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Philippine Association of Law Schools

COVERAGE
LAW ON TAXATION
2014 BAR EXAMINATIONS

I. General Principles of Taxation
A. Definition and concept of taxation

Taxation is the power by which the sovereign raises revenue to defray the necessary expenses
of the government. It is merely a way of apportioning the cost of government among those
who in some measure are privileged to enjoy its benefits and must bear its burdens. It includes,
in its broadest and most general sense, every charge or burden imposed by the sovereign
power upon persons, property, or property rights for the use and support of the government
and to enable it to discharge its appropriate functions, and in that broad definition there is
included a proportionate levy upon persons or property and all the various other methods and
devices by which revenue is exacted from persons and property for public purposes. (51 Am.
Jur 34-35)
Taxation is described as a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support of the
government. (Paseo Realty & Development Corporation v. Court of Appeals, GR No. 119286,
October 13, 2004)

B. Nature of taxation

Taxation is inherent in nature, being an attribute of sovereignty. (Chamber of Real Estate and
Builders Association, Inc. v. Romulo, 614 SCRA 605 (2010))

As an incident of sovereignty, the power 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 found only
in the responsibility of the legislature which imposes the tax on the constituency who are to pay
it. (Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 (1996))

The power of taxation is an essential and inherent attribute of sovereignty, belonging as a
matter of right to every independent government, without being expressly conferred by the
people. (Pepsi-Cola Bottling Company of the Phil. V. Mun. of Tanauan, Leyte, 69 SCRA 460)

The power to tax is inherent in the State, such power being inherently legislative, based on the
principle that taxes are a grant of the people who are taxed, and the grant must be made by
the immediate representative of the people, and where the people have laid the power, there it
must remain and be exercised. (Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, 559 SCRA 160 (2008))

The power of taxation is essentially a legislative function. The power to tax includes the
authority to:
(1) determine the
(a) nature (kind);
(b) object (purpose);
(c) extent (amount of rate);
(d) coverage (subjects and objects);
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(e) apportionment of the tax (general or limited application);
(f) situs (place) of the imposition; and
(g) method of collection;

(2) grant tax exemptions or condonations; and
(3) specify or provide for the administrative as well as judicial remedies that either the
government or the taxpayer may avail themselves in the proper implementation of the tax
measure. (Petron v. Pililla, GR No. 158881, April 16, 2008)

In other words, the legislature wields the power to define what tax shall be imposed, why it
should be imposed, how much tax shall be imposed, against whom (or what) it shall be
imposed and where it shall be imposed. (Chamber of Real Estate and Builders Association, Inc.
v. Romulo, 614 SCRA 605 (2010))

C. Characteristics of taxation

As a principal attribute of sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public
interest and common good. (National Power Corporation v. City of Cabanatuan, GR No. 149110,
April 9, 2003)

The power to tax is so unlimited in force and so searching in extent, that courts scarcely
venture to declare that it is subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. (Tio v. Videogram Regulatory Board et al., 151
SCRA 213)

It is a settled principle that the power of taxation by the state is plenary. Comprehensive and
supreme, the principal check upon its abuse resting in the responsibility of the members of the
legislature to their constituents. (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,
G.R. No. 166006, March 14, 2008)

Taxes being the lifeblood of the government that should be collected without unnecessary
hindrance, every precaution must be taken not to unduly suppress it. (Republic v. Caguioa, 536
SCRA 193 (2007))

The power to tax is sometimes called the power to destroy. Therefore, it should be exercised
with caution to minimize injury to the proprietary rights of the taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kills the hen that lays the golden egg.
(Commissioner of Internal Revenue v. SM Prime Holdings, Inc., 613 SCRA 774 (2010))

In order to maintain the general publics trust and confidence in the government, this power
must be used justly and not treacherously. (Roxas y Cia v. Court of Tax Appeals, 23 SCRA 276)

Tax laws are prospective in operation, unless the language of the statute clearly provides
otherwise. (Commissioner of Internal Revenue v. Acosta, 529 SCRA 177 (2007))



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D. Power of taxation compared with other powers

1. Police power

Police Power is the power to make, ordain and establish all manner of wholesome and
reasonable laws, statutes and ordinances whether with penalties or without, not repugnant to
the Constitution, the good and welfare of the commonwealth, and for the subjects of the same.
(Metropolitan Manila Development Authority v. Garin, GR No. 130230, April 15, 2005)

