Deficiency Assessment- This is an assessment made
by the tax assessor whereby the correct amount of the
tax is determined after an examination or investigation
Rule of “ No Estoppel Against the Government” is conducted. The liability is determined and is;
therefore, assessed for the following reasons:
It is a settled rule of law that in the performance of its 1. The amount ascertained exceeds that which
governmental functions, the state cannot be estopped by the neglect is shown as tax by the taxpayer in his return;
of its agents and officers. Nowhere is it more true than in the field of 2. No amount is shown in the return or;
taxation (CIR vs. Abad, et. al., L-19627, June 27, 1968 ). Estoppel 3. The taxpayer did not file any return at all.
does not apply to preclude the subsequent findings on taxability (Sec. 56 [B] ]1] and [2] 1997 NIRC)
(Ibid.)
c. Illegal and Void Assessments- This is an assessment
wherein the tax assessor has no power to act at all
The principle of tax law enforcement is: The Government is (Victorias Milling vs. CTA, L-24213, 13 Mar 1968)
not estopped by the mistakes or errors of its agents; erroneous d. Erroneous Assessment – This is an assessment
application and enforcement of law by public officers do not block the wherein the assessor has the power to assess but
subsequent correct application of statutes (E. Rodriguez, Inc. vs. errs in the exercise of that power (Ibid.)
Collector of Internal Revenue, L-23041, July 31, 1969.)
Similarly, estoppel does not apply to deprive the Principles Governing Tax Assessments
government of its right to raise defenses even if those defenses are
being raised only for the first time on appeal (CIR vs Procter & 1. Assessments are prima facie presumed correct and
Gamble Phil. G.R. No. 66838, 15 April 1988.) made in good faith.
Exceptions:  The taxpayer has the duty of proving otherwise

(Interprovincial Autobus vs. CIR, 98 Phil 290)
The Court ruled in Commissioner of Internal Revenue vs.  In the absence of any proof of any irregularities in the
C.A., et. al. G.R. No. 117982, 6 Feb 1997 that like other principles of performance of official duties, an assessment will not
law, the non-application of estoppel to the government admits of
TAX ATION
be disturbed. (Sy Po. Vs. CTA, G.R. No 81446, 8 Aug representative. Any return, statement or declaration filed in any office
1988 authorized to receive the same shall not be withdrawn. However,
 All presumptions are in favor of tax assessments within three (3) days from the date of such filing, the same may be
(Dayrit vs. Cruz, L-39910, 26 Sept. 1988) modified, changed or amended, provided that no notice for audit or
 Failure to present proof of error in the assessment will investigation of such return, statement or declaration has in the
justify judicial affirmation of said assessments. (CIR meantime been actually served upon the taxpayer. (Sec 6[A], 1997
vs C.C. G.R. No. 104151 and 105563, 10 Mar 1995) NIRC)
 A party challenging an appraiser’s finding of value is
required to prove not only that the appraised value is Although Sec. 71 of the 1997 NIRC provides that tax
erroneous but also what the proper value is (Caltex returns shall constitute public records, it is necessary to know that
vs. C.C. G.R. No. 104781, 10 July 1998) these are confidential in nature and may not be inquired into in
unauthorized cases under pain of penalty of law provided for in Sec
2. Assessments should not be based on presumptions no 270 of the 1997 NIRC.
matter how logical the presumption might be. In order to stand
the test of judicial scrutiny it must be based on actual facts.
The aforesaid rule, however, is subject to certain
exceptions. In the following cases, inquiry into the income tax returns
of taxpayers may be authorized:
3. Assessment is discretionary on the part of the
Commissioner. Mandamus will not lie to compel him to assess a
1. When the inspection of the return is authorized upon
tax after investigation if he finds no ground to assess.
the written order of the President of the Philippines.
Mandamus to compel the Commissioner to assess will result in
2. When inspection is authorized under the Finance
the encroachment on executive functions (Meralco Secuirities
Regulation No. 33 of the Secretary of Finance.
Corp. vs. Savellano, L-36181 and L-36748, 23 Oct 1992).
3. When the production of the tax return is material
evidence in a criminal case wherein the Government
is interested in the result. (Cu Unjieng, et. al. vs.
Except: Posadas, etc, 58 Phil 360)
The BIR Commissioner may be compelled to assess by 4. When the production or inspection thereof is
mandamus if in the exercise of his discretion there is evidence authorized by the taxpayer himself (Vera vs Cusi L-
of arbitrariness and grave abuse of discretion as to go beyond 33115, 29 June 1979).
statutory authority (Maceda vs. Macaraig, G.R. No. 8829, 8
June 1993).
4. The authority vested in the Commissioner to assess taxes B. Assessment Based on the Best Evidence Obtainable
may be delegated. An assessment signed by an employee for
and in behalf of the Commissioner of Internal Revenue is valid. The law authorizes the Commissioner to assess taxes on
However, it is settled that the power to make final assessments the basis of the best evidence obtainable in the following cases:
cannot be delegated. The person to whom a duty is delegated
cannot lawfully delegate that duty to another. (City Lumber vs. 1. if a person fails to file a return or other document at
Domingo, L-18611, 30 Jan 1964). the time prescribed by law; or
2. he willfully or otherwise files a false or fraudulent
return or other document.
5. Assessments must be directed to the right party. Hence, if
for example, the taxpayer being assessed is an estate of a When the method is used, the Commissioner makes or
decedent, the administrator should be the party to whom the amends the return from his knowledge and from such information as
assessment should be sent (Republic vs. dela Rama, L-21108, he can obtain through testimony or otherwise. Assessments made as
29 Nov. 1966), and not the heirs of the decedent such are deemed prima facie correct and sufficient for all legal
purposes. (Sec. 6 [B], 1997 NIRC)
Means Employed in the Assessment of Taxes Best Evidence Obtainable refers to any data, record,
papers, documents, or any evidence gathered by internal revenue
A. Examination of Returns: Confidentiality Rule officers from government offices or agencies, corporations,
employers, clients or patients, tenants, lessees, vendees and from all
The Tax Code requires that after the return is filed, the other sources, with whom the taxpayer had previous transactions or
Commissioner or his duly authorized representative shall examine from whom he received any income, after ascertaining that a report
the same and assess the correct amount of tax. The tax or the required by law as basis for the assessment of any internal revenue
deficiency of the tax so assessed shall be paid upon notice and tax has not been filed or when there is reason to believe that any
demand from the Commissioner or from his duly authorized such report is false, incomplete or erroneous.
TAX ATION
A case in point on the use of the best evidence obtainable

is Sy Po vs CTA. In that case, there was a demand made by the
Commissioner on the Silver Cup Wine Company owned by
petitioner’s deceased husband Po Bien Seng. The demand was for E. Fixing of Real Property Values
the taxpayer to submit to the BIR for examination the factory’s books
of accounts and records, so BIR investigators raided the factory and For purposes of computing any internal revenue tax, the
seized different brands of alcoholic beverages. value of the property shall be whichever is the higher of : (1) the fair
market value as determined by the Commissioner; or (2) the fair
The investigators, on the basis of the wines seized and the market value as shown in the schedule of values of the Provincial
sworn statements of the factory’s employees on the quantity of raw and City Assessors for real tax purposes (Sec 6 [E], 1997 NIRC).
materials consumed in the manufacture of liquor, assessed the
corresponding deficiency income and specific taxes. The Supreme
Court, on appeal, upheld the legality of the assessment. F. Inquiry into Bank Deposits
Examination of bank deposits enables the Commissioner to

assess the correct tax liabilities of taxpayers. However, bank
C. Inventory-Taking, Surveillance and Presumptive Gross Sales and deposits are confidential under R.A. 1405. Notwithstanding any
Receipts contrary provisions of R.A. 1405 and other general or special laws,
the Commissioner is authorized to inquire into the bank deposits of;
The Commissioner is authorized at any time during the taxable
year to order the inventory-taking of goods of any taxpayer as a 1. a decedent to determine his gross estate; and
basis for assessment.
2. any taxpayer who has filed an application for
If there is reason to believe that a person is not declaring compromise of his tax liability under Sec. 204 (A) (@) of the Tax
his correct income, sales or receipts for internal revenue tax Code by reason of his financial incapacity to pay his tax liability. In
purposes, his business operation may be placed under observation this case, the application for compromise shall not be considered
or surveillance. The finding made in the surveillance may be used as unless and until he waives in writing his privilege under R.A. 1405, or
a basis for assessing the taxes for the other months or quarters of under other general or special laws, and such waiver shall constitute
the same or different taxable years. (Sec. 6 [C], 1997 NIRC) the authority of the Commissioner to inquire into bank deposits of the
taxpayer (Sec. 6[F], 1997 NIRC).
D. Termination of Taxable Period Net Worth Method in Investigation
The Commissioner shall declare the tax period of a taxpayer The basis of using the Net Worth Method of investigation is
terminated at any time when it shall come to his knowledge: Revenue Memorandum Circular No. 43-72. This method of
investigation, otherwise known as “inventory method of income tax
verification” is a very effective method of determining taxable income
a. That the taxpayer is retiring from business subject to and deficiency income tax due from a taxpayer.
tax;
b. That he intends to leave the Philippines or remove his
property therefrom;
c. That the taxpayer hides or conceals his property; or
d. That he performs any act tending to obstruct the Basic Concept and Theory
proceedings for the collection of the tax for the past or
The method is an extension of the basic accounting
current quarter or year or to render the same totally or
principle: assets minus liabilities equals net worth . The taxpayer’s net
partly ineffective unless such proceedings are begun
worth is determined both at the beginning and at the end of the same
immediately.
taxable year. The increase or decrease in net worth is adjusted by
adding all non-deductible items and subtracting therefrom non-
The written decision to terminate the tax period shall be
taxable receipts. The theory is that the unexplained increase in net
accompanied with a request for the immediate payment of the tax for
worth of a taxpayer is presumed to be derived from taxable sources.
the period so declared terminated and the tax for the preceding year
or quarter, or such portion thereof as may be unpaid. Said taxes shall
be due and payable immediately and shall be subject to all the
penalties prescribed unless paid within the time fixed in the demand
made by the Commissioner (Sec. 6 [d], 1997 NIRC) Legal Source of authority for use of the Method
TAX ATION
The Commissioner’s authority to use the net worth method such cases, as in any criminal case, rests on proof
and other indirect methods of establishing taxable income is found in beyond reasonable doubt.
Sec. 43, 1997 NIRC. This authority has been upheld by the courts in
a long line of cases, notable among which is the leading case of
Perez vs. CTA, 103 Phil 1167. The method is a practical necessity if (c) That there is a fixed starting point or opening net
a fair and efficient system of collecting revenue is to be maintained. worth, i.e., a date beginning with a taxable year or
prior to it, at which time the taxpayer’s financial
condition can be affirmatively established with some
Moreover, Sec. 6[B], 1997 NIRC, provides for a broad and definiteness.
general investigatory power to assess the proper tax on the best
evidence obtainable whenever a report required by law as basis for
This is an essential condition,
the assessment of any national internal revenue tax shall not be
considered to be the cornerstone of a net worth
forthcoming within the time fixed by law or regulation, or when there
case. If the starting point or opening net worth is
is reason to believe that any such report is false, incomplete or
proven to be wrong, the whole superstructure
erroneous.
usually fails. The courts have uniformly stressed
Conditions for the use of the method that the validity of the result of any investigation
under this method will depend entirely upon a
correct opening net worth.
(a) That the taxpayer's books of accounts do not clearly
reflect his income, or the taxpayer has no books, or if
he has books, he refuses to produce them (d) That the circumstances are such that the method does
(Inadequate Records). not reflect the taxpayer’s income with reasonable
accuracy and certainty and proper and just additions
of personal expenses and other non-deductible
The Government may be forced to
expenditures were made and correct, fair and
resort to the net worth method of proof where the few
equitable credit adjustments were given by way of
records of the taxpayer were destroyed; for, to require
eliminating non-taxable items. (Proper adjustments to
more would be tantamount to holding that skillful
conform to the income tax laws)
concealment is an inevitable barrier to proof.
Proper adjustments for non-deductible items

(b) That there is evidence of a possible source or sources
must be made. The following non-deductibles, as the
of income to account for the increase in net worth or
case may be, must be added to the increase or
the expenditures (Need for evidence of the sources of
decrease in the net worth:
income).
In all leading cases on this matter, 1. personal, living or family expenses;

courts are unanimous in holding that when the tax 2. premiums paid on any life insurance policy;
case is civil in nature, direct proof of sources of 3. losses from sales or exchanges of property
income is not essential-that the government is not between members of the family;
required to negate all possible non-taxable sources of 4. income taxes paid;
the alleged net worth increases. The burden of proof 5. estate, inheritance and gift taxes;
is upon the taxpayer to show that his net worth 6. other non-deductible taxes;
increase was derived from non-taxable sources. 7. election expenses and other expenses
against public policy;
As stated by the Supreme Court, in civil
8. non-deductible contributions;
cases, the assessor need not prove the specific
9. gifts to others;
source of income. This reasonable on the basic
10. net capital loss, and the like
assumption that most assets are derived from a
taxable source and that when this is not true, the
taxpayer is in a position to explain the discrepancy. On the other hand, non-taxable items should be
(Perez vs. CTA, supra) deducted therefrom. These items are necessary
adjustments to avoid the inclusion of what otherwise
However, when the taxpayer is
are non-taxable receipts. They are:
criminally prosecuted for tax evasion, the need for
evidence of a likely source of income becomes a
prerequisite for a successful prosecution. The burden
1. inheritance, gifts and bequests received;
of proof is always with the Government. Conviction in
2. non-taxable capital gains;
3. compensation for injuries or sickness;
TAX ATION
4. proceeds of life insurance policies;

5. sweepstakes winnings;
c. If the withholding agent is the government or
6. interest on government securities and the
any of its agencies, political subdivisions or
like
instrumentalities, or a government owned or controlled
corporation, the employee thereof responsible for the
Increase in net worth are not taxable if they withholding and remittance of the tax shall be personally
are shown not to be the result of unreported income liable for the additions to the tax prescribed (Sec. 247[b],
but to be the result of the correction of errors in the 1997 NIRC) such as the 25% surcharge and the 20%
taxpayer’s entries in the books relating to interest per annum on the delinquency (Secs. 248 and
indebtedness to certain creditors, erroneously listed 249 [C], 1997 NIRC)
although already paid. (Fernandez Hermanos Inc. vs.
CIR, L-21551, 30 Sept. 1969)
Surcharge
The payment of the surcharge is mandatory and
Enforcement of Forfeitures and Penalties
the Commissioner of Internal Revenue is not vested with
any authority to waive or dispense with the collection
thereof. In one case, the Supreme Court held that the fact
Statutory Offenses and Penalties
that on account of riots directed against the Chinese on
certain dates, they were prevented from paying their
internal revenue taxes on time, does not authorize the
1. Additions to the Tax Commissioner to extend the time prescribed for the
payment of taxes or to accept them without the additional
Additions to the tax are increments to the basic penalty (Lim Co Chui vs. Posadas, 47 Phil 460)
tax incident due to the taxpayer’s non-compliance with
certain legal requirements, like the taxpayer’s refusal or
failure to pay taxes and/or other violations of taxing The Commissioner is not vested with any
provisions. authority to waive or dispense with the collection therof.
(CIR vs. CA, supra). The penalty and interest are not penal
but compensatory for the concomitant use of the funds by
Additions to the tax consist of the: the taxpayer beyond the date when he is supposed to have
paid them to the Government. (Philippine Refining
Company vs. C.A., G.R. No. 1188794, 8 May 1996).
(1) civil penalty, otherwise known as surcharge,
which may either be 25% or 50 % of the tax depending
upon the nature of the violation; An extension of time to pay taxes granted by the
Commissioner does not excuse payment of the surcharge
(CIR vs. Cu Unjieng, L-26869, 6 Aug. 1975)
(2) interest either for a deficiency tax or
delinquency as to payment;
The following cases, however, show the
instances when the imposition of the 25% surcharge had
(3) other civil penalties or administrative fines been waived:
such as for failure to file certain information returns and
violations committed by withholding agents. (Secs. 247 to
252, 1997 NIRC) 1. Where the taxpayer in good faith made a mistake in
the interpretation of the applicable regulations thereby
resulting in delay in the payment of taxes. (Connel
General Considerations on the Addition to tax Bros. Co. vs. CIR, L-15470, 26 Dec. 1963)
2. A Subsequent reversal by the BIR of a prior ruling
a. Additions to the tax or deficiency tax apply to relied upon by the taxpayer may also be a ground for
all taxes, fees, and charges imposed in the Tax Code. dispensing with the 25% surcharge. (CIR vs. Republic
Cement Corp., L-35677, 10 Aug. 1983)
3. Where a doubt existed on the part of the Bureau as to
b. The amount so added to the tax shall be whether or not R.A. 5431 abolished the income tax
collected at the same time, in the same manner, and as exemptions of corporations (including electric power
part of the tax. franchise grantees) except those exempt under Sec.
TAX ATION
27 (now, Sec. 30, 1997 NIRC), the imposition of the time within which to pay a tax or a deficiency tax or any part thereof.
surcharge may be dispensed with (Cagayan Electreic (Sec. 249[d], 1997 NIRC)
Power & Light Co. vs CIR, G.R. No. 60126, 25 Sept.
1985)
4. In the case of failure to make and file a return or list Administrative Offenses
within the time prescribed by law, not due to willful
1. Failure to File Certain Information Returns
neglect, where such return or list is voluntarily filed by
the taxpayer without notice from the CIR or other 2. Failure of a Withholding Agent to Collect and Remit
officers, and it is shown that the failure to file it in due Taxes
time was due to a reasonable cause, no surcharge will
be added to the amount of tax due on the return. In 3. Failure of a Withholding Agent to Refund Excess
such case, in order to avoid the imposition of the Withholding Tax
surcharge, the taxpayer must make a statement
showing all the facts alleged as reasonable causes for
failure to file the return on time in the form of an Sources of revenues:
affidavit, which should be attached to the return. 1. Income tax
2. Estate Tax and dono’r tax
3. VAT
4. Other percentage taxes
Interest 5. Excise tax
6. Documentary stamp taxes
This is an increment on any unpaid amount of 7. Other as imposed and provided by BIR
tax, assessed at the rate of twenty percent (20%) per
annum, or such higher rate as may be prescribed y rules REMEDIES OF THE GOVERNMENT
and regulations, from the date prescribed for payment until
the amount is fully paid. (Sec. 249 [A], 1997 NIRC)
 Enumeration of the Remedies
Interest is classified into: I. Administrative

1. Deficiency interest 1. Distraint of Personal Property
Any deficiency in the tax due, as the term is defined 2. Levy of Real Property
in this code, shall be subject to the interest of 20% per 3. Tax Lien
annum, or such higher rate as may be prescribed by rules 4. Compromise
and regulations, which shall be assessed and collected 5. Forfeiture
from the date prescribed for its payment until the full 6. Other Administrative Remedies
payment thereof (Sec. 249 [B], 1997 NIRC)
II. Judicial
1. Civil Action
2. Criminal Action
2. Delinquency interest
This kind of interest is imposed in case of failure to
pay:  Distraint of Personal Property
(1) The amount of the tax due on any return Distraint- Seizure by the government of personal property,
required to be filed, or tangible or intangible, to enforce the payment of faces, to be
(2) The amount of the tax due for which no followed by its public sale, if the taxes are not voluntarily paid.
return is required, or
(3) A deficiency tax, or any surcharge or KINDS
interest thereon on the due date appearing a. Actual – There is taking of possession of personal
in the notice and demand of the property out of the taxpayer into that of the
Commissioner. government.
In case of intangible property. Taxpayer is also
diverted of the power of control over the property
b. Constructive – The owner is merely prohibited from
3. Interest on Extended Payment disposing of his personal property.
Imposed when a person required to pay the tax is qualified
and elects to pay the tax on installment under the provisions of the
Code, but fails to pay the tax or any installment thereof, or any part of
such amount or installment on or before the date prescribed for its
Actual vs. Constructive Distraint
payment, or where the Commissioner has authorized an extension of
TAX ATION
Made on the property only of a May be made on the property of c. Time and place of sale.
delinquent taxpayer. any taxpayer whether
delinquent or not 2. In case of intangible property:
There is actual taking or Taxpayer is merely prohibited
possession of the property. from disposing of his property. a. Stocks and other securities
Effected by having a list of the Effected by requiring the Serving a copy of the warrant upon
distraint property or by service or taxpayer to sign a receipt of the taxpayer and upon president, manager, treasurer
warrant of distraint or property or by leaving a list of or other responsible officer of the issuing
garnishment. same corporation, company or association.
An immediate step for collection Such immediate step is not
of taxes where amount due is necessary; tax due may not be b. Debts and credits
definite. definite or it is being 1. Leaving a copy of the warrant with the
questioned. person owing the debts or having in his
possession such credits or his agent.
2. Warrant shall be sufficient authority for such
Requisites: person to pay CIR his credits or debts.
c. Bank Accounts – garnishment
1. Taxpayer is delinquent in the payment of tax. 1. Serve warrant upon taxpayer and president,
2. Subsequent demand for its payment. manager, treasurer or responsible officer of
3. Taxpayer must fail to pay delinquent tax at time required. the bank.
4. Period with in to assess or collect has not yet prescribed. 2. Bank shall turn over to CIR so much of the
 In case of constructive distraint, requisite no. 1 is bank accounts as may be sufficient.
not essential (see Sec. 206 TC)
How constructive Distraint Effected
When remedy not available:
1. Require taxpayer or person in possession to
Where amount involved does not exceed P100 (Sec. 205 a. Sign a receipt covering property distrained
TC). b. Obligate him to preserve the same properties.
In keeping with the provision on the abatement of the c. Prohibit him from disposing the property from
collection of tax as the cost of same might even be more than P100. disposing the property in any manner, with out
the authority of the CIR.
Procedure:
2. Where Taxpayer or person in possession refuses to sign:
1. Service of warrant of distraint upon taxpayer or upon a. Officer shall prepare list of the property
person in possession of taxpayer’s personal property. distrained.
2. Posting of notice is not less than two places in the b. In the presence of two witnesses of sufficient age
municipality or city and notice to the taxpayer specifying and discretion, leave a copy in the premises
time and place of sale and the articles distrained. where property is located.
3. Sale at public auction to highest bidder
4. Disposition of proceeds of the sale. Grounds of Constructive Distraint
1. Taxpayer is retiring from any business subject to tax.

Who may effect distraint Amount Involved 2. Taxpayer is intending to leave the Philippines; or
1. commissioner or his due authorized In excess of 3. To remove his property there from.
representative P1,000,000.00 4. Taxpayer hides or conceals his property.
2. RDO P1,000,000.00 or 5. Taxpayer acts tending to obstruct collection proceedings.
less
Note:
How Actual Distraint Effected 1. Bank accounts may be distrained with out violating the
confidential nature of bank accounts for no inquiry is made.
1. In case of Tangible Property: BIR simply seizes so much of the deposit with out having to
know how much the deposits are or where the money or
a. Copy of an account of the property distrained, any part of it came from.
signed by the officer, left either with the owner or 2. If at any time prior to the consummation of the sale, all
person from whom property was taken, at the proper charges are paid to the officer conducting the same,
dwelling or place of business and with someone the goods distrained shall be restored to the owner.
of suitable age and discretion 3. When the amount of the bid for the property under distraint
b. Statement of the sum demanded. is not equal to the amount of the tax or is very much less
TAX ATION
than the actual market value of articles, the CIR or his

deputy may purchase the distrained property on behalf of Note:
the national government. 1. It is the duty of the Register of Deeds concerned upon
registration of the declaration of forfeiture, to transfer the
 Levy of Real Property title to the property with out of an order from a competent
court
Levy – Act of seizure of real property in order to enforce the 2. The remedy of distraint or levy may be repeated if
payment of taxes. The property may be sold at public sale, necessary until the full amount, including all expenses, is
if after seizure; the taxes are not voluntarily paid. collected.
 The requisites are the same as that of distraint.
 Enforcement of Tax Lien
Procedure:
Tax Lien:
1. International Revenue officer shall prepare a duly A legal claim or charge on property, either real or personal,
authenticated certificate showing established by law as a security in default of the payment of taxes.
a. Name of taxpayer 1. Nature:
b. Amount of tax and A lien in favor of the government of the Philippines when a
c. Penalty due. person liable to pay a tax neglects or fails to do so upon
- enforceable through out the Philippines demand.
2. Officer shall write upon the certificate a description of the 2. Duration:
property upon which levy is made. Exists from time assessment is made by the CIR until paid,
3. Service of written notice to: with interests, penalties and costs.
a. The taxpayer, and 3. Extent:
b. RD where property is located. Upon all property and rights to property belonging to the
4. Advertisement of the time and place of sale. taxpayer.
5. Sale at public auction to highest bidder. 4. Effectivity against third persons:
6. Disposition of proceeds of sale. Only when notice of such lien is filed by the CIR in the
The excess shall be turned over to owner. Register of Deeds concerned.
Redemption of property sold or forfeited Extinguishment of Tax Lien
a. Person entitled: Taxpayer or anyone for him 1. Payment or remission of the tax
b. Time to redeem: one year from date of sale or forfeiture 2. Prescription of the right of the government to assess or
- Begins from registration of the deed of sale or collect.
declaration of forfeiture. 3. Failure to file notice of such lien in the office of register of
- Cannot be extended by the courts. Deeds, purchases or judgment creditor.
c. Possession pending redemption – owner not deprived of 4. Destruction of the property subject to the lien.
possession  In case Nos. 1 and 2, there is no more tax
d. Price: Amount of taxes, penalties and interest thereon from liability. Under nos. 3 and 4, the taxpayer is still
date of delinquency to the date of sale together with liable.
interest on said purchase price at 15% per annum from
date of purchase to date of redemption. Enforcement of Tax Lien vs. Distraint
A tax lien is distinguished from disttraint in that, in distraint
the property seized must be that of the taxpayer, although it need not
be the property in respect to the tax is assessed. Tax lien is directed
Distraint and Levy compared to the property subject to the tax, regardless of its owner.
1. Both are summary remedies for collection of taxes. Note:

2. Both cannot be availed of where amount involved is not
more than P100. 1. This is superior to judgment claim of private individuals or
3. Distraint – personal property parties
Levy – real property 2. Attaches not only from time the warrant was served but
4. Distraint – forfeiture by government, not provided from the time the tax was due and demandable.
Levy – forfeiture by government authorized where there is
no bidder or the highest bid is not sufficient to pay the  Compromise
taxes, penalties and costs.
5. Distraint – Taxpayer no given the right of redemption Compromise: A contract whereby the parties, by reciprocal
Levy – Taxpayer can redeem properties levied upon and concessions, avoid litigation or put an end to one already
sold/forfeited to the government. commenced.
TAX ATION
Requisites: 1. Effect: Transfer the title to the specific thing from the
owner to the government.
1. Taxpayer must have a tax liability. 2. When available:
2. There must be an offer by taxpayer or CIR, of an amount to a. No bidder for the real property exposed for sale.
be paid by taxpayer. b. If highest bid is for an amount insufficient to pay
3. There must be acceptance of the offer in settlement of the the taxes, penalties and costs.
original claim. - With in two days thereafter, a return of the proceeding
is duly made.
When taxes may be compromised: 3. How enforced:
a. In case of personal property – by seizure and
1. A reasonable doubt as to the validity if the claim against sale or destruction of the specific forfeited
the taxpayer exists; property.
2. The financial position of the taxpayer demonstrates a clear b. In case of real property – by a judgment of
inability to pay the assessed tax. condemnation and sale in a legal action or
3. Criminal violations, except: proceeding, civil or criminal, as the case may
a. Those already filed in court require.
b. Those involving fraud. 4. When forfeited property to be destroyed or sold:
a. To be destroyed – by order of the CIR when the
Limitations: sale for consumption or use of the following
would be injurious to the public health or
1. Minimum compromise rate: prejudicial to the enforcement of the law: (at
a. 10% of the basic tax assessed – in case of least 20 days after seizure)
financial incapacity. 1. distilled spirits
b. 40% of basic tax assessed – other cases. 2. liquors
2. Subject to approval of Evaluation Board 3. cigars
a. When basic tax involved exceeds P1,000,000.00 4. cigarettes, and other manufactured
or products of tobacco
b. Where settlement offered is less than the 5. playing cards
prescribed minimum rates. 6. All apparatus used in or about the illicit
production of such articles.
Delegation of Power to Compromise b. To be sold or destroyed – depends upon the
discretion of CIR
GR: The power to compromise or abate shall not be delegated by 1. All other articles subject to exercise
the commissioner. tax, (wine, automobile, mineral
E: The Regional Evaluation Board may compromise the assessment products, manufactured oils,
issued by the regional offices involving basic taxes of P 500 K or miscellaneous products, non-essential
less. items a petroleum products)
manufactured or removed in violation
Remedy in case of failure to comply: of the Tax Code.
The CIR may either: 2. Dies for printing or making IR stamps,
1. enforce the compromise, or labels and tags, in imitation of or
2. Regard it as rescinded and insists upon the original purport to be lawful stamps, labels or
demand. tags.
5. Where to be sole:
Compromise Penalty a. Public sale: provided, there is notice of not less
1. It is a certain amount of money which the taxpayer pays to than 20 days.
compromise a tax violation. b. Private sale: provided, it is with the approval of
2. It is pain in lieu of a criminal prosecution. the Secretary of Finance.
3. Since it is voluntary in character, the same may be 6. Right of Redemption:
collected only if the taxpayer is willing to pay them. a. Personal entitled – taxpayer or anyone for him
b. Time to redeem – with in one (1) year from
 Enforcement of forfeiture forfeiture
c. Amount to be paid – full amount of the taxes and
Forfeiture: Implies a divestiture of property with out compensation, in penalties, plus interest and cost of the sale
consequence of a default or offense. d. To whom paid – Commissioner or the Revenue
Includes the idea of not only losing but also having the Collection Officer
property transferred to another with out the consent of the owner and e. Effect of failure to redeem – forfeiture shall
wrongdoer. become absolute.
TAX ATION
7. Note:  Judicial Remedies