The main purpose of police power is the regulation of a behavior or conduct, while taxation is
revenue generation. The "lawful subjects" and "lawful means" tests are used to determine the
validity of a law enacted under the police power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations. (PLANTERS PRODUCTS, INC. v.
FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)

The motivation behind many taxation measures is the implementation of police power goals.
Progressive income taxes alleviate the margin between rich and poor; the so-called sin taxes
on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake of
these potentially harmful products. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005)

Taxation is distinguishable from police power as to the means employed to implement these
public good goals. Those doctrines that are unique to taxation arose from peculiar
considerations such as those especially punitive effects of taxation, and the belief that taxes are
the lifeblood of the state yet at the same time, it has been recognized that taxation may be
made the implement of the states police power. (SOUTHERN CROSS CEMENT CORPORATION
v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August
3, 2005)

Unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost the
governments general funds but to provide means for the rehabilitation and stabilization of a
threatened industry, the coconut industry, which is so affected with public interest as to be
within the police power of the State. The subject laws are akin to the sugar liens imposed by
Sec. 7(b) of P.D. 388, and the oil price stabilization funds under P.D. 1956, as amended by E.O.
137. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA
NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

If generation of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally
raised does not make the imposition a tax. (GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA
696 (2007))

While it is true that the power of taxation can be used as an implement of police power, the
primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if
revenue is, at least, one of the real and substantial purposes, then the exaction is properly
called a tax. (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION, G.R. No. 166006,
March 14, 2008)

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It has been the settled law that municipal license fees could be classified into those imposed for
regulating occupations or regular enterprises, for the regulation or restriction of non-useful
occupations or enterprises and for revenue purposes only. Licenses for non-useful occupations
are also incidental to the police power and the right to exact a fee may be implied from the
power to license and regulate, but in fixing the amount of the license fees the municipal
corporations are allowed a much wider discretion in this class of cases. (ERMITA-MALATE
HOTEL AND MOTEL OPERATORS ASSOCIATION, INC., HOTEL DEL MAR INC. and GO CHIU v.
THE HONORABLE CITY MAYOR OF MANILA, G.R. No. L-24693, July 31, 1967)

2. Power of eminent domain
Be it stressed that the privilege enjoyed by senior citizens does not come directly from the
State, but rather from the private establishments concerned. Accordingly, the tax credit benefit
granted to these establishments can be deemed as their just compensation for private property
taken by the State for public use. (COMMISSIONER OF INTERNAL REVENUE v. CENTRAL
LUZON DRUG CORPORATION G.R. No. 159647 April 15, 2005)

Besides, the taxation power can also be used as an implement for the exercise of the power of
eminent domain. Tax measures are but "enforced contributions exacted on pain of penal
sanctions" and "clearly imposed for a public purpose." In recent years, the power to tax has
indeed become a most effective tool to realize social justice, public welfare, and the equitable
distribution of wealth. (COMMISSIONER OF INTERNAL REVENUE v. CENTRAL LUZON DRUG
CORPORATION G.R. No. 159647 April 15, 2005)

E. Purpose of taxation
1. Revenue-raising
2. Non-revenue/special or regulatory

The Court was satisfied that the coco-levy funds were raised pursuant to law to support a
proper governmental purpose. They were raised with the use of the police and taxing powers of
the State for the benefit of the coconut industry and its farmers in general. (PAMBANSANG
KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v. EXECUTIVE
SECRETARY G.R. Nos. 147036-37 April 10, 2012)

In relation to the regulatory purpose of the imposed fees, the imposition questioned must
relate to an occupation or activity that so engages the public interest, morals, safety and
development as to require regulation for the protection and promotion of such public interest;
the imposition must also bear a reasonable relation to the probable expenses of regulation,
taking into account not only the costs of direct regulation, but also its incidental consequences
as well. (CHEVRON PHILIPPINES, INC. v. BASES CONVERSION DEVELOPMENT AUTHORITY,
630 SCRA 519 (2010))

As an elementary principle of law, license taxation must not be so onerous to show a purpose
to prohibit a business which is not injurious to health or morals. (TERMINAL FACILITIES AND
SERVICES CORPORATION v. PHILIPPINE PORTS AUTHORITY, 378 SCRA 82 (2002))