The Register of Deeds is duty bound to transfer
the title of property forfeited to the government with our Civil and Criminal Actions:
necessity of an order from a competent court. 1. Brought in the name of the Government of the
Philippines.
 Other Administrative Remedies 2. Conducted by Legal Officer of BIR
3. Must be with the approval of the CIR, in case of
1. Requiring filing of bonds – in the following action, for recovery of taxes, or enforcement of a
instances: fine, penalty or forfeiture.
a. Estate and donor’s tax A. Civil Action
b. Excise taxes Actions instituted by the government to collect
c. Exporter’s bond internal revenue taxes in regular courts (RTC or MTCs,
d. Manufacturer’s and importer’s bond depending on the amount involved)
2. Requiring proof of filing income tax returns When assessment made has become final and
Before a license to engage in trade, executory for failure or taxpayer to:
business or occupation or to practice a a. Dispute same by filing protest with CIR
profession can be issued. b. Appeal adverse decision of CIR to CTA
3. Giving reward to informers – Sum equivalent to
10% of revenues, surcharges or fees recovered B. Criminal Action
and/or fine or penalty imposed and collected or A direct mode of collection of taxes, the judgment
P1, 000,000.00 per case, whichever is lower. of which shall not only impose the penalty but also order
4. Imposition of surcharge and interest. payment of taxes.
5. Making arrest, search and seizure An assessment of a tax deficiency is not
Limited to violations of any penal law or necessary to a criminal prosecution for tax evasion,
regulation administered by the BIR, committed provided there is a prima facie showing of willful attempt to
with in the view of the Internal Revenue Officer or evade.
EE.
6. Deportation in case of aliens – on the following Effect of Acquittal on Tax Liability:
grounds
a. Knowingly and fraudulently evades Does not exonerate taxpayer his civil liability to pay the tax
payment of IR taxes. due. Thus, the government may still collect the tax in the same
b. Willfully refuses to pay such tax and its action.
accessory penalties, after decision on Reason: Tax is an obligation, does not arise from a criminal act.
his tax liability shall have become final
and executory. Effect of Satisfaction of Tax Liability on Criminal Liability
7. Inspection of books
Books of accounts and other accounting Will not operate to extinguish taxpayer’s criminal liability
records of taxpayer must be preserved, generally since the duty to pay the tax is imposed by statute, independent of
within three years after date the tax return was any attempt on past of taxpayers to evade payment.
due or was filed whichever is later. This is true in case the criminal action is based on the act
8. Use of National Tax Register to taxpayer of filing a false and fraudulent tax return and failure to
9. Obtaining information on tax liability of any pay the tax.
person
10. Inventory – Taking of stock-in-trade and making Note:
surveillance. The satisfaction of civil liability is not one of the grounds for the
11. Prescribing presumptive gross sales or receipt: extinction of criminal action.
a. Person failed to issue receipts and
invoices  PRESCRIPTIVE PERIODS/STATUTE OF LIMITATION
b. Reason to believe that records do not
correctly reflect declaration in return. Purpose:
12. Prescribing real property values For purposes of Taxation, statue of limitation is primarily
13. Inquiring into bank deposit accounts of designed to protect the rights of the taxpayer’s against unreasonable
a. A deceased person to determine gross investigation of the taxing authority with respect to assessment and
estate collection of Internal Revenue Taxes.
b. Any taxpayer who filed application for
compromise by reasons of financial I. Prescription of Government’s Right to Assess Taxes:
incapacity his tax liability. A. General Rule:
14. Registration of Taxpayers. Internal Revenue Taxes shall be assessed within
three (3) years after the last day prescribed by law for
TAX ATION
the filing of the return or from the day the return was taken cognizance of in the civil or criminal action
filed, in case it is filed beyond the period prescribed for the collection thereof. (Sec. 222 paragraph
thereof. (Section 203 of the Tax Code) (a))
 Fraud may be established by the following : (Badges of
Note: Fraud)
 A return filed before the last day prescribed by law for the a. Intentional and substantial understatement of tax
filing thereof shall be considered as filed on such last day. liability of the taxpayer.
 In case a return is substantially amended, the government b. Intentional and substantial overstatement of
right to assess the tax shall commence from the filing of the deductions of exemption
amended return (CIR vs. Phoenix, May 20, 1965; Kei & Co. c. Recurrence of the foregoing circumstances.
vs. Collector, 4 SCRA 872)  Instances/Circumstances negating fraud:
 In computing the prescriptive period for assessment, the a. When the Commissioner fails impute fraud in the
latter is deemed made when notice to this effect is assessment notice/demand for payment.
released, mailed or sent by the Commissioner to the b. When the Commissioner failed to allege in his
correct address of the taxpayer. However, the law does answer to the taxpayer’s petition for review when
not require that the demand/notice be received within the the case is appealed to the CTA.
prescriptive period. (Basilan Estates, Inc. vs. c. When the Commissioner raised the question of
Commissioner 21, SCRA 17; Republic vs. CA April 30, fraud only for the first time in his memorandum
1987) which was filed the CTA after he had rested his
 An affidavit executed by a revenue office indicating the tax case.
liabilities of a taxpayer and attached to a criminal complaint d. Where the BIR itself appeared, “not sure” as to
for tax evasion, cannot be deemed an assessment. ( CIR the real amount of the taxpayer’s net income.
vs. Pascoi Realty Corp. June 29, 1999) e. A mere understatement of income does not
 A transcript sheets are not returns, because they do not prove fraud, unless there is a sufficient evidence
contain information necessary and required to permit the shaving fraudulent intent.
computation and assessment of taxes (Sinforo Alca vs.
Commissioner, Dec. 29, 1964) 3. Where the commissioner and the taxpayer, before the
expiration of the three (3) year period of limitation have
B.) Exceptions: (Sec. 222 ic) agree in writing to the extension of said period.
1. Where no return was filed - within ten (10) years after the Note:
date of discovery of the omission.  Limitations:
2. Where a return was filed but the same was false or a. The agreement extending the period of prescription
fraudulent – within ten (10) years from the discovery of should be in writing and duly signed by the taxpayer
falsity or fraud. and the commissioner.
b. The agreement to extend the same should be mode
Note: before the expiration of the period previously agreed
 Fraudulent return vs. upon.
False return
The filing thereof is intended and 4. Where there is a written waiver or renunciation of the
It merely implies a original 3-year limitation signed by the taxpayer.
Deceitful with the aim of evading the
deviation from truth of Note:
correct tax due.  Limitations:
fact whether intentional. a. The waiver to be valid must be executed by the
parties before the lapse of the prescriptive period.
b. A waiver is inefficient I it is executed beyond the
 Nature of Fraud: original three year.
a. Fraud is never presumed and the circumstances c. The commissioner can not valid agree to reduce the
consisting it must be alleged and proved to exist prescriptive period to less than that granted by law.
by clear & convincing evidence (Republic vs.
Keir, Sept. 30, 1966) C) Imprescriptible Assessments:
b. The fraud contemplated by law is actual and not 1. Where the law does not provide for any particular period of
constructive. It must amount to intentional assessment, the tax sought to be assessed becomes
wrongdoing with the sole object of avoiding the imprescriptible.
tax. A mere mistake is not a fraudulent intent. 2. Where no return is required by law, the tax is imprescriptible.
(Aznar case, Aug. 23, 1974) 3. Assessment of unpaid taxes, where the bases of which is
c. A fraud assessment which has become final and not required by law to be reported in a return such as excise
executory, the fact of fraud shall be judicially taxes. (Carmen vs. Ayala Securities Corp., Nov. 21, 1980)
TAX ATION
4. Assessment of compensating and documentary stamp tax. last assessment. (Rep. vs. Lopez, March 30,
1963)
II. Prescription of Government’s Right to Collect Taxes
A. General Rule:
1. Where an assessment was made – Any internal 5. Where the assessment is revised because of an
revenue tax which has been assessed within the amended return – the period for collection is
period of limitation may be collected by distraint counted from the last revised assessment.
or levy or by proceeding in court within 5 years
following the date of assessment. 6. Where a tax obligation is secured by a surety
2. Where no assessment was made and a return bond – the government may proceed thru a court
was filed and the same is not fraudulent or false- action to forfeit a bond and enforce such
the tax should be collected within 3 years after contractual obligation within a period of ten
the return was due or was filed, whichever is years.
later.
7. Where the action is brought to enforce a
B. Exceptions: compromise entered into between the
1. Where a fraudulent/false return with intent to commission and the taxpayer – the prescriptive
evade taxes was filed a proceeding in court for period is ten years.
the collection of the tax may be filed without
assessment, at anytime within ten years after the C. When tax is deemed collected for purposes of the
discovery of the falsity or fraud. prescriptive period.
Note: 1. Collection by summary remedies – It is effected by

 The 10-year prescriptive period for collector thru action summary methods when the government avail of
does not apply if it appears that there was an assessment. distraint and levy procedure.
In such case, the ordinary 5-year period (now 3 years) 2. Collection by judicial action – The collection begins by
would apply (Rep. vs. Ret., March 31, 1962) filing the complaint with the proper court. (RTC)
3. Where assessment of the commissioner is protected
2. When the taxpayer omits to file a return – a court & appealed to the CTA – the collection begin when the
proceeding for the collection of such tax may be government file its answer to taxpayer’s petition for
filed without assessment, at anytime within 10 review.
years after the discovery of the omission.
3. Waiver of statute of limitations – any internal
revenue tax, which has been assessed within the III. Rules of Prescription In Criminal Cases
period agreed upon, may be collected be distinct
or levy of by a proceeding in court within the A. Rule: All violations of any provision of the tax code shall
period agreed upon in writing before the prescribe after five (5) years.
expiration of 5-year period.
Note:
Note:  When it should commence? : The five (5) year prescriptive
 Distinction period shall begin to run from the
a. Agreement to extend period of vs. a. Day of the commission of the violation, if know.
b. Agreement renouncing b. If not known, from the time of discovery and the
Prescription. It must be made before the institution of judicial proceeding for its investigation
period of prescription and punishment.
Expiration of the period agreed upon to an  When it is interrupted:
agreement waiving the defense of a. When a proceeding is instituted against the guilty
be valid. person
Prescription is till binding to the b. When the offender is absent from the Philippines.
 When it should run again : When the proceeding is
Taxpayer although made beyond such dismissed for reason not
Constituting
prescriptive period. jeopardy.
 When does the defense of prescription may be raised:
4. Where the government makes another a. In civil case – If not raised in the lower court, it is
assessment on the basis of reinvestigation bailed permanently.
requested by the taxpayer – the prescriptive - If can not be raised for the first time on appeal.
period for collection should be counted from the
TAX ATION
b. In criminal case – It can be raised even if the case has 3. Member of his household with
been decided by the lower court but pending decision sufficient discretion and no property
on appeal. could be located.
IV. Interruption of the Prescriptive Period e. When the taxpayer is out of the
Philippines.
1. Where before the expiration of the time prescribed
for the assessment of the tax, both the 3. In criminal cases for violation of tax code – the
commissioner and the taxpayer have consented in period shall not run when the offender is absent
writing to its assessment after such time, the tax from the Philippines.
may be assessed prior to the expiration of the
period agreed upon. Note:
2. The running of statute of limitations on making an  A petition for reconsideration of a tax assessment does not
assessment and the beginning of distraint/levy or a suspend the criminal action.
proceeding in court for collection shall be  Reason: No requirement for assessment of the tax before
suspended for the period. the criminal action may be instituted.
a. During which the Commissioner is Nota Bene:

prohibited from making the assessment or 1. The law on prescription remedial measure should be
beginning distraint/levy or a proceeding in interpreted liberally in order to protect the taxpayer.
court and for 60 days thereafter; 2. The defense of prescription must be raised by the taxpayer
e.g. on time, otherwise it is deemed waived.
 Filing a petition for review in the CTA 3. The question of prescription is not jurisdictional, and as
from the decision of the Commissioner. defense it must be raised reasonably otherwise it is
The commissioner is prevented from deemed waived.
filing an ordinary action to collect the 4. The prescriptive provided in the tax code over ride the
tax. statute of non-claims in the settlement of the deceased’s
 When CTA suspends the collection of estate.
tax liability of the taxpayer pursuant to 5. In the event that the collection of the tax has already
Section 11 of RA 1125 upon proof that prescribed, the government cannot invoke the principle of
its collection may jeopardizes the Equitable recumbent by setting- off the prescribed tax
government and /or the taxpayer. against a tax refused to which the taxpayer is entitled.
b. When the taxpayer requests for

reinvestigation which is granted by TAXPAYER’S REMEDIES
commissioner.
Note: Administrative
A mere request for reinvestigation
without any action or the part of the (1) Before Payment
Commissioner does not interrupt the running of
the prescriptive period. a. Filing of a petition or request for
The request must not be a mere pro- reconsideration or reinvestigation
former. Substantial issues must be raised. (Administrative Protest);
b. Entering into compromise
c. When the taxpayer cannot be located in
the address given by him in the return. (2) After Payment
a. Filing of claim for tax refund; and
Note: b. Filing of claim for tax credit
If the taxpayer informs the
Commissioner of any change in address the
statute will not be suspended. Judicial
d. When the warrant of distraint or levy is
duly served upon any of the following (1) Civil action
person:
1. taxpayer a. Appeal to the Court of Tax Appeals
2. his authorized representative b. Action to contest forfeiture of chattel; and
c. Action for Damages
TAX ATION
(2) Criminal Action caused to be issued, calling for payment of the taxpayer’s tax liability,
inclusive of the applicable penalties (3.1.2. Revenue Regulations No.
a. Filing of complaint against erring Bureau of 12-99 dated Sept. 6, 1999).
Internal Revenue officials and employees.
Issuance of a Formal Letter of Demand and Assessment Notice

ADMINISTRATIVE PROTEST issued by the Commissioner or his duly authorized representative.
Shall state the facts, the laws, rules and regulations, or jurisprudence
Request for reconsideration- a plea for the re-evaluation of an on which the assessment is based, otherwise, the formal letter of
assessment on the basis of existing records without need of demand and assessment notice shall be void.
additional evidence. It may involve a question of fact or law or both.
Request for reinvestigation- a plea for reinvestigation of an Formal Letter of Demand and Assessment Notice shall be sent
assessment on the basis of newly-discovered or additional evidence to the taxpayer only by registered mail or personal delivery.
that a taxpayer intends to present in the reinvestigation. It may also
involve question of fact or law or both.
If sent by personal delivery, the taxpayer or his duly authorized
representative shall acknowledge receipt thereof in the duplicate
Issuance of Assessment copy of the letter of demand showing the following: (a) his name; (b)
signature; (c) designation and authority to act for and in behalf of the
taxpayer; if acknowledged or received by a person other than the
Procedure taxpayer himself; and (d) date of receipt thereof. (3.1.4. Revenue
Regulations No. 12-99 dated Sept. 6, 1999).
Issuance of written a Preliminary Assessment Notice (PAN)

after review and evaluation by the Assessment Division or by the Disputed Assessment
Commissioner or his duly authorized representative, as the case may
be. A valid PAN shall be in writing stating the law and facts on which
the assessment is made. (Sec. 228 of the 1997 NIRC) Taxpayer or his duly authorized representative may
administratively protest against a Formal Letter of Demand and
Assessment notice within thirty (30) days from date of receipt thereof.
Under Sec. 228 of the 1997 NIRC a Pre-Assessment Notice
shall not be required in the following cases:
If the protest is denied in whole or part, or is not acted upon
within one hundred eighty (180) days from submission of documents,
a. When the finding for the deficiency tax is the result of the taxpayer adversely affected by the decision or inaction may
mathematical error in the computation of the tax as appeal to the CTA within 30 days from receipt of the said decision, or
appearing on the face of the return; or from lapse of the one hundred (180)-day period: otherwise, the
b. When a discrepancy has been determined between decision shall become final and executory
the tax withheld and the amount actually remitted by
the withholding agent; or
c. When a taxpayer who opted to claim a refund or tax Several issues in the assessment notice but taxpayer only
credit of excess creditable withholding tax for a disputes/protests validity of some of the issues
taxable period was determined to have carried over  Taxpayer required to pay the deficiency tax or taxes
and automatically applied the same amount claimed attributable to the undisputed issues.
against the estimated tax liabilities for the taxable  Collection letter to be issued calling for the payment of
quarter or quarters of the succeeding taxable year; or deficiency tax, including applicable surcharge and/or
d. When the excise tax due on excisable articles has not interest.
been paid; or  No action shall be taken on the disputed issues until
e. When an article locally purchased or imported by an payment of deficiency taxes on undisputed issues
exempt person, such as, but not limited to, vehicles,  Prescriptive period for assessment or collection of taxes on
capital equipment, machineries, and spare parts, has disputed issues shall be suspended.
been sold, traded or transferred to non-exempt
persons.
Failure of taxpayer to state the facts, the applicable law, rules and
regulations, or jurisprudence on which his protest is based shall
If the taxpayer fails to respond within fifteen (15) days from the render his protest void and without force and effect.
date of receipt of the PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment notice shall be
TAX ATION
Contents: Scope of Claims
a. Name of the taxpayer and address for the immediate Under Sec. 204 and 209 of the 1997 NIRC the
past three taxable years; Commissioner may credit or refund taxes:
b. Nature of request whether reinvestigation or
reconsideration specifying newly discovered evidence
that he intends to present it it is a request for (a) Erroneously or illegally assessed or collected internal
reinvestigation; revenue taxes
c. Taxable periods covered by the assessment;
Taxpayer pays under the mistake of fact, as for
d. Amounts and kind/s of tax involved, and Assessment
instance in a case where he is not aware of the existing exemption in
Notice Number;
his favor at the time payments were made
e. Date of receipt of assessment notice or letter of
demand; A tax is illegally collected if payments are made
f. Itemized statement of the findings to which the under duress.
taxpayer agrees, if any, as a basis for computing the
tax due, which amount should be paid immediately (b) Penalties imposed without authority
upon the filing of the protest. For this purpose, the (c) Any sum alleged to have been excessive or in any
protest shall not be deemed validly filed unless manner wrongfully collected
payment of the agreed portion of the tax is paid first;
g. Itemized schedule of the adjustments with which the The value of internal revenue stamps when they are
taxpayer does not agree; returned in good condition by the purchaser may also be redeemed.
h. Statement of facts and/or law in support of the protest;
and
i. Documentary evidence as it may deem necessary and Necessity of Proof for Refund Claims
relevant to support its protest to be submitted within
sixty (60) days from the filing of the protest. If the
taxpayer fails to comply with this requirement, the  Refund claim partakes of the nature of an exemption which
assessment shall become final (Revenue Regulation cannot be allowed unless granted in the most explicit and
No. 12-85, dated Nov. 27, 1985.) categorical language. (CIR vs. Johnson and Sons
A request for reconsideration or reinvestigation of an  Failure to discharge burden of giving proof is fatal to claim
assessment shall be accompanied by a waiver of the Statute of  It must be shown that payment was an independent single
Limitations in favor of the Government. act of voluntary payment of a tax believed to be due,
collectible and accepted by the government, and which
Effect of taxpayer’s failure to file an administrative protest or to therefore, become part of the state moneys subject to
appeal BIR’s decision to the CTA expenditure and perhaps already spent or appropriated
(CIR vs. Li Yao, L-11875, Dec. 28, 1963).
 As provided in Sec. 228 of the Tax Code, if the taxpayer TAX REFUND TAX CREDIT
fails to file an administrative protest within the reglementary There is actually a The government issues a tax
30-day from receipt of the assessment notice, assessment reimbursement of the tax credit memo covering the
becomes final. amount determined to be
 After the lapse of the 30-day period, the assessment can reimbursable which can be
no longer be disputed either administratively or judicially applied after proper
through an appeal in the CTA. verification, against any sum
 Assessed already tax collectible. that may be due and
collectible form the taxpayer
Legal Basis
Statutory Requirements for Refund Claims
Legal Principle of quasi-contracts or solutio indebiti (see

a. Written claim for refund or tax credit filed by the taxpayer with the
Art. 2142 & 2154 of the Civil Code). The Government is within the
Commissioner
scope of the principle of solutio indebiti (CIR vs. Fireman’s Fund
Insurance Co)  This requirement is mandatory.
TAX ATION
 Reasons: (a) to afford the commissioner an opportunity to (Commissioner of Internal Revenue vs. TMX Sales, Inc.,
correct the action of subordinate officer and (b) to notify the G.R. No. 83736, Jan. 15, 1992).
government that the taxes sought to be refunded are under
 question and that, therefore, such notice should then be
borne in mind in estimating the revenue available for Taxes payable in installment
expenditure (Bermejo vs. CIR 87 Phil 96).
2-year period is counted form the payment of the last
 Except: Tax credit or tax refund where on the face of the
installment (CIR vs Palanca, Jr., supra)
return upon which payment is made, such payment
appears clearly to have been erroneous. (Sec. 229, 1997
NIRC).
Withholding Taxes
b. Categorical demand for reimbursement Prescriptive period counted not from the date the tax
is withheld and remitted to the BIR, but from the end of the
taxable year (Gibbs vs. Commissioner of Internal Revenue,
c. Claim for refund or tax credit must be filed or the suit proceeding supra)
thereof must be commenced in court within two (2) years from date
of payment of tax or penalty regardless of any supervening event.
(Sec. 204 (c) & 229 1997 NIRC) VAT Registered Person whose sales are zero-rated or effectively
zero-rated
2-year period computed from the end of the taxable
 Requirement a condition precedent and non-compliance quarter when the sales transactions were made (Sec. 112
therewith bars recovery (Phil. Acetylene Co. Inc, vs. (A) 1997 NIRC).
Commissioner, CTA Case No. 1321, Nov. 7, 1962).
 Refers not only to the “administrative” claim that the
taxpayer should file within 2 years from date of payments Interest on Tax Refund
with the BIR, but also the judicial claim or the action for
refund the taxpayer should commence with the CTA (see
Gibbs vs.. Collector of Internal Revenue, 107 Phil 232). The Government cannot be required to pay interest on
 Taxpayer may file an action for refund in the CTA even taxes refunded to the taxpayer unless:
before the Commissioner decides his pending claim in the
BIR (Commissioner of Internal Revenue vs. Palanca Jr., L- 1. The Commissioner acted with patent arbitrariness
16626, Oct. 29, 1966). Arbitrariness presupposes inexcusable or obstinate
 Suspension of the 2-yaer prescriptive period may be had disregard of legal provisions (CIR vs. Victorias Milling Corp., Inc. L-
when: 19607, Nov. 29, 1966).
(1) there is a pending litigation between the two
parties (government and taxpayer) as to the proper 2. In case of Income Tax withheld on the wages of
tax to be paid and of the proper interpretation of the employees.
taxpayer’s charter in relation to the disputed tax; and Any excess of the taxes withheld over the tax due from the
(2) the commissioner in that litigated case agreed to taxpayer shall be returned or credited within 3 months from the
abide by the decision of the Supreme Court as to the fifteenth (15th) day of April. Refund or credit after such time earn
collection of taxes relative thereto (Panay Electric Co., interest at the rate of 6% per annum, starting after the lapse of the 3-
Inc. vs. Collector of Internal Revenue 103 Phil. 819) month period to the date the reund or credit is made ( Sec 79 (c) (2)
1997 NIRC)
 Even if the 2-year period has lapsed the same is not
jurisdictional and may be suspended for reasons of equity
and other special circumstances. (CIR vs. Phil. American APPEAL to the CTA
Life Ins. Co., G.R. No. 105208, May 29, 1995).
 2-year prescriptive period for filing of tax refund or credit
claim computed from date of payment of tax of penalty  Adverse decision or ruling rendered by the Commissioner
except in the following: of Internal Revenue in disputed assessment or claim for tax
refund or credit, taxpayer may appeal the same within thirty
Corporations (30) days after receipt. (Sec. 11, R.A. No. 1125)
 Appeal equivalent to a judicial action
2-year prescriptive period for overpaid quarterly  In the absence of appeal, the decision becomes final and
income tax is counted not from the date the corporation executory. But where the taxpayer adversely affected has
files its quarterly income tax return, but from the date the not received the decision or ruling, he could not appeal the
final adjusted return is filed after the taxable year same to the CTA within 30 days from notice. Hence, it
TAX ATION
could not become final and executory. (Republic vs. De la ACTION FOR DAMAGES AGAINST REVENUE OFFICIALS
Rama, 18 SCRA 861)
 Motion for reconsideration suspends the running of the 30
–day period of perfecting an appeal. Must advance new Taxpayer may file an action for damages against any internal
grounds not previously alleged to toll the reglementary revenue officer by reason of any act done in the performance of
period; otherwise, it would be merely pro forma. (Roman official duty or neglect of duty. In case of willful neglect of duty,
Catholic Archbishop vs. Coll., L-16683, Jan. 31, 1962). taxpayer’s recourse is under Art 27 of the Civil Code.
Requirements for Appeal in Disputed Assessment

Revenue officer acting negligently or in bad faith or with willful
oppression would be personally liable. He ceases to be an officer of
the law and becomes a private wrongdoer.
a. Tax assessed has not been paid;
b. Taxpayer has filed with the Commissioner of Internal
Revenue a petition for the reconsideration or
FILING OF CRIMINAL COMPLAINT AGAINST REVENUE
cancellation of the assessment;
OFFICERS
c. Final decision or ruling has been rendered on such
petition;
d. Suit or proceeding in the CTA is made within 30 days
from receipt of the decision A taxpayer may file a criminal complaint against any official,
agent or employee of the BIR or any other agency charged with the
enforcement of the provisions of the Tax Code who commits any of
Effect of Failure to Appeal Assessment the following offenses:
a. Taxpayer barred, in an action for collection of the tax 1) Extortion or willful oppression through the use of his office;
by the government, from using defense of excessive 2) Willful oppression and harassment of a taxpayer who
or illegal assessment. refused, declined, turned down or rejected any of his offers
b. Assessment is considered correct. mentioned in no. 5;
3) Knowingly demanding or receiving sums or compensation
not authorized or prescribed by law;
Requirements for Appeal in Refund and Tax Credit
4) Willfully neglecting to give receipts as by law required or to
perform any other duties enjoined by law;
5) Offering or undertaking to accomplish, file or submit a
a. Tax has been paid;
report or assessment on a txpayer without the appropriate
b. Taxpayer has filed with the CIR a written claim for
examination of the books of account or tax liability, or
refund or tax credit within 2 years from payment of the
offering or undertaking to submit a report or assessment
tax or penalty; and
less than the amount due the government for any
c. Suit or proceeding is instituted in the CTA also within
consideration or compensation; or conspiring or colluding
the same prescriptive period of two years from the
with another or others to defraud the revenues or otherwise
date of payment regardless of any supervening cause.
violate the provisions of the tax code;
(see Secs. 204, 229 1997 NIRC).
6) Neglecting or by design permitting the violation of the law
or any false certificate or return;
ACTION CONTESTING FORFEITURE OF CHATTEL 7) Making or signing any false entry or entries in any book, or
nay false certificate or return;
8) allowing or conspiring or colluding with another to allow the
In case of seizure of personal property under claim for forfeiture, unauthorized withdrawal or recall of any return or
the owner desiring to contest the validity of the forfeiture may bring statement after the same has been officially received by
an action: the BIR;
9) Having knowledge or information of any violation of the Tax
a. Before sale or destruction of the property to recover the Code, failure to report such knowledge or information to
property from the person seizing the property or in their superior officer, or as otherwise required by law; ND
possession thereof upon filing of the proper bond to enjoin 10) Without the authority of law, demanding or accepting
the sale. money or other things of value fore the compromise or
b. After the sale and within 6 months to recover the net settlement of any charge or complaint for any violation of
proceeds realized at the sale (see. Sec. 231, 1997 NIRC) the Tax Code. (see. Sec. 269, 1997 NIRC)
Action is partakes of the nature of an ordinary civil action for Remedies under the
recovery of personal property or the net proceeds of its sale which Tariff and Customs Code
must be brought in the ordinary courts and not the CTA.
A. Government Remedies:
TAX ATION
a. Extrajudicial Note: Goods in the collector’s possession or of

Customs authorities pending payment of customs
1. Enforcement or tax lien duties are beyond the reach of attachment.
A tax lien attaches on the goods, regardless of b. Judicial Action

the ownership while still in the custody or control
of the government The tax liability of the importer constitutes a personal debt
to the government, enforceable by action (Sec. 1204, TCC)
Proceeds of sale are applied to the tax due. Any
deficiency or excess is for the account or credit, This is availed of when the tax lien is lost by the release of
respectively of the taxpayer the goods.
This is availed of when the importation is neither

nor improperly made B. Taxpayer’s Remedies
Administrative Recourse
2. Seizures
Claim for refund—a written claim for refund may be
Generally applied when the penalty is fine or submitted by the importer:
forfeiture which is imposed when the importation
is unlawful and it may be exercised even where
the articles are not or no longer in Customs 1. In abatement uses such as:
Custody, unless the importation is merely
attempted. a. on missing packages;
In the case of attempted importation, b. deficiencies in the contents of packages or

administrative fine or forfeiture may be affected shortage before arrival of the goods in the
only; Philippines;
a. while the goods are still within the customs c. articles lost or destroyed after such arrival,
jurisdiction, or
d. articles lost or destroyed
b. in the hands or under the control of the
importer or person who is aware thereof. e. dead or injured animals; and
3. Sale of Property f. for manifest classical errors; (see section 1701-

1708, TCC)
Property in the customs custody shall be subject to
sale under the following conditions; 2. Judicial relief
a. abandoned articles; In drawback cases where the goods are re-exported
b. articles entered under warehousing entry a. Protest

not withdrawn nor the duties and taxes
paid thereon within the period provided see the earlier discussions on “Customs Protest
under Section 1908, TCC; Cases”
c. seized property, other than contraband, after b. In seizure cases

liability to sale shall have been established
by proper administrative or judicial see earlier discussion on the subject
proceedings in conformity with the provision
of this code: and c. Settlement of case by the payment of fine or
redemption of forfeited property
d. Any articles subject to a valid lien for
customs duties, taxes or other charges see earlier discussions on the subject
collectible by the Bureau of Customs, after
the expiration of the period allowed for the Note: The owner or importer may abandon either
satisfaction of the same. expressly or By importation in favor of the
TAX ATION
Government thus relieving himself of the tax liability any taxpayer whether
delinquent taxpayer.
but not from the possible criminal liability. delinquent or not
There is actual taking or Taxpayer is merely prohibited
The taxpayer may appeal to the Court of Appeals possession of the property. from disposing of his property.
which has exclusive jurisdiction to review decisions of Effected by having a list of the Effected by requiring the
the Commissioner of Custom in cases involving: distraint property or by service or taxpayer to sign a receipt of the
warrant of distraint or property or by leaving a list of
a) liability for customs duties, fees or other money garnishment. same
charges; Such immediate step is not
b) seizures, detention or release of property An immediate step for collection
necessary; tax due may not be
affected; of taxes where amount due is
definite or it is being
definite.
questioned.
c) fines forfeitures or other penalties imposed in
relation thereto; and
Requisites:
d) other matters arising under the customs Law or
other laws administered by the Revenue of 5. Taxpayer is delinquent in the payment of tax.
Customs.
6. Subsequent demand for its payment.
Remedies of the Government
7. Taxpayer must fail to pay delinquent tax at time required.
Enumeration of the Remedies
8. Period with in to assess or collect has not yet prescribed. In
Administrative case of constructive distraint, requisite no. 1 is not
essential (see Sec. 206 TC)
1. Distraint of Personal Property
When remedy not available:
2. Levy of Real Property
Where amount involved does not exceed P100 (Sec. 205
3. Tax Lien TC). In keeping with the provision on the abatement of the collection
of tax as the cost of same might even be more than P100.
4. Compromise
Procedure:
5. Forfeiture
5. Service of warrant of distraint upon taxpayer or upon
6. Other Administrative Remedies person in possession of taxpayer’s personal property.
Judicial 6. Posting of notice is not less than two places in the

municipality or city and notice to the taxpayer specifying
7. Civil Action time and place of sale and the articles distrained.
8. Criminal Action 7. Sale at public auction to highest bidder
Distraint of Personal Property 8. Disposition of proceeds of the sale.
Distraint- Seizure by the government of personal property,

tangible or intangible, to enforce the payment of faces, to be followed
by its public sale, if the taxes are not voluntarily paid.
Who may effect distraint Amount Involved
c. Actual – There is taking of possession of personal property 3. commissioner or his due authorized In excess of
out of the taxpayer into that of the government. In case of representative P1,000,000.00
intangible property. Taxpayer is also diverted of the power P1,000,000.00 or
of control over the property; 4. RDO less
d. Constructive – The owner is merely prohibited from
disposing of his personal property.
How Actual Distraint Effected
Actual Distraint. Constructive Distraint
Made on the property only of a May be made on the property of 3. In case of Tangible Property:
TAX ATION
a. Copy of an account of the property distrained, 6. Taxpayer is retiring from any business subject to tax.
signed by the officer, left either with the owner or
person from whom property was taken, at the 7. Taxpayer is intending to leave the Philippines; or
dwelling or place of business and with someone
of suitable age and discretion 8. To remove his property there from.
b. Statement of the sum demanded. 9. Taxpayer hides or conceals his property.
c. Time and place of sale. 10. Taxpayer acts tending to obstruct collection proceedings.
4. In case of intangible property: Note:
a. Stocks and other securities 4. Bank accounts may be distrained with out violating the
confidential nature of bank accounts for no inquiry is made.
Serving a copy of the warrant upon taxpayer and BIR simply seizes so much of the deposit with out having to
upon president, manager, treasurer or other know how much the deposits are or where the money or
responsible officer of the issuing corporation, any part of it came from.
company or association.
5. If at any time prior to the consummation of the sale, all
b. Debts and credits proper charges are paid to the officer conducting the same,
the goods distrained shall be restored to the owner.
3. Leaving a copy of the warrant with the
person owing the debts or having in his 6. When the amount of the bid for the property under distraint
possession such credits or his agent. is not equal to the amount of the tax or is very much less
than the actual market value of articles, the CIR or his
4. Warrant shall be sufficient authority for such deputy may purchase the distrained property on behalf of
person to pay CIR his credits or debts. the national government.
c. Bank Accounts – garnishment Levy of Real Property
3. Serve warrant upon taxpayer and president, Levy – Act of seizure of real property in order to enforce
manager, treasurer or responsible officer of the payment of taxes. The property may be sold at public sale, if
the bank. after seizure; the taxes are not voluntarily paid. The requisites are the
same as that of distraint.
4. Bank shall turn over to CIR so much of the
bank accounts as may be sufficient. Procedure:
How constructive Distraint Effected 7. International Revenue officer shall prepare a duly
authenticated certificate showing
3. Require taxpayer or person in possession to
a. Name of taxpayer
a. Sign a receipt covering property distrained
b. Amount of tax and
b. Obligate him to preserve the same properties.
c. Penalty due.
c. Prohibit him from disposing the property from
disposing the property in any manner, with out the
authority of the CIR. - enforceable through out the Philippines
4. Where Taxpayer or person in possession refuses to sign: 8. Officer shall write upon the certificate a description of the
property upon which levy is made.
a. Officer shall prepare list of the property distrained.
9. Service of written notice to:
b. In the presence of two witnesses of sufficient age and
discretion, leave a copy in the premises where c. The taxpayer, and
property is located.
d. RD where property is located.
Grounds of Constructive Distraint
TAX ATION
10. Advertisement of the time and place of sale.