It is a police power measure. The objectives behind its enactment are: "(1) To be able to
impose payment of the license fee for engaging in the business of massage clinic (2) in order to
forestall possible immorality which might grow out of the construction of separate rooms for
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massage of customers." (TOMAS VELASCO v. HON. ANTONIO J. VILLEGAS, G.R. No. L-24153,
February 14, 1983)

F. Principles of sound tax system
1. Fiscal adequacy

Certainly, to continue collecting real property taxes based on valuations arrived at several years
ago, in disregard of the increases in the value of real properties that have occurred since then,
is not in consonance with a sound tax system. Fiscal adequacy, which is one of the
characteristics of a sound tax system, requires that sources of revenues must be adequate to
meet government expenditures and their variations. (FRANCISCO I. CHAVEZ v. JAIME B.
ONGPIN, G.R. No. 76778, June 6, 1990)

2. Administrative feasibility
3. Theoretical justice
G. Theory and basis of taxation
1. Lifeblood theory

As well said in a prior case, revenue laws are not intended to be liberally construed. Considering
that taxes are the lifeblood of the government and in Holmess memorable metaphor, the price
we pay for civilization, tax laws must be faithfully and strictly implemented. (COMMISSIONER
OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No. 154068 August 3, 2007)

Taxes being the lifeblood of the government should be collected promptly. No court shall have
the authority to grant an injunction to restrain the collection of any internal revenue tax, fee or
charge imposed by the National Internal Revenue Code. (ANGELES CITY v. ANGELES ELECTRIC
COOPERATION, 622 SCRA 43 (2010))

We are not unaware of the doctrine that taxes are the lifeblood of the government, without
which it can not properly perform its functions; and that appeal shall not suspend the collection
of realty taxes. However, there is an exception to the foregoing rule, i.e., where the taxpayer
has shown a clear and unmistakable right to refuse or to hold in abeyance the payment of
taxes. (EMERLINDA S. TALENTO vs. HON. REMIGIO M. ESCALADA, JR., G.R. No. 180884, June
27, 2008)

2. Necessity theory

The theory behind the exercise of the power to tax emanates from necessity, without taxes,
government cannot fulfill its mandate of promoting the general welfare and well being of the
people. (GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA 696 (2007))

3. Benefits-protection theory (Symbiotic relationship)

Despite the natural reluctance to surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute his share in the running of the
government. The government for its part is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of taxation and should dispel the
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erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
(COMMISSIONER OF INTERNAL REVENUE v. ALGUE, INC., and THE COURT OF TAX APPEALS,
G.R. No. L-28896, February 17, 1988)

The expenses of government, having for their object the interest of all, should be borne by
everyone, and the more man enjoys the advantages of society, the more he ought to hold
himself honored in contributing to those expenses. (ABAKADA GURO PARTY LIST (Formerly
AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA, G.R. No. 168056, September 1, 2005)

4. Jurisdiction over subject and objects

H. Doctrines in taxation
1. Prospectivity of tax laws

Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC arose because the
last paragraph of Section 204(c) was not found in Section 230 of the old Code. After a thorough
consideration of this matter, we find that we cannot give retroactive application to Section
204(c) abovecited. We have to stress that tax laws are prospective in operation, unless the
language of the statute clearly provides otherwise. (COMMISSIONER OF INTERNAL REVENUE v.
ROSEMARIE ACOSTA G.R. No. 154068 August 3, 2007)

2. Imprescriptibility
3. Double taxation
a) Strict sense

Double taxation means taxing the same property twice when it should be taxed only once; that
is, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious
when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct
duplicate taxation," the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing
period; and they must be of the same kind or character. (COMMISSIONER OF INTERNAL
REVENUE v. SOLIDBANK CORPORATION G.R. No. 148191 November 25, 2003)

b) Broad sense

Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is
clearly not double taxation: First, the taxes herein are imposed on two different subject
matters; Second, although both taxes are national in scope because they are imposed by the
same taxing authority -- the national government under the Tax Code -- and operate within the
same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they
affect are different; Third, these two taxes are of different kinds or characters.
(COMMISSIONER OF INTERNAL REVENUE v. SOLIDBANK CORPORATION G.R. No. 148191
November 25, 2003)

Regulation and taxation are two different things, the first being an exercise of police power,
whereas the latter involves the exercise of the power of taxation. While R.A. 2264 provides that
no city may impose taxes on forest products and although lumber is a forest product, the tax in
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question is imposed not on the lumber but upon its sale; thus, there is no double taxation and
even if there was, it is not prohibited. (SERAFICA v. CITY TREASURER OF ORMOC, G.R. No. L-
24813, April 28, 1968)

Both a license fee and a tax may be imposed on the same business or occupation, or for selling
the same article. This is not being in violation of the rule against double taxation. (COMPANIA
GENERAL DE TABACOS DE FILIPINAS v. CITY OF MANILA, 8 SCRA 367)

c) Constitutionality of double taxation

Unlike the United States Constitution, double taxation is not specially prohibited in the Philippine
Constitution. (Manufacturers Life v. Meer, 89 Phil 210)

d) Modes of eliminating double taxation

Double taxation usually takes place when a person is resident of a contracting state and derives
income from, or owns capital in the other contracting state and both states impose tax on that
income or capital. In order to eliminate double taxation, a tax treaty resorts to several
methods.

First, it sets out the respective rights to tax of the state of source or situs and of the state of
residence with regard to certain classes of income or capital. In some cases, an exclusive right
to tax is conferred on one of the contracting states; however, for other items of income or
capital, both states are given the right to tax, although the amount of tax that may be imposed
by the state of source is limited.

The second method for the elimination of double taxation applies whenever the state of source
is given a full or limited right to tax together with the state of residence. In this case, the
treaties make it incumbent upon the state of residence to allow relief in order to avoid double
taxation. There are two methods of relief- the exemption method and the credit method. In
the exemption method, the income or capital which is taxable in the state of source or situs is
exempted in the state of residence, although in some instances it may be taken into account in
determining the rate of tax applicable to the taxpayers remaining income or capital. On the
other hand, in the credit method, although the income or capital which is taxed in the state of
source is still taxable in the state of residence, the tax paid in the former is credited against the
tax levied in the latter. The basic difference between the two methods is that in the exemption
method, the focus is on the income or capital itself, whereas the credit method focuses upon
the tax. (COMMISSIONER OF INTERNAL REVENUE v. S.C. JOHNSON AND SON, INC. G.R. No.
127105 June 25, 1999)

In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the
Philippines will give up a part of the tax in the expectation that the tax given up for this
particular investment is not taxed by the other country. Thus, if the rates of tax are lowered by
the state of source, in this case, by the Philippines, there should be a concomitant commitment
on the part of the state of residence to grant some form of tax relief, whether this be in the
form of a tax credit or exemption. (COMMISSIONER OF INTERNAL REVENUE v. S.C. JOHNSON
AND SON, INC. G.R. No. 127105 June 25, 1999)

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4. Escape from taxation
a) Shifting of tax burden

Section 135(a) should be construed as prohibiting the shifting of the burden of the excise tax to
the international carriers who buy petroleum products from the local manufacturers. Said
international carriers are thus allowed to purchase the petroleum products without the excise
tax component which otherwise would have been added to the cost or price fixed by the local
manufacturers or distributors/sellers. (COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS
SHELL PETROLEUM CORPORATION, G.R. No. 188497, February 19, 2014)

(i) Ways of shifting the tax burden

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it
does the tax becomes a part of the price which the purchaser must pay. It does not matter that
an additional amount is billed as tax to the purchaser. The method of listing the price and the
tax separately and defining taxable gross receipts as the amount received less the amount of
the tax added, merely avoids payment by the seller of a tax on the amount of the tax.
(PHILIPPINE ACETYLENE CO., INC. v. COMMISSIONER OF INTERNAL REVENUE, G.R. No. L-
19707, August 17, 1967)

(ii) Taxes that can be shifted
(iii) Meaning of impact and incidence of taxation

In indirect taxation, a distinction is made between the liability for the tax and burden of the tax:
The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the seller's liability
but merely the burden of the VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

b) Tax avoidance

Tax avoidance is the tax saving device within the means sanctioned by law. This method should
be used by the taxpayer in good faith and at arms length. (COMMISSIONER OF INTERNAL
REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188 September 14, 2004)

c) Tax evasion

Tax evasion, on the other hand, is a scheme used outside of those lawful means and when
availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.
(COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R. No.
147188 September 14, 2004)