Enforcement of Tax Lien
11. Sale at public auction to highest bidder.
Tax Lien—a legal claim or charge on property, either real or
12. Disposition of proceeds of sale. personal, established by law as a security in default of the payment
of taxes.
The excess shall be turned over to owner.
2. Nature:
Redemption of property sold or forfeited
A lien in favor of the government of the Philippines when a
e. Person entitled: Taxpayer or anyone for him person liable to pay a tax neglects or fails to do so upon
demand.\
f. Time to redeem: one year from date of sale or forfeiture
3. Duration:
- Begins from registration of the deed of sale or
declaration of forfeiture. Exists from time assessment is made by the CIR until paid,
with interests, penalties and costs.
- Cannot be extended by the courts.
7. Extent:
g. Possession pending redemption – owner not deprived of
possession Upon all property and rights to property belonging to the
taxpayer.
h. Price: Amount of taxes, penalties and interest thereon from
date of delinquency to the date of sale together with 8. Effectivity against third persons:
interest on said purchase price at 15% per annum from
date of purchase to date of redemption. Only when notice of such lien is filed by the CIR in the
Register of Deeds concerned.
Distraint and Levy compared Extinguishment of Tax Lien
6. Both are summary remedies for collection of taxes. 5. Payment or remission of the tax
7. Both cannot be availed of where amount involved is not 6. Prescription of the right of the government to assess or
more than P100. collect.
7. Failure to file notice of such lien in the office of register of
8. Distraint – personal property Deeds, purchases or judgment creditor.
Levy – real property 8. Destruction of the property subject to the lien.
9. Distraint – forfeiture by government, not provided In case Nos. 1 and 2, there is no more tax liability. Under
nos. 3 and 4, the taxpayer is still liable.
Levy – forfeiture by government authorized where there is
no bidder or the highest bid is not sufficient to pay the Enforcement of Tax Lien vs. Distraint
taxes, penalties and costs.
A tax lien is distinguished from disttraint in that, in distraint
10. Distraint – Taxpayer no given the right of redemption the property seized must be that of the taxpayer, although it need not
be the property in respect to the tax is assessed. Tax lien is directed
Levy – Taxpayer can redeem properties levied upon and to the property subject to the tax, regardless of its owner.
sold/forfeited to the government.
Note:
Note:
3. This is superior to judgment claim of private individuals or
5. It is the duty of the Register of Deeds concerned upon parties
registration of the declaration of forfeiture, to transfer the
title to the property with out of an order from a competent 4. Attaches not only from time the warrant was served but
court from the time the tax was due and demandable.
6. The remedy of distraint or levy may be repeated if
necessary until the full amount, including all expenses, is Compromise
collected.
TAX ATION
Compromise—a contract whereby the parties, by reciprocal 3. enforce the compromise, or

concessions, avoid litigation or put an end to one already
commenced. 4. Regard it as rescinded and insists upon the original
demand.
Requisites:
Compromise Penalty
4. Taxpayer must have a tax liability.
4. It is a certain amount of money which the taxpayer pays to
5. There must be an offer by taxpayer or CIR, of an amount to compromise a tax violation.
be paid by taxpayer.
5. It is pain in lieu of a criminal prosecution.
6. There must be acceptance of the offer in settlement of the
original claim. 6. Since it is voluntary in character, the same may be
collected only if the taxpayer is willing to pay them.
When taxes may be compromised:
Enforcement of forfeiture
4. A reasonable doubt as to the validity if the claim against
the taxpayer exists; Forfeiture—implies a divestiture of property with out
compensation, in consequence of a default or offense. It includes the
5. The financial position of the taxpayer demonstrates a clear idea of not only losing but also having the property transferred to
inability to pay the assessed tax. another with out the consent of the owner and wrongdoer.
6. Criminal violations, except: 8. Effect: Transfer the title to the specific thing from the
owner to the government.
a. Those already filed in court
9. When available:
b. Those involving fraud. a. No bidder for the real property exposed for sale.
b. If highest bid is for an amount insufficient to pay

Limitations: the taxes, penalties and costs.
3. Minimum compromise rate: - With in two days thereafter, a return of the proceeding
is duly made.
a. 10% of the basic tax assessed – in case of
financial incapacity. 10. How enforced:
b. 40% of basic tax assessed – other cases. c. In case of personal property – by seizure and
sale or destruction of the specific forfeited
4. Subject to approval of Evaluation Board property.
c. When basic tax involved exceeds P1,000,000.00 d. In case of real property – by a judgment of
or condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may
d. Where settlement offered is less than the require.
prescribed minimum rates.
Delegation of Power to Compromise 11. When forfeited property to be destroyed or sold:
General Rule: The power to compromise or abate shall not c. To be destroyed – by order of the CIR when the
be delegated by the commissioner. sale for consumption or use of the following
would be injurious to the public health or
Exception: The Regional Evaluation Board may prejudicial to the enforcement of the law: (at
compromise the assessment issued by the regional offices involving least 20 days after seizure)
basic taxes of P 500 K or less.
1. distilled spirits
Remedy in case of failure to comply:
2. liquors
The CIR may either:
3. cigars
TAX ATION
b. Excise taxes
4. cigarettes, and other manufactured products
of tobacco c. Exporter’s bond
5. playing cards d. Manufacturer’s and importer’s bond
6. All apparatus used in or about the illicit 5. Requiring proof of filing income tax returns
production of such articles.
Before a license to engage in trade, business or occupation
or to practice a profession can be issued.
d. To be sold or destroyed – depends upon the
discretion of CIR 6. Giving reward to informers – Sum equivalent to 10% of
revenues, surcharges or fees recovered and/or fine or
3. All other articles subject to exercise tax, penalty imposed and collected or P1, 000,000.00 per case,
(wine, automobile, mineral products, whichever is lower.
manufactured oils, miscellaneous products,
non-essential items a petroleum products) 7. Imposition of surcharge and interest.
manufactured or removed in violation of the
Tax Code. 8. Making arrest, search and seizure
4. Dies for printing or making IR stamps, labels
and tags, in imitation of or purport to be Limited to violations of any penal law or regulation
lawful stamps, labels or tags. administered by the BIR, committed with in the view of the
Internal Revenue Officer or EE.
12. Where to be sold: 9. Deportation in case of aliens – on the following grounds
c. Public sale: provided, there is notice of not less c. Knowingly and fraudulently evades payment of IR
than 20 days. taxes.
d. Private sale: provided, it is with the approval of d. Willfully refuses to pay such tax and its accessory
the Secretary of Finance. penalties, after decision on his tax liability shall have
become final and executory.
13. Right of Redemption:
10. Inspection of books
f. Personal entitled – taxpayer or anyone for him
Books of accounts and other accounting records of
g. Time to redeem – with in one (1) year from taxpayer must be preserved, generally within three years
forfeiture after date the tax return was due or was filed whichever is
later.
h. Amount to be paid – full amount of the taxes and
penalties, plus interest and cost of the sale 11. Use of National Tax Register
i. To whom paid – Commissioner or the Revenue 12. Obtaining information on tax liability of any person
Collection Officer
j. Effect of failure to redeem – forfeiture shall 13. Inventory – Taking of stock-in-trade and making
become absolute. surveillance.
14. Prescribing presumptive gross sales or receipt:

Note: The Register of Deeds is duty bound to transfer the title of
property forfeited to the government with our necessity of an order
from a competent court. c. Person failed to issue receipts and invoices
Other Administrative Remedies d. Reason to believe that records do not correctly reflect
declaration in return.\
4. Requiring filing of bonds – in the following instances:
15. Prescribing real property values
a. Estate and donor’s tax
16. Inquiring into bank deposit accounts of
TAX ATION
This is true in case the criminal action is based on the act

c. A deceased person to determine gross estate to taxpayer of filing a false and fraudulent tax return and failure to
pay the tax.
d. Any taxpayer who filed application for compromise by
reasons of financial incapacity his tax liability. Note: The satisfaction of civil liability is not one of the grounds for the
extinction of criminal action.
17. Registration of Taxpayers.
Judicial Remedies
Civil and Criminal Actions:

Prescriptive Periods /
1. Brought in the name of the Government of the Philippines. Statute Of Limitation
2. Conducted by Legal Officer of BIR Purpose:
3. Must be with the approval of the CIR, in case of action, for For purposes of Taxation, statue of limitation is primarily
recovery of taxes, or enforcement of a fine, penalty or designed to protect the rights of the taxpayer’s against unreasonable
forfeiture. investigation of the taxing authority with respect to assessment and
collection of Internal Revenue Taxes.
C. Civil Action Prescription of Government’s Right to Assess Taxes:
Actions instituted by the government to collect internal General Rule: Internal Revenue Taxes shall be assessed within three
revenue taxes in regular courts (RTC or MTCs, depending (3) years after the last day prescribed by law for the filing of the
on the amount involved) return or from the day the return was filed, in case it is filed beyond
the period prescribed thereof. (Section 203 of the Tax Code)
When assessment made has become final and executory
for failure or taxpayer to: Note:
c. Dispute same by filing protest with CIR 1. A return filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day.
d. Appeal adverse decision of CIR to CTA
2. In case a return is substantially amended, the government
D. Criminal Action right to assess the tax shall commence from the filing of the
amended return (CIR vs. Phoenix, May 20, 1965; Kei & Co.
A direct mode of collection of taxes, the judgment of which vs. Collector, 4 SCRA 872)
shall not only impose the penalty but also order payment
of taxes. 3. In computing the prescriptive period for assessment, the
latter is deemed made when notice to this effect is
An assessment of a tax deficiency is not necessary to a released, mailed or sent by the Commissioner to the
criminal prosecution for tax evasion, provided there is a correct address of the taxpayer. However, the law does
prima facie showing of willful attempt to evade. not require that the demand/notice be received within the
prescriptive period. (Basilan Estates, Inc. vs.
Effect of Acquittal on Tax Liability: Commissioner 21, SCRA 17; Republic vs. CA April 30,
1987)
Does not exonerate taxpayer his civil liability to pay the tax
due. Thus, the government may still collect the tax in the same 4. An affidavit executed by a revenue office indicating the tax
action. liabilities of a taxpayer and attached to a criminal complaint
Reason: Tax is an obligation, does not arise from a criminal act. for tax evasion, cannot be deemed an assessment. ( CIR
vs. Pascoi Realty Corp. June 29, 1999)
Effect of Satisfaction of Tax Liability on Criminal Liability
5. A transcript sheets are not returns, because they do not
Will not operate to extinguish taxpayer’s criminal liability contain information necessary and required to permit the
since the duty to pay the tax is imposed by statute, independent of computation and assessment of taxes (Sinforo Alca vs.
any attempt on past of taxpayers to evade payment. Commissioner, Dec. 29, 1964)
TAX ATION
Exceptions: (Sec. 222 ic) 7. Where the commissioner and the taxpayer, before the
expiration of the three (3) year period of limitation have
5. Where no return was filed - within ten (10) years after the agreed in writing to the extension of said period.
date of discovery of the omission.
Note: Limitations:
6. Where a return was filed but the same was false or
fraudulent – within ten (10) years from the discovery of c. The agreement extending the period of prescription
falsity or fraud. should be in writing and duly signed by the taxpayer
and the commissioner.
Nature of Fraud:
d. The agreement to extend the same should be mode
a. Fraud is never presumed and the circumstances before the expiration of the period previously agreed
consisting it must be alleged and proved to exist by upon.
clear & convincing evidence (Republic vs. Keir, Sept.
30, 1966) 8. Where there is a written waiver or renunciation of the
original 3-year limitation signed by the taxpayer.
b. The fraud contemplated by law is actual and not
constructive. It must amount to intentional Note: Limitations:
wrongdoing with the sole object of avoiding the tax. A
mere mistake is not a fraudulent intent. (Aznar case, d. The waiver to be valid must be executed by the
Aug. 23, 1974) parties before the lapse of the prescriptive period.
c. A fraud assessment which has become final and e. A waiver is inefficient I it is executed beyond the
executory, the fact of fraud shall be judicially taken original three year.
cognizance of in the civil or criminal action for the
collection thereof. (Sec. 222 paragraph (a)) f. The commissioner can not valid agree to reduce the
prescriptive period to less than that granted by law.
Fraud may be established by the following : (Badges of

Fraud) Imprescriptible Assessments:
d. Intentional and substantial understatement of tax 1. Where the law does not provide for any particular period of
liability of the taxpayer. assessment, the tax sought to be assessed becomes
imprescriptible.
e. Intentional and substantial overstatement of
deductions of exemption 2. Where no return is required by law, the tax is
imprescriptible.
f. Recurrence of the foregoing circumstances.
Instances/Circumstances negating fraud: 3. Assessment of unpaid taxes, where the bases of which is
not required by law to be reported in a return such as
a. When the Commissioner fails impute fraud in the excise taxes. (Carmen vs. Ayala Securities Corp., Nov. 21,
assessment notice/demand for payment. 1980)
b. When the Commissioner failed to allege in his answer 4. Assessment of compensating and documentary stamp tax.
to the taxpayer’s petition for review when the case is
appealed to the CTA.
c. When the Commissioner raised the question of fraud

only for the first time in his memorandum which was
filed the CTA after he had rested his case. Prescription of Government’s
Right to Collect Taxes
d. Where the BIR itself appeared, “not sure” as to the
real amount of the taxpayer’s net income. D. General Rule:
e. A mere understatement of income does not prove 1. Where an assessment was made – Any internal
fraud, unless there is a sufficient evidence shaving revenue tax which has been assessed within the
fraudulent intent. period of limitation may be collected by distraint or
TAX ATION
levy or by proceeding in court within 5 years following 5. Collection by judicial action – The collection begins by
the date of assessment. filing the complaint with the proper court. (RTC)
2. Where no assessment was made and a return was 6. Where assessment of the commissioner is protected
filed and the same is not fraudulent or false- the tax & appealed to the CTA – the collection begin when the
should be collected within 3 years after the return was government file its answer to taxpayer’s petition for
due or was filed, whichever is later. review.
E. Exceptions:
8. Where a fraudulent/false return with intent to evade Rules of Prescription in Criminal Cases
taxes was filed a proceeding in court for the collection
of the tax may be filed without assessment, at anytime Rule: All violations of any provision of the tax code shall
within ten years after the discovery of the falsity or prescribe after five (5) years.
fraud.
Note:
Note: The 10-year prescriptive period for collector thru
action does not apply if it appears that there was an When it should commence?
assessment. In such case, the ordinary 5-year period
(now 3 years) would apply (Rep. vs. Ret., March 31, The five (5) year prescriptive period shall begin to run from
1962) the:
9. When the taxpayer omits to file a return – a court c. Day of the commission of the violation, if know.
proceeding for the collection of such tax may be filed
without assessment, at anytime within 10 years after d. If not known, from the time of discovery and the institution
the discovery of the omission. of judicial proceeding for its investigation and punishment.
10. Waiver of statute of limitations – any internal revenue When it is interrupted:

tax, which has been assessed within the period
agreed upon, may be collected be distinct or levy of by c. When a proceeding is instituted against the guilty person
a proceeding in court within the period agreed upon in
writing before the expiration of 5-year period. d. When the offender is absent from the Philippines.
11. Where the government makes another assessment on

the basis of reinvestigation requested by the taxpayer When it should run again:
– the prescriptive period for collection should be
counted from the last assessment. (Rep. vs. Lopez, When the proceeding is dismissed for reason not
March 30, 1963) Constituting jeopardy.
12. Where the assessment is revised because of an When does the defense of prescription may be raised:
amended return – the period for collection is counted
from the last revised assessment. c. In civil case – If not raised in the lower court, it is bailed
permanently; if can not be raised for the first time on
13. Where a tax obligation is secured by a surety bond – appeal.
the government may proceed thru a court action to
forfeit a bond and enforce such contractual obligation d. In criminal case – It can be raised even if the case has
within a period of ten years. been decided by the lower court but pending decision on
appeal.
14. Where the action is brought to enforce a compromise
entered into between the commission and the
taxpayer – the prescriptive period is ten years. Interruption of the Prescriptive Period
F. When tax is deemed collected for purposes of the 4. Where before the expiration of the time prescribed for the
prescriptive period. assessment of the tax, both the commissioner and the
taxpayer have consented in writing to its assessment after
4. Collection by summary remedies – It is effected by such time, the tax may be assessed prior to the expiration
summary methods when the government avail of of the period agreed upon.
distraint and levy procedure.
TAX ATION
5. The running of statute of limitations on making an 6. The law on prescription remedial measure should be
assessment and the beginning of distraint/levy or a interpreted liberally in order to protect the taxpayer.
proceeding in court for collection shall be suspended for
the period. 7. The defense of prescription must be raised by the taxpayer
on time, otherwise it is deemed waived.
During which the Commissioner is prohibited from making 8. The question of prescription is not jurisdictional, and as
the assessment or beginning distraint/levy or a proceeding defense it must be raised reasonably otherwise it is
in court and for 60 days thereafter; e.g. deemed waived.
a. Filing a petition for review in the CTA from the 9. The prescriptive provided in the tax code over ride the
decision of the Commissioner. The commissioner is statute of non-claims in the settlement of the deceased’s
prevented from filing an ordinary action to collect the estate.
tax.
10. In the event that the collection of the tax has already
b. When CTA suspends the collection of tax liability of prescribed, the government cannot invoke the principle of
the taxpayer pursuant to Section 11 of RA 1125 upon Equitable recumbent by setting- off the prescribed tax
proof that its collection may jeopardizes the against a tax refused to which the taxpayer is entitled.
government and /or the taxpayer.
_______________________________________________________
c. When the taxpayer requests for reinvestigation SOME IMPORTANT PROVISIONS ON THE TAX REFORM ACT OF
which is granted by commissioner. 1997
Note: A mere request for reinvestigation without SEC. 2. Powers and Duties of the Bureau of Internal
any action or the part of the Commissioner does Revenue. - The Bureau of Internal Revenue shall be under
not interrupt the running of the prescriptive the supervision and control of the Department of Finance
period. The request must not be a mere pro- and its powers and duties shall comprehend the
former. Substantial issues must be raised. assessment and collection of all national internal revenue
taxes, fees, and charges, and the enforcement of all
d. When the taxpayer cannot be located in the forfeitures, penalties, and fines connected therewith,
address given by him in the return. including the execution of judgments in all cases decided in
its favor by the Court of Tax Appeals and the ordinary
Note: If the taxpayer informs the Commissioner courts. The Bureau shall give effect to and administer the
of any change in address the statute will not be supervisory and police powers conferred to it by this Code
suspended. or other laws.
SEC. 3. Chief Officials of the Bureau of Internal Revenue. -
e. When the warrant of distraint or levy is duly The Bureau of Internal Revenue shall have a chief to be
served upon any of the following person: known as Commissioner of Internal Revenue, hereinafter
referred to as the Commissioner and four (4) assistant
4. taxpayer chiefs to be known as Deputy Commissioners.
SEC. 4. Power of the Commissioner to Interpret Tax Laws
5. his authorized representative and to Decide Tax Cases. - The power to interpret the
provisions of this Code and other tax laws shall be under
6. Member of his household with the exclusive and original jurisdiction of the Commissioner,
sufficient discretion and no property could subject to review by the Secretary of Finance.
be located.
The power to decide disputed assessments, refunds of
f. When the taxpayer is out of the Philippines. internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under
g. In criminal cases for violation of tax code – the this Code or other laws or portions thereof administered by
period shall not run when the offender is absent the Bureau of Internal Revenue is vested in the
from the Philippines. Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.
Note: A petition for reconsideration of a tax assessment
does not suspend the criminal action. Reason: No SEC. 5. Power of the Commissioner to Obtain Information,
requirement for assessment of the tax before the and to Summon, Examine, and Take Testimony of
criminal action may be instituted. Persons. - In ascertaining the correctness of any return, or
in making a return when none has been made, or in
Nota Bene: determining the liability of any person for any internal
revenue tax, or in collecting any such liability, or in
TAX ATION
evaluating tax compliance, the Commissioner is (A) Examination of Returns and Determination of
authorized: Tax Due. - After a return has been filed as
(A) To examine any book, paper, record, or other required under the provisions of this Code, the
data which may be relevant or material to such Commissioner or his duly authorized
inquiry; representative may authorize the examination of
any taxpayer and the assessment of the correct
(B) To obtain on a regular basis from any person amount of tax: Provided, however; That failure to
other than the person whose internal revenue tax file a return shall not prevent the Commissioner
liability is subject to audit or investigation, or from from authorizing the examination of any
any office or officer of the national and local taxpayer.
governments, government agencies and Any return, statement of declaration filed in any
instrumentalities, including the Bangko Sentral ng office authorized to receive the same shall not be
Pilipinas and government-owned or -controlled withdrawn: Provided, That within three (3) years
corporations, any information such as, but not from the date of such filing, the same may be
limited to, costs and volume of production, modified, changed, or amended: Provided, further,
receipts or sales and gross incomes of That no notice for audit or investigation of such
taxpayers, and the names, addresses, and return, statement or declaration has in the
financial statements of corporations, mutual fund meantime been actually served upon the taxpayer.
companies, insurance companies, regional (B) Failure to Submit Required Returns,
operating headquarters of multinational Statements, Reports and other Documents. -
companies, joint accounts, associations, joint When a report required by law as a basis for the
ventures of consortia and registered assessment of any national internal revenue tax
partnerships, and their members; shall not be forthcoming within the time fixed by
laws or rules and regulations or when there is
reason to believe that any such report is false,
(C) To summon the person liable for tax or
incomplete or erroneous, the Commissioner shall
required to file a return, or any officer or
assess the proper tax on the best evidence
employee of such person, or any person having
obtainable.
possession, custody, or care of the books of
In case a person fails to file a required return or
accounts and other accounting records
other document at the time prescribed by law, or
containing entries relating to the business of the
willfully or otherwise files a false or fraudulent
person liable for tax, or any other person, to
return or other document, the Commissioner shall
appear before the Commissioner or his duly
make or amend the return from his own knowledge
authorized representative at a time and place
and from such information as he can obtain
specified in the summons and to produce such
through testimony or otherwise, which shall be
books, papers, records, or other data, and to give
prima facie correct and sufficient for all legal
testimony;
purposes.
(D) To take such testimony of the person (C) Authority to Conduct Inventory-taking,
concerned, under oath, as may be relevant or surveillance and to Prescribe Presumptive Gross
material to such inquiry; and Sales and Receipts. - The Commissioner may, at
any time during the taxable year, order inventory-
(E) To cause revenue officers and employees to taking of goods of any taxpayer as a basis for
make a canvass from time to time of any revenue determining his internal revenue tax liabilities, or
district or region and inquire after and concerning may place the business operations of any person,
all persons therein who may be liable to pay any natural or juridical, under observation or
internal revenue tax, and all persons owning or surveillance if there is reason to believe that such
having the care, management or possession of person is not declaring his correct income, sales
any object with respect to which a tax is imposed. or receipts for internal revenue tax purposes. The
findings may be used as the basis for assessing
The provisions of the foregoing paragraphs the taxes for the other months or quarters of the
notwithstanding, nothing in this Section shall be same or different taxable years and such
construed as granting the Commissioner the assessment shall be deemed prima facie correct.
authority to inquire into bank deposits other than When it is found that a person has failed to issue
as provided for in Section 6(F) of this Code. receipts and invoices in violation of the
requirements of Sections 113 and 237 of this
SEC. 6. Power of the Commissioner to Make assessments Code, or when there is reason to believe that the
and Prescribe additional Requirements for Tax books of accounts or other records do not correctly
Administration and Enforcement. - reflect the declarations made or to be made in a
TAX ATION
return required to be filed under the provisions of (1) a decedent to determine his gross
this Code, the Commissioner, after taking into estate; and
account the sales, receipts, income or other (2) any taxpayer who has filed an
taxable base of other persons engaged in similar application for compromise of his tax
businesses under similar situations or liability under Sec. 204 (A) (2) of this
circumstances or after considering other relevant Code by reason of financial incapacity
information may prescribe a minimum amount of to pay his tax liability.
such gross receipts, sales and taxable base, and In case a taxpayer files an application to compromise the payment of
such amount so prescribed shall be prima facie his tax liabilities on his claim that his financial position demonstrates
correct for purposes of determining the internal a clear inability to pay the tax assessed, his application shall not be
revenue tax liabilities of such person. considered unless and until he waives in writing his privilege under
Republic Act No. 1405 or under other general or special laws, and
(D) Authority to Terminate Taxable Period. - When such waiver shall constitute the authority of the Commissioner to
it shall come to the knowledge of the inquire into the bank deposits of the taxpayer.
Commissioner that a taxpayer is retiring from (G) Authority to Accredit and Register Tax
business subject to tax, or is intending to leave the Agents. - The Commissioner shall accredit and
Philippines or to remove his property therefrom or register, based on their professional competence,
to hide or conceal his property, or is performing integrity and moral fitness, individuals and
any act tending to obstruct the proceedings for the general professional partnerships and their
collection of the tax for the past or current quarter representatives who prepare and file tax returns,
or year or to render the same totally or partly statements, reports, protests, and other papers
ineffective unless such proceedings are begun with or who appear before, the Bureau for
immediately, the Commissioner shall declare the taxpayers. Within one hundred twenty (120) days
tax period of such taxpayer terminated at any time from January 1, 1998, the Commissioner shall
and shall send the taxpayer a notice of such create national and regional accreditation boards,
decision, together with a request for the immediate the members of which shall serve for three (3)
payment of the tax for the period so declared years, and shall designate from among the senior
terminated and the tax for the preceding year or officials of the Bureau, one (1) chairman and two
quarter, or such portion thereof as may be unpaid, (2) members for each board, subject to such
and said taxes shall be due and payable rules and regulations as the Secretary of Finance
immediately and shall be subject to all the shall promulgate upon the recommendation of
penalties hereafter prescribed, unless paid within the Commissioner.
the time fixed in the demand made by the Individuals and general professional partnerships
Commissioner. and their representatives who are denied
accreditation by the Commissioner and/or the
(E) Authority of the Commissioner to Prescribe national and regional accreditation boards may
Real Property Values. - The Commissioner is appeal such denial to the Secretary of Finance,
hereby authorized to divide the Philippines into who shall rule on the appeal within sixty (60) days
different zones or areas and shall, upon from receipt of such appeal. Failure of the
consultation with competent appraisers both from Secretary of Finance to rule on the Appeal within
the private and public sectors, determine the fair the prescribed period shall be deemed as approval
market value of real properties located in each of the application for accreditation of the appellant.
zone or area. For purposes of computing any
internal revenue tax, the value of the property shall (H) Authority of the Commissioner to Prescribe
be, whichever is the higher of: Additional Procedural or Documentary
Requirements. - The Commissioner may prescribe
the manner of compliance with any documentary or
(1) the fair market value as determined
procedural requirement in connection with the
by the Commissioner, or
submission or preparation of financial statements
(2) the fair market value as shown in
accompanying the tax returns.
the schedule of values of the Provincial
SEC. 7. Authority of the Commissioner to Delegate Power.
and City Assessors.
- The Commissioner may delegate the powers vested in

him under the pertinent provisions of this Code to any or
(F) Authority of the Commissioner to inquire into
such subordinate officials with the rank equivalent to a
Bank Deposit Accounts. - Notwithstanding any
division chief or higher, subject to such limitations and
contrary provision of Republic Act No. 1405 and
restrictions as may be imposed under rules and regulations
other general or special laws, the Commissioner
to be promulgated by the Secretary of finance, upon
is hereby authorized to inquire into the bank
recommendation of the Commissioner: Provided, however,
deposits of:

TAX ATION
That the following powers of the Commissioner shall not be For other cases, a minimum compromise rate
delegated: equivalent to forty percent (40%) of the basic
(a) The power to recommend the promulgation of assessed tax.
rules and regulations by the Secretary of Where the basic tax involved exceeds One million pesos
Finance; (P1,000.000) or where the settlement offered is less than the
(b) The power to issue rulings of first impression prescribed minimum rates, the compromise shall be subject to the
or to reverse, revoke or modify any existing ruling approval of the Evaluation Board which shall be composed of the
of the Bureau; Commissioner and the four (4) Deputy Commissioners.
(c) The power to compromise or abate, under
Sec. 204 (A) and (B) of this Code, any tax (B) Abate or Cancel a Tax Liability, when:
liability: Provided, however, That assessments
issued by the regional offices involving basic (1) The tax or any portion thereof appears to be unjustly or
deficiency taxes of Five hundred thousand pesos excessively assessed; or
(P500,000) or less, and minor criminal violations, (2) The administration and collection costs involved do not
as may be determined by rules and regulations to justify the collection of the
be promulgated by the Secretary of finance, upon amount due.
recommendation of the Commissioner,
discovered by regional and district officials, may
be compromised by a regional evaluation board All criminal violations may be compromised except: (a)
which shall be composed of the Regional those already filed in court, or (b) those involving fraud.
Director as Chairman, the Assistant Regional
Director, the heads of the Legal, Assessment and (C) Credit or refund taxes erroneously or illegally received or
Collection Divisions and the Revenue District penalties imposed without authority, refund the value of internal
Officer having jurisdiction over the taxpayer, as revenue stamps when they are returned in good condition by the
members; and purchaser, and, in his discretion, redeem or change unused stamps
(d) The power to assign or reassign internal that have been rendered unfit for use and refund their value upon
revenue officers to establishments where articles proof of destruction. No credit or refund of taxes or penalties shall be
subject to excise tax are produced or kept. allowed unless the taxpayer files in writing with the Commissioner a
claim for credit or refund within two (2) years after the payment of the
SEC. 203. Period of Limitation Upon Assessment and Collection. - tax or penalty: Provided, however, That a return filed showing an
Except as provided in Section 222, internal revenue taxes shall be overpayment shall be considered as a written claim for credit or
assessed within three (3) years after the last day prescribed by law refund.
for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the A Tax Credit Certificate validly issued under the provisions of this
expiration of such period: Provided, That in a case where a return is Code may be applied against any internal revenue tax, excluding
filed beyond the period prescribed by law, the three (3)-year period withholding taxes, for which the taxpayer is directly liable. Any
shall be counted from the day the return was filed. For purposes of request for conversion into refund of unutilized tax credits may be
this Section, a return filed before the last day prescribed by law for allowed, subject to the provisions of Section 230 of this Code:
the filing thereof shall be considered as filed on such last day. Provided, That the original copy of the Tax Credit Certificate showing
a creditable balance is surrendered to the appropriate revenue officer
SEC. 204. Authority of the Commissioner to Compromise, Abate and for verification and cancellation: Provided, further, That in no case
Refund or Credit Taxes. - The Commissioner may - shall a tax refund be given resulting from availment of incentives
granted pursuant to special laws for which no actual payment was
(A) Compromise the Payment of any Internal Revenue Tax, when: made.
(1) A reasonable doubt as to the validity of the claim The Commissioner shall submit to the Chairmen of the Committee on
against the taxpayer exists; or Ways and Means of both the Senate and House of Representatives,
(2) The financial position of the taxpayer demonstrates a every six (6) months, a report on the exercise of his powers under
clear inability to pay the assessed tax. this Section, stating therein the following facts and information,
among others: names and addresses of taxpayers whose cases
have been the subject of abatement or compromise; amount
The compromise settlement of any tax liability shall be involved; amount compromised or abated; and reasons for the
subject to the following minimum amounts: exercise of power: Provided, That the said report shall be presented
to the Oversight Committee in Congress that shall be constituted to
For cases of financial incapacity, a minimum determine that said powers are reasonably exercised and that the
compromise rate equivalent to ten percent (10%) government is not unduly deprived of revenues.
of the basic assessed tax; and CHAPTER II
CIVIL REMEDIES FOR COLLECTION OF TAXES

TAX ATION
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The (A) Distraint of Personal Property. - Upon the failure of the person
civil remedies for the collection of internal revenue taxes, fees or owing any delinquent tax or delinquent revenue to pay the same at
charges, and any increment thereto resulting from delinquency shall the time required, the Commissioner or his duly authorized
be: representative, if the amount involved is in excess of One million
pesos (P1,000,000), or the Revenue District Officer, if the amount
(a) By distraint of goods, chattels, or effects, and other involved is One million pesos (P1,000,000) or less, shall seize and
personal property of whatever character, including stocks distraint any goods, chattels or effects, and the personal property,
and other securities, debts, credits, bank accounts and including stocks and other securities, debts, credits, bank accounts,
interest in and rights to personal property, and by levy upon and interests in and rights to personal property of such persons ;in
real property and interest in rights to real property; and sufficient quantity to satisfy the tax, or charge, together with any
increment thereto incident to delinquency, and the expenses of the
distraint and the cost of the subsequent sale.
(b) By civil or criminal action.
A report on the distraint shall, within ten (10) days from receipt of the
Either of these remedies or both simultaneously may be
warrant, be submitted by the distraining officer to the Revenue
pursued in the discretion of the authorities charged with the
District Officer, and to the Revenue Regional Director: Provided, That
collection of such taxes: Provided, however, That the
the Commissioner or his duly authorized representative shall, subject
remedies of distraint and levy shall not be availed of where
to rules and regulations promulgated by the Secretary of Finance,
the amount of tax involve is not more than One hundred
upon recommendation of the Commissioner, have the power to lift
pesos (P100).
such order of distraint: Provided, further, That a consolidated report
by the Revenue Regional Director may be required by the
The judgment in the criminal case shall not only impose the Commissioner as often as necessary.
penalty but shall also order payment of the taxes subject of
the criminal case as finally decided by the Commissioner.
(B) Levy on Real Property. - After the expiration of the time required
to pay the delinquent tax or delinquent revenue as prescribed in this
The Bureau of Internal Revenue shall advance the Section, real property may be levied upon, before simultaneously or
amounts needed to defray costs of collection by means of after the distraint of personal property belonging to the delinquent. To
civil or criminal action, including the preservation or this end, any internal revenue officer designated by the
transportation of personal property distrained and the Commissioner or his duly authorized representative shall prepare a
advertisement and sale thereof, as well as of real property duly authenticated certificate showing the name of the taxpayer and
and improvements thereon. the amounts of the tax and penalty due from him. Said certificate
shall operate with the force of a legal execution throughout the
SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To Philippines.
safeguard the interest of the Government, the Commissioner may
place under constructive distraint the property of a delinquent Levy shall be affected by writing upon said certificate a description of
taxpayer or any taxpayer who, in his opinion, is retiring from any the property upon which levy is made. At the same time, written
business subject to tax, or is intending to leave the Philippines or to notice of the levy shall be mailed to or served upon the Register of
remove his property therefrom or to hide or conceal his property or to Deeds for the province or city where the property is located and upon
perform any act tending to obstruct the proceedings for collecting the the delinquent taxpayer, or if he be absent from the Philippines, to his
tax due or which may be due from him. agent or the manager of the business in respect to which the liability
arose, or if there be none, to the occupant of the property in question.
The constructive distraint of personal property shall be affected by
requiring the taxpayer or any person having possession or control of In case the warrant of levy on real property is not issued before or
such property to sign a receipt covering the property distrained and simultaneously with the warrant of distraint on personal property, and
obligate himself to preserve the same intact and unaltered and not to the personal property of the taxpayer is not sufficient to satisfy his tax
dispose of the same ;in any manner whatever, without the express delinquency, the Commissioner or his duly authorized representative
authority of the Commissioner. shall, within thirty (30) days after execution of the distraint, proceed
with the levy on the taxpayer's real property.
In case the taxpayer or the person having the possession and control
of the property sought to be placed under constructive distraint Within ten (10) days after receipt of the warrant, a report on any levy
refuses or fails to sign the receipt herein referred to, the revenue shall be submitted by the levying officer to the Commissioner or his
officer effecting the constructive distraint shall proceed to prepare a duly authorized representative: Provided, however, That a
list of such property and, in the presence of two (2) witnessed, leave consolidated report by the Revenue Regional Director may be
a copy thereof in the premises where the property distrained is required by the Commissioner as often as necessary: Provided,
located, after which the said property shall be deemed to have been further, That the Commissioner or his duly authorized representative,
placed under constructive distraint. subject to rules and regulations promulgated by the Secretary of
Finance, upon recommendation of the Commissioner, shall have the
SEC. 207. Summary Remedies. - authority to lift warrants of levy issued in accordance with the
TAX ATION
provisions hereof. Any residue over and above what is required to pay the entire claim,
including expenses, shall be returned to the owner of the property
SEC. 208. Procedure for Distraint and Garnishment. - The officer sold. The expenses chargeable upon each seizure and sale shall
serving the warrant of distraint shall make or cause to be made an embrace only the actual expenses of seizure and preservation of the
account of the goods, chattels, effects or other personal property property pending ;the sale, and no charge shall be imposed for the
distrained, a copy of which, signed by himself, shall be left either with services of the local internal revenue officer or his deputy.
the owner or person from whose possession such goods, chattels, or
effects or other personal property were taken, or at the dwelling or SEC. 210. Release of Distrained Property Upon Payment Prior to
place of business of such person and with someone of suitable age Sale. - If at any time prior to the consummation of the sale all proper
and discretion, to which list shall be added a statement of the sum charges are paid to the officer conducting the sale, the goods or
demanded and note of the time and place of sale. effects distrained shall be restored to the owner.