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment of tax
when it is shown that a tax is due; (2) an accompanying state of mind which is described as
being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of
action or failure of action which is unlawful. (COMMISSIONER OF INTERNAL REVENUE v. THE
ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188 September 14, 2004)
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Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to
be paid especially that the transfer from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of
acquiring and transferring title of the subject properties on the same day was to create a tax
shelter. (COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR.
G.R. No. 147188 September 14, 2004)

5. Exemption from taxation
a) Meaning of exemption from taxation

It is the legislature, unless limited by a provision of the state constitution, that has full power to
exempt any person or corporation or class of property from taxation, its power to exempt being
as broad as its power to tax. Other than Congress, the Constitution may itself provide for
specific tax exemptions, or local governments may pass ordinances on exemption only from
local taxes. (JOHN HAY PEOPLES ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R.
No. 119775, October 24, 2003)

b) Nature of tax exemption

Taxation is the rule and exemption is the exception. (FELS ENERGY, INC. v. PROVINCE OF
BATANGAS, 516 SCRA 186 (2007))

Since the power to tax includes the power to exempt thereof which is essentially a legislative
prerogative, it follows that a municipal mayor who is an executive officer may not unilaterally
withdraw such an expression of a policy thru the enactment of a tax. (PHILIPPINE PETROLEUM
CORPORATION v. MUNICIPALITY OF PILILLA, G.R. No. 90776, June 3, 1991)

A tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption
by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller.
The excise tax imposed on petroleum products under Section 148 is the direct liability of the
manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are
international carriers; nevertheless, the manufacturer, as the statutory taxpayer who is directly
liable to pay the excise tax on its petroleum products, is entitled to a refund or credit of the
excise taxes it paid for petroleum products sold to international carriers (COMMISSIONER OF
INTERNAL REVENUE v. PILIPINAS SHELL PETROLEUM CORPORATION, G.R. No. 188497,
February 19, 2014)

c) Kinds of tax exemption
(i) Express
(ii) Implied

It bears repeating that the law looks with disfavor on tax exemptions and he who would seek to
be thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted. (WESTERN MINOLCO CORPORATION v. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. L-61632, August 16, 1983)

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(iii) Contractual

Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption
may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is
where the exemption was granted to private parties based on material consideration of a
mutual nature, which then becomes contractual and is thus covered by the non-impairment
clause of the Constitution. (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)

d) Rationale/grounds for exemption

In recent years, the increasing social challenges of the times expanded the scope of state
activity, and taxation has become a tool to realize social justice and the equitable distribution of
wealth, economic progress and the protection of local industries as well as public welfare and
similar objectives. Taxation assumes even greater significance with the ratification of the 1987
Constitution. (BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONAL POWER
CORPORATION, G.R. No. 152675, April 28, 2004)
The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716 but an
enumeration of some of these transactions will suffice to show that by and large this is not so
and that the exemptions are granted for a purpose. As the Solicitor General says, such
exemptions are granted, in some cases, to encourage agricultural production and, in other
cases, for the personal benefit of the end-user rather than for profit. (ARTURO M. TOLENTINO
v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
e) Revocation of tax exemption

Since the law granted the press a privilege, the law could take back the privilege anytime
without offense to the Constitution. The reason is simple: by granting exemptions, the State
does not forever waive the exercise of its sovereign prerogative; indeed, in withdrawing the
exemption, the law merely subjects the press to the same tax burden to which other businesses
have long ago been subject. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

The rule is that a special and local statute applicable to a particular case is not repealed by a
later statute which is general in its terms, provisions and application even if the terms of the
general act are broad enough to include the cases in the special law unless there is manifest
intent to repeal or alter the special law. (THE PROVINCE OF MISAMIS ORIENTAL, represented
by its PROVINCIAL TREASURER v. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC.,
G.R. No. L-45355, January 12, 1990)

This Court recognized the removal of the blanket exclusion of government instrumentalities
from local taxation as one of the most significant provisions of the 1991 LGC. Specifically, we
stressed that Section 193 of the LGC, an express and general repeal of all statutes granting
exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the
NPC under its Charter. (BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONAL
POWER CORPORATION, G.R. No. 152675, April 28, 2004)
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Erroneous application and enforcement of the law by public officers do not preclude subsequent
correct application of the statute, and the government is never estopped by the mistake or
error on the part of its agents. (PHILIPPINE BASKETBALL ASSOCIATION v. COURT OF
APPEALS, 337 SCRA 358)
6. Compensation and set-off

Taxes cannot be the subject of set-off or compensation for the following reasons: (1) taxes are
of distinct kind, essence and nature, and these impositions cannot be classed in the same
category as ordinary obligations; (2) the applicable laws and principles governing each are
peculiar, not necessarily common to each; and (3) public policy is better subscribed if the
integrity and independence of taxes are maintained. (REPUBLIC v. MAMBULAO LUMBER
COMPANY, 4 SCRA 622 (1962))

Taxes cannot be subject to compensation for the simple reason that the Government and the
taxpayers are not creditors and debtors of each other, debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. (SOUTH
AFRICAN AIRWAYS v. COMMISSIONER OF INTERNAL REVENUE, 612 SCRA 665 (2010))

However, if the obligation to pay taxes and the taxpayers claim against the government are
both overdue, demandable, as well as fully liquidated, compensation takes place by operation of
law and both obligations are extinguished to their concurrent amounts. (DOMINGO v.
GARLITOS, 8 SCRA 443 (1963))

7. Compromise
8. Tax amnesty
a) Definition

A tax amnesty is a general pardon or the intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute
waiver by the government of its right to collect what is due it and to give tax evaders who wish
to relent a chance to start with a clean slate. (ASIA INTERNATIONAL AUCTIONEERS, INC. v.
COMMISSIONER OF INTERNAL REVENUE G.R. No. 179115 September 26, 2012)

A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a
tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority. (ASIA INTERNATIONAL AUCTIONEERS, INC. v.
COMMISSIONER OF INTERNAL REVENUE G.R. No. 179115 September 26, 2012)

b) Distinguished from tax exemption

9. Construction and interpretation of:
a) Tax laws
(i) General rule

Verily, taxation is a destructive power which interferes with the personal and property for the
support of the government. Accordingly, tax statutes must be construed strictly against the
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government and liberally in favor of the taxpayer. (MCIAA v. Marcos, G.R. No. 120082
September 11, 1996)

The rule that tax exemptions should be construed strictly against the taxpayer presupposes that
the taxpayer is clearly subject to the tax being levied against him. Unless a statute imposes a
tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that the
imposition of a tax cannot be presumed. This is because taxes are burdens on the taxpayer,
and should not be unduly imposed or presumed beyond what the statutes expressly and clearly
import. (COMMISSIONER OF INTERNAL REVENUE v. THE PHILIPPINE AMERICAN ACCIDENT
INSURANCE COMPANY, INC. G.R. No. 141658 March 18, 2005)

(ii) Exception
b) Tax exemption and exclusion
(i) General rule

But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law
frowns against exemptions from taxation and statutes granting tax exemptions are thus
construed in strictissimi juris against the taxpayers and liberally in favor of the taxing
authority. (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)

Entrenched in our jurisprudence is the principle that tax refunds are in the nature of tax
exemptions which are construed in strictissimi juris against the taxpayer and liberally in favor of
the government. As tax refunds involve a return of revenue from the government, the claimant
must show indubitably the specific provision of law from which her right arises; it cannot be
allowed to exist upon a mere vague implication or inference nor can it be extended beyond the
ordinary and reasonable intendment of the language actually used by the legislature in granting
the refund. (COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No. 154068
August 3, 2007)

Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in the
nature of a claim for exemption and the law is construed in strictissimi juris against the
taxpayer. The pieces of evidence presented entitling a taxpayer to an exemption are
also strictissimi scrutinized and must be duly proven. (KEPCO PHILIPPINES CORPORATION v.
COMMISSIONER OF INTERNAL REVENUE G.R. No. 179961 January 31, 2011)

The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to
require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR from
exemption from the payment of corporate income tax. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence excludes all
others as expressed in the familiar maxim expressio unius est exclusio alterius. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL REVENUE
G.R. No. 172087 March 15, 2011)

It is a basic precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar maxim expressio unius est
exclusio alterius. Not being a local water district, a cooperative registered under R.A. No. 6938,
or a non-stock and non-profit hospital or educational institution, petitioner clearly does not
belong to the exception and it is therefore incumbent upon it to