Stocks and other securities shall be distrained by serving a copy of SEC. 211. Report of Sale to Bureau of Internal Revenue. - Within two
the warrant of distraint upon the taxpayer and upon the president, (2) days after the sale, the officer making the same shall make a
manager, treasurer or other responsible officer of the corporation, report of his proceedings in writing to the Commissioner and shall
company or association, which issued the said stocks or securities. himself preserve a copy of such report as an official record.

SEC. 212. Purchase by Government at Sale Upon Distraint. - When
Debts and credits shall be distrained by leaving with the person
the amount bid for the property under distraint is not equal to the
owing the debts or having in his possession or under his control such
amount of the tax or is very much less than the actual market value
credits, or with his agent, a copy of the warrant of distraint. The
of the articles offered for sale, the Commissioner or his deputy may
warrant of distraint shall be sufficient authority to the person owning
purchase the same in behalf of the national Government for the
the debts or having in his possession or under his control any credits
amount of taxes, penalties and costs due thereon.
belonging to the taxpayer to pay to the Commissioner the amount of
such debts or credits.
Property so purchased may be resold by the Commissioner or his
deputy, subject to the rules and regulations prescribed by the
Bank accounts shall be garnished by serving a warrant of
Secretary of Finance, the net proceeds therefrom shall be remitted to
garnishment upon the taxpayer and upon the president, manager,
the National Treasury and accounted for as internal revenue.
treasurer or other responsible officer of the bank. Upon receipt of the

warrant of garnishment, the bank shall tun over to the Commissioner
SEC. 213. Advertisement and Sale. - Within twenty (20) days after
so much of the bank accounts as may be sufficient to satisfy the
levy, the officer conducting the proceedings shall proceed to
claim of the Government.
advertise the property or a usable portion thereof as may be

necessary to satisfy the claim and cost of sale; and such
SEC. 209. Sale of Property Distrained and Disposition of Proceeds. -
advertisement shall cover a period of a least thirty (30) days. It shall
The Revenue District Officer or his duly authorized representative,
be effectuated by posting a notice at the main entrance of the
other than the officer referred to in Section 208 of this Code shall,
municipal building or city hall and in public and conspicuous place in
according to rules and regulations prescribed by the Secretary of
the barrio or district in which the real estate lies and ;by publication
Finance, upon recommendation of the Commissioner, forthwith
once a week for three (3) weeks in a newspaper of general
cause a notification to be exhibited in not less than two (2) public
circulation in the municipality or city where the property is located.
places in the municipality or city where the distraint is made,
The advertisement shall contain a statement of the amount of taxes
specifying; the time and place of sale and the articles distrained. The
and penalties so due and the time and place of sale, the name of the
time of sale shall not be less than twenty (20) days after notice. One
taxpayer against whom taxes are levied, and a short description of
place for the posting of such notice shall be at the Office of the Mayor
the property to be sold. At any time before the day fixed for the sale,
of the city or municipality in which the property is distrained.
the taxpayer may discontinue all proceedings by paying the taxes,
penalties and interest. If he does not do so, the sale shall proceed
At the time and place fixed in such notice, the said revenue officer and shall be held either at the main entrance of the municipal
shall sell the goods, chattels, or effects, or other personal property, building or city hall, or on the premises to be sold, as the officer
including stocks and other securities so distrained, at public auction, conducting the proceedings shall determine and as the notice of sale
to the highest bidder for cash, or with the approval of the shall specify.
Commissioner, through duly licensed commodity or stock exchanges.
Within five (5) days after the sale, a return by the distraining or
In the case of Stocks and other securities, the officer making the sale levying officer of the proceedings shall be entered upon the records
shall execute a bill of sale which he shall deliver to the buyer, and a of the Revenue Collection Officer, the Revenue District officer and
copy thereof furnished the corporation, company or association the Revenue Regional Director. The Revenue Collection Officer, in
which issued the stocks or other securities. Upon receipt of the copy consultation with the Revenue district Officer, shall then make out
of the bill of sale, the corporation, company or association shall make and deliver to the purchaser a certificate from his records, showing
the corresponding entry in its books, transfer the stocks or other the proceedings of the sale, describing the property sold stating the
securities sold in the name of the buyer, and issue, if required to do name of the purchaser and setting out the exact amount of all taxes,
so, the corresponding certificates of stock or other securities. penalties and interest: Provided, however, That in case the proceeds
TAX ATION
of the sale exceeds the claim and cost of sale, the excess shall be case, the proceeds of the sale shall be deposited with the National
turned over to the owner of the property. Treasury, and an accounting of the same shall rendered to the
Chairman of the Commission on Audit.
The Revenue Collection Officer, upon approval by the Revenue
District Officer may, out of his collection, advance an amount SEC. 217. Further Distraint or Levy. - The remedy by distraint of
sufficient to defray the costs of collection by means of the summary personal property and levy on realty may be repeated if necessary
remedies provided for in this Code, including ;the preservation or until the full amount due, including all expenses, is collected.
transportation in case of personal property, and the advertisement
and subsequent sale, both in cases of personal and real property SEC. 218. Injunction not Available to Restrain Collection of Tax. - No
including improvements found on the latter. In his monthly collection court shall have the authority to grant an injunction to restrain the
reports, such advances shall be reflected and supported by receipts. collection of any national internal revenue tax, fee or charge imposed
by this Code.
SEC. 214. Redemption of Property Sold. - Within one (1) year from
the date of sale, the delinquent taxpayer, or any one for him, shall SEC. 219. Nature and Extent of Tax Lien. - If any person,
have the right of paying to the Revenue District Officer the amount of corporation, partnership, joint-account ( cuentas en participacion),
the public taxes, penalties, and interest thereon from the date of association or insurance company liable to pay an internal revenue
delinquency to the date of sale, together with interest on said tax, neglects or refuses to pay the same after demand, the amount
purchase price at the rate of fifteen percent (15%) per annum from shall be a lien in favor of the Government of the Philippines from the
the date of purchase to the date of redemption, and such payment time when the assessment was made by the Commissioner until
shall entitle the person paying to the delivery of the certificate issued paid, with interests, penalties, and costs that may accrue in addition
to the purchaser and a certificate from the said Revenue District thereto upon all property and rights to property belonging to the
Officer that he has thus redeemed the property, and the Revenue taxpayer: Provided, That this lien shall not be valid against any
District Officer shall forthwith pay over to the purchaser the amount mortgagee purchaser or judgment creditor until notice of such lien
by which such property has thus been redeemed, and said property shall be filed by the Commissioner in the office of the Register of
thereafter shall be free form the lien of such taxes and penalties. Deeds of the province or city where the property of the taxpayer is
situated or located.

The owner shall not, however, be deprived of the possession of the
SEC. 220. Form and Mode of Proceeding in Actions Arising under
said property and shall be entitled to the rents and other income
thereof until the expiration of the time allowed for its redemption. this Code. - Civil and criminal actions and proceedings instituted in
behalf of the Government under the authority of this Code or other

law enforced by the Bureau of Internal Revenue shall be brought in
SEC. 215. Forfeiture to Government for Want of Bidder. - In case
the name of the Government of the Philippines and shall be
there is no bidder for real property exposed for sale as herein above
conducted by legal officers of the Bureau of Internal Revenue but no
provided or if the highest bid is for an amount insufficient to pay the
civil or criminal action for the recovery of taxes or the enforcement of
taxes, penalties and costs, the Internal Revenue Officer conducting
any fine, penalty or forfeiture under this Code shall be filed in court
the sale shall declare the property forfeited to the Government in
without the approval of the Commissioner.
satisfaction of the claim in question and within two (2) days

thereafter, shall make a return of his proceedings and the forfeiture
SEC. 221. Remedy for Enforcement of Statutory Penal Provisions. -
which shall be spread upon the records of his office. It shall be the
The remedy for enforcement of statutory penalties of all sorts shall be
duty of the Register of Deeds concerned, upon registration with his
by criminal or civil action, as the particular situation may require,
office of any such declaration of forfeiture, to transfer the title of the
subject to the approval of the Commissioner.
property forfeited to the Government without the necessity of an

order from a competent court.
SEC. 222. Exceptions as to Period of Limitation of Assessment and
Collection of Taxes. -
Within one (1) year from the date of such forfeiture, the taxpayer, or
any one for him may redeem said property by paying to the
(a) In the case of a false or fraudulent return with intent to
Commissioner or the latter's Revenue Collection Officer the full
evade tax or of failure to file a return, the tax may be
amount of the taxes and penalties, together with interest thereon and
assessed, or a proceeding in court for the collection of
the costs of sale, but if the property be not thus redeemed, the
such tax may be filed without assessment, at any time
forfeiture shall become absolute.
within ten (10) years after the discovery of the falsity, fraud

or omission: Provided, That in a fraud assessment which
SEC. 216. Resale of Real Estate Taken for Taxes. - The
has become final and executory, the fact of fraud shall be
Commissioner shall have charge of any real estate obtained by the
judicially taken cognizance of in the civil or criminal action
Government of the Philippines in payment or satisfaction of taxes,
for the collection thereof.
penalties or costs arising under this Code or in compromise or
(b) If before the expiration of the time prescribed in Section
adjustment of any claim therefore, and said Commissioner may,
203 for the assessment of the tax, both the Commissioner
upon the giving of not less than twenty (20) days notice, sell and
and the taxpayer have agreed in writing to its assessment
dispose of the same of public auction or with prior approval of the
after such time, the tax may be assessed within the period
Secretary of Finance, dispose of the same at private sale. In either
agreed upon. The period so agreed upon may be extended
TAX ATION
by subsequent written agreement made before the All other articles subject to excise tax, which have been
expiration of the period previously agreed upon. manufactured or removed in violation of this Code, as well as dies for
(c) Any internal revenue tax which has been assessed the printing or making of internal revenue stamps and labels which
within the period of limitation as prescribed in paragraph (a) are in imitation of or purport to be lawful stamps, or labels may, upon
hereof may be collected by distraint or levy or by a forfeiture, be sold or destroyed in the discretion of the Commissioner.
proceeding in court within five (5) years following the
assessment of the tax. Forfeited property shall not be destroyed until at least twenty (20)
(d) Any internal revenue tax, which has been assessed days after seizure.
within the period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a SEC. 226. Disposition of funds Recovered in Legal Proceedings or
proceeding in court within the period agreed upon in writing Obtained from Forfeitures. - all judgments and monies recovered and
before the expiration of the five (5) -year period. The period received for taxes, costs, forfeitures, fines and penalties shall be paid
so agreed upon may be extended by subsequent written to the Commissioner or his authorized deputies as the taxes
agreements made before the expiration of the period themselves are required to be paid, and except as specially provided,
previously agreed upon. shall be accounted for and dealt with the same way.
(e) Provided, however, That nothing in the immediately
preceding and paragraph (a) hereof shall be construed to SEC. 227. Satisfaction of Judgment Recovered Against any Internal
authorize the examination and investigation or inquiry into Revenue Officer. - When an action is brought against any Internal
any tax return filed in accordance with the provisions of any Revenue officer to recover damages by reason of any act done in the
tax amnesty law or decree. performance of official duty, and the Commissioner is notified of such
SEC. 223. Suspension of Running of Statute of Limitations. - The action in time to make defense against the same, through the
running of the Statute of Limitations provided in Sections 203 and Solicitor General, any judgment, damages or costs recovered in such
222 on the making of assessment and the beginning of distraint or action shall be satisfied by the Commissioner, upon approval of the
levy a proceeding in court for collection, in respect of any deficiency, Secretary of Finance, or if the same be paid by the person used shall
shall be suspended for the period during which the Commissioner is be repaid or reimbursed to him.
prohibited from making the assessment or beginning distraint or levy
or a proceeding in court and for sixty (60) days thereafter; when the No such judgment, damages, or costs shall be paid or reimbursed in
taxpayer requests for a reinvestigation which is granted by the behalf of a person who has acted negligently or in bad faith, or with
Commissioner; when the taxpayer cannot be located in the address willful oppression.
given by him in the return filed upon which a tax is being assessed or
collected: Provided, that, if the taxpayer informs the Commissioner of
any change in address, the running of the Statute of Limitations will TITLE X
not be suspended; when the warrant of distraint or levy is duly served STATUTORY OFFENSES AND PENALTIES
upon the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be
CHAPTER I
located; and when the taxpayer is out of the Philippines.
ADDITIONS TO TAX

SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of
chattels and removable fixtures of any sort shall be enforced by the
seizure and sale, or destruction, of the specific forfeited property. The SEC. 247. General Provisions. -
forfeiture of real property shall be enforced by a judgment of
condemnation and sale in a legal action or proceeding, civil or (a) The additions to the tax or deficiency tax prescribed in
criminal, as the case may require. this Chapter shall apply to all taxes, fees and charges
imposed in this Code. The Amount so added to the tax
SEC. 225. When Property to be Sold or Destroyed. - Sales of shall be collected at the same time, in the same manner
forfeited chattels and removable fixtures shall be effected, so far as and as part of the tax.
practicable, in the same manner and under the same conditions as (b) If the withholding agent is the Government or any of its
the public notice and the time and manner of sale as are prescribed agencies, political subdivisions or instrumentalities, or a
for sales of personal property distrained for the non-payment of government-owned or controlled corporation, the employee
taxes. thereof responsible for the withholding and remittance of
the tax shall be personally liable for the additions to the tax
Distilled spirits, liquors, cigars, cigarettes, other manufactured prescribed herein.
products of tobacco, and all apparatus used I or about the illicit (c) the term "person", as used in this Chapter, includes an
production of such articles may, upon forfeiture, be destroyed by officer or employee of a corporation who as such officer,
order of the Commissioner, when the sale of the same for employee or member is under a duty to perform the act in
consumption or use would be injurious to public health or prejudicial respect of which the violation occurs.
to the enforcement of the law. SEC. 248. Civil Penalties. -
TAX ATION
(A) There shall be imposed, in addition to the tax required (3) A deficiency tax, or any surcharge or interest thereon
to be paid, a penalty equivalent to twenty-five percent on the due date appearing in the notice and demand of the
(25%) of the amount due, in the following cases: Commissioner, there shall be assessed and collected on
(1) Failure to file any return and pay the tax due the unpaid amount, interest at the rate prescribed in
thereon as required under the provisions of this Subsection (A) hereof until the amount is fully paid, which
Code or rules and regulations on the date interest shall form part of the tax.
prescribed; or (D) Interest on Extended Payment. - If any person required to pay the
(2) Unless otherwise authorized by the tax is qualified and elects to pay the tax on installment under the
Commissioner, filing a return with an internal provisions of this Code, but fails to pay the tax or any installment
revenue officer other than those with whom the hereof, or any part of such amount or installment on or before the
return is required to be filed; or date prescribed for its payment, or where the Commissioner has
(3) Failure to pay the deficiency tax within the authorized an extension of time within which to pay a tax or a
time prescribed for its payment in the notice of deficiency tax or any part thereof, there shall be assessed and
assessment; or collected interest at the rate hereinabove prescribed on the tax or
(4) Failure to pay the full or part of the amount of deficiency tax or any part thereof unpaid from the date of notice and
tax shown on any return required to be filed demand until it is paid.
under the provisions of this Code or rules and
regulations, or the full amount of tax due for SEC. 250. Failure to File Certain Information Returns. - In the case of
which no return is required to be filed, on or each failure to file an information return, statement or list, or keep
before the date prescribed for its payment. any record, or supply any information required by this Code or by the
(B) In case of willful neglect to file the return within the Commissioner on the date prescribed therefor, unless it is shown that
period prescribed by this Code or by rules and regulations, such failure is due to reasonable cause and not to willful neglect,
or in case a false or fraudulent return is willfully made, the there shall, upon notice and demand by the Commissioner, be paid
penalty to be imposed shall be fifty percent (50%) of the tax by the person failing to file, keep or supply the same, One thousand
or of the deficiency tax, in case, any payment has been pesos (1,000) for each failure: Provided, however, That the
made on the basis of such return before the discovery of aggregate amount to be imposed for all such failures during a
the falsity or fraud: Provided, That a substantial calendar year shall not exceed Twenty-five thousand pesos
underdeclaration of taxable sales, receipts or income, or a (P25,000).
substantial overstatement of deductions, as determined by
the Commissioner pursuant to the rules and regulations to SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax. -
be promulgated by the Secretary of Finance, shall Any person required to withhold, account for, and remit any tax
constitute prima facie evidence of a false or fraudulent imposed by this Code or who willfully fails to withhold such tax, or
return: Provided, further, That failure to report sales, account for and remit such tax, or aids or abets in any manner to
receipts or income in an amount exceeding thirty percent evade any such tax or the payment thereof, shall, in addition to other
(30%) of that declared per return, and a claim of penalties provided for under this Chapter, be liable upon conviction to
deductions in an amount exceeding (30%) of actual a penalty equal to the total amount of the tax not withheld, or not
deductions, shall render the taxpayer liable for substantial accounted for and remitted.
underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein. SEC. 252. Failure of a Withholding Agent to refund Excess
SEC. 249. Interest. - Withholding Tax. - Any employer/withholding agent who fails or
refuses to refund excess withholding tax shall, in addition to the
(A) In General. - There shall be assessed and collected on any penalties provided in this Title, be liable to a penalty to the total
unpaid amount of tax, interest at the rate of twenty percent (20%) per amount of refunds which was not refunded to the employee resulting
annum, or such higher rate as may be prescribed by rules and from any excess of the amount withheld over the tax actually due on
regulations, from the date prescribed for payment until the amount is their return
fully paid.
CASES and DOCTRINES
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is
defined in this Code, shall be subject to the interest prescribed in (Lutz vs Araneta 98 Phil 148)
If objective and methods are alike constitutionally valid, no reason is
Subsection (A) hereof, which interest shall be assessed and
seen why the state may not levy taxes to raise funds for their
collected from the date prescribed for its payment until the full
prosecution and attainment. Taxation may be made the implement of
payment thereof.
the state's police power. It is inherent in the power to tax that a State
be free to select the subjects of taxation and it has been repeatedly
(C) Delinquency Interest. - In case of failure to pay: held that “irregularities which result from a singling out of one
particular class for taxation or exemption infringe no Constitutional
(1) The amount of the tax due on any return to be filed, or limitation.”
(2) The amount of the tax due for which no return is
required, or
TAX ATION
The sugar industry’s promotion, protection and advancement (Bishop of Nueva Segovia vs. Province of Ilocos Norte 51 PHIL 352
therefore redound greatly to the general welfare. Thus, the
contention of plaintiff that the Act was promulgated not for public Exemption from payment of land tax, which refers to lots used as
purpose cannot be upheld. home of the priest who preside over the church must include not only
the lot actually occupied by the church but also the adjacent ground
destined to meet the ordinary incidental uses of man.
(CIR vs Algue 158 SCRA 9)
(San Miguel Brewery, Inc. vs. City of Cebu/Cebu Portland Cement

It is said that taxes are what we pay for civilized society.
Co. vs. Naga, Cebu February 20, 1973)
Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it . Hence, despite the natural This is because double taxation is not prohibited by the
reluctance to surrender part of one's hard earned income to the Constitution. Furthermore, there is double taxation only when the
taxing authorities, every person who is able to must contribute his same person is taxed by the same jurisdiction for the same purpose.
share in the running of the government. The government for its part, In the first case, the annual business tax is a license tax to engage in
is expected to respond in the form of tangible and intangible benefits the business of wholesale liquor in Cebu City. Such license tax
intended to improve the lives of the people and enhance their moral constitutes a regulatory measure in the exercise of police power,
and material values. This symbiotic relationship is the rationale of whereas that which is imposed by the ordinance is a typical tax or
taxation and should dispel the erroneous notion that it is an arbitrary revenue measure.
method of exaction by those in the seat of power .
(American Bible Society vs. City of Manila 101 PHIL 386)

Subject Matter: Criminal Action; Tax Assessment
It was contended that said ordinances imposing license fee on the
distribution and sale of bibles and other religious literature, impair the
free exercise of religion, specifically the right to disseminate religious CIR V PASCOR REALTY & DEV’T CORP et. al.
information. As between taxation and religion, the latter prevails . (GR No. 128315, June 29, 1999)
(Lladoc vs. Commissioner of Internal Revenue 14 SCRA 292) Facts:

The CIR authorized certain BIR officers to examine the
The exemption under Sec. 22(3) Art. VI of the Constitution only books of accounts and other accounting records of Pascor Realty
covers taxes assessed on cemeteries, churches, and parsonages or and Development Corp. (PRDC) for 1986, 1987 and 1988. The
convents, appurtenant thereto and all lands, buildings and examination resulted in recommendation for the issuance of an
improvements used exclusively for religious purposes. These taxes assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987,
are property taxes as contra-distinguished from excise taxes. In the respectively.
case at bar, what’s being assessed was a donee’s gift tax not on the On March 1, 1995, Commissioner filed a criminal complaint
properties themselves. The gift tax was an excise tax upon the use for tax evasion against PRDC, its president and treasurer before the
made of the properties, upon the exercise of the privilege of DOJ. Private respondents filed immediately an urgent request for
receiving the properties. This kind of tax is not within the exempting reconsideration on reinvestigation disputing the tax assessment and
provision of the constitution. Therefore, the petitioner as substituted tax liability.
by the Head of the Diocese, is liable to pay the said gift tax. On March 23, 1995, private respondents received a
subpoena from the DOJ in connection with the criminal complaint. In
The exemption under Sec. 22(3) Art. VI of the Constitution only a letter dated, May 17, 1995, the Commissioner denied private
covers property taxes assessed on cemeteries, churches, and respondent’s request for reconsideration (reinvestigation on the
parsonages or convents, appurtenant thereto and all lands, buildings ground that no formal assessment has been issued which the latter
and improvements used exclusively for religious purposes. elevated to the CTA on a petition for review. The Commissioner’s
motion to dismiss on the ground of the CTA’s lack of jurisdiction
(Abra Valley College vs. Aquino 162 SCRA 106) inasmuch as no formal assessment was issued against private
respondent was denied by CTA and ordered the Commissioner to file
The phrase “used exclusively for educational purposes” is not limited an answer but did not instead filed a petition with the CA alleging
to property actually indispensable therefor but extends to facilities, grave abuse of discretion and lack of jurisdiction on the part of CTA
which are incidental to and reasonably necessary to the for considering the affidavit/report of the revenue officers and the
accomplishment of said purposes endorsement of said report as assessment which may be appealed
to he CTA. The CA sustained the CTA decision and dismissed the
petition.
Issues:
1. Whether or not the criminal complaint for tax evasion can

be construed as an assessment.
TAX ATION
2. Whether or not an assessment is necessary before criminal January 4, 1994, private respondents filed a petition for
charges for tax evasion may be instituted. certiorari and prohibition with prayer for preliminary injunction praying
the CIR’s complaint and prosecutor’s orders be dismissed/set aside
Held: or alternatively, that the preliminary investigation be suspended
The filing of the criminal complaint with the DOJ cannot be pending determination by CIR of Fortune’s motion for
construed as a formal assessment. Neither the Tax Code nor the reconsideration/reinvestigation of the August 13, 1993 assessment of
revenue regulations governing the protest assessments provide a taxes due.
specific definition or form of an assessment. The trial court granted the petition for a writ of preliminary
An assessment must be sent to and received by the injunction to enjoin the preliminary investigation on the complaint for
taxpayer, and must demand payment of the taxes described therein tax evasion pending before the DOJ, ruling that the tax liability of
within a specific period. The revenue officer’s affidavit merely private respondents first be settled before any complaint for
contained a computation of respondent’s tax liability. It did not state a fraudulent tax evasion can be initiated.
demand or period for payment. It was addressed to the Secretary of
Justice not to the taxpayer. They joint affidavit was meant to support Issue:
the criminal complaint for tax evasion; it was not meant to be a notice Whether the basis of private respondent’s tax liability first
of tax due and a demand to private respondents for the payment be settled before any complaint for fraudulent tax evasion can be
thereof. The fact that the complaint was sent to the DOJ, and not to initiated.
private respondent, shows that commissioner intended to file a
criminal complaint for tax evasion, not to issue an assessment. Held:
An assessment is not necessary before criminal charges Fraud cannot be presumed. If there was fraud on willful
can be filed. A criminal charge need not only be supported by a attempt to evade payment of ad valorem taxes by private respondent
prima facie showing of failure to file a required return. The CIR had, through the manipulation of the registered wholesale price of the
in such tax evasion cases, discretion on whether to issue an cigarettes, it must have been with the connivance of cooperation of
assessment, or to file a criminal case against the taxpayer, or to do certain BIR officials and employees who supervised and monitored
both. Fortune’s production activities to see to it that the correct taxes were
paid. But there is no allegation, much less evidence, of BIR
Subject Matter: Criminal Action personnel’s malfeasance at the very least, there is the presumption
that BIR personnel performed their duties in the regular course in
ensuring that the correct taxes were paid by Fortune.
CIR V CA Before the tax liabilities of Fortune are finally determined, it
G.R. No. 119322, June 4, 1996 cannot be correctly asserted that private respondents have willfully
attempted to evade or defeat any tax under Secs. 254 and 256, 1997
Facts: NIRC, the fact that a tax is due must first be proved.
A task force was created on June 1, 1993 to investigate tax
liabilities of manufacturers engaged in tax evasion schemes. On July
1, 1993, the CIR issued Rev. Memo Circ. No. 37-93 which
reclassified certain cigarette brands manufactured by private AZNAR CASE (August 23, 1974)
respondent Fortune Tobacco Corp. (Fortune) as foreign brands
subject to a higher tax rate. On August 3, 1993, Fortune questioned Facts:
the validity of said reclassification as being violative of the right to Matias Aznar died on May 15, 1958. His income tax returns
due process and equal protection of laws. The CTA, on September 8, from 1945 to 1951 were examined by the BIR. Doubting the truth of
1993 resolved that said reclassification was of doubtful legality and the income that he had reported, the Commissioner ordered the
enjoined its enforcement. investigation of the case on the basis of the net worth method.
In the meantime, on August 3, 1993, Fortune was Substantial under-declarations of income were discovered. On
assessed deficiency income, ad valorem and VAT for 1992 with November 28, 1952, the BIR notified AZNAR of a tax delinquency of
payment due within 30 days from receipt. On September 12, 1993, P723,032.66 which was later reduced to P381,096.07 upon
private respondent moved for reconsideration of said assessment. reinvestigation.
Meanwhile on September 7, 1993, the Commissioner filed a On February 20, 1953, AZNAR’s properties were placed
complaint with the DOJ against private respondent Fortune, its under distraint and levy. On April 1, 1955, AZNAR appealed to the
corporate officers and 9 other corporations and their respective CTA. The CTA found that AZNAR made substantial under-
corporate officers for alleged fraudulent tax evasion for non-payment declarations of his income as follows: he under-declared his income
of the correct income, ad valorem and VAT for 1992. The complaint for 1946 by 227%; 564% for 1947; 95% for 1948; 486% for 1949;
was referred to the DOJ Task Force on revenue cases which found 946% 1950; 490% 1951.
sufficient basis to further investigate the charges against Fortune.
A subpoena was issued on September 8, 1993 directing Issues:
private respondent to submit their counter-affidavits. But it filed a Whether or not the right of the Commissioner to assess
verified motion to dismiss or alternatively, a motion to suspend but AZNAR’s deficiency income taxes for 1946, 1947 and 1948 had
was denied and thus treated as their counter-affidavit. All motions prescribed at the time the assessment was made.
filed thereafter were denied.
TAX ATION
Held:
On the issue of prescription the count applied the 10-year
prescriptive period and ruled that prescription had not set in. the
court opined that AZNAR’s returns were false because the under-
declaration of income constituted a deviation from the truth. The
court stated that the ordinary prescriptive period of 5 years (now 3
years) would apply under normal circumstances but whenever the
government is placed at a disadvantage as to prevent its lawful
agent from making a proper assessment of tax liabilities due to false
or fraudulent returns intended to evade payment of taxes or failure to
the returns, the period of 10 years provided for in the law from the
discovery of the falsity, fraud or omission even seems to be
inadequate and should be the one enforced.

Tax Ation San Beda College of LAW - ALABANG

Uploaded by

Copyright:

Available Formats

Tax Ation San Beda College of LAW - ALABANG

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Tax Ation San Beda College of LAW - ALABANG

Uploaded by

Copyright:

Available Formats

TAX ATION

San Beda College of LAW – ALABANG

GENERAL PRINCIPLES d. Encourage Economic Growth – in the realm of tax exemptions

Taxation Defined: e. Protectionism – in some important sectors of the economy, as

Scope of Legislative Taxing Power [S2 A P K A M]

Power of Judicial Review in Taxation

2. Special/Regulatory – tax imposed for special purposes, i.e., to a. Toll vs Tax

Apostolic Prefect vs Treas. Of place

Three kinds of licenses are recognized in the law: Pertinent Case:

c. Theoretical Justice – the tax burden should be in proportion to the

A. Public Purpose of Taxes 2. Exceptions:

2. Test in determining Public Purposes in tax 3. Limitations on Delegation

2. The maxim of Mobilia Sequuntur Personam and Situs of

2. Capitalization, defined – the reduction in the price of the

6. Constitutional grants of tax exemptions are self-executing

Important Point to Consider 1. Bureau of Internal Revenue and the Bureau of

a. Exclusive and original power to interpret provisions of

Exceptions:  The taxpayer has the duty of proving otherwise

A case in point on the use of the best evidence obtainable

Examination of bank deposits enables the Commissioner to

D. Termination of Taxable Period Net Worth Method in Investigation

Proper adjustments for non-deductible items

In all leading cases on this matter, 1. personal, living or family expenses;

4. proceeds of life insurance policies;

Interest is classified into: I. Administrative

1. Taxpayer is retiring from any business subject to tax.

than the actual market value of articles, the CIR or his

Redemption of property sold or forfeited Extinguishment of Tax Lien

1. Both are summary remedies for collection of taxes. Note:

7. Note:  Judicial Remedies

Note: 1. Collection by summary remedies – It is effected by

a. During which the Commissioner is Nota Bene:

b. When the taxpayer requests for

Issuance of a Formal Letter of Demand and Assessment Notice

Issuance of written a Preliminary Assessment Notice (PAN)

Contents: Scope of Claims

Legal Principle of quasi-contracts or solutio indebiti (see

Requirements for Appeal in Disputed Assessment

a. Extrajudicial Note: Goods in the collector’s possession or of

A tax lien attaches on the goods, regardless of b. Judicial Action

This is availed of when the importation is neither

In the case of attempted importation, b. deficiencies in the contents of packages or

3. Sale of Property f. for manifest classical errors; (see section 1701-

a. abandoned articles; In drawback cases where the goods are re-exported

b. articles entered under warehousing entry a. Protest

c. seized property, other than contraband, after b. In seizure cases

Judicial 6. Posting of notice is not less than two places in the

8. Criminal Action 7. Sale at public auction to highest bidder

Distraint of Personal Property 8. Disposition of proceeds of the sale.

Distraint- Seizure by the government of personal property,

b. Statement of the sum demanded. 9. Taxpayer hides or conceals his property.

4. In case of intangible property: Note:

c. Bank Accounts – garnishment Levy of Real Property

10. Advertisement of the time and place of sale.

Distraint and Levy compared Extinguishment of Tax Lien

Levy – real property 8. Destruction of the property subject to the lien.

Compromise—a contract whereby the parties, by reciprocal 3. enforce the compromise, or

b. If highest bid is for an amount insufficient to pay

Delegation of Power to Compromise 11. When forfeited property to be destroyed or sold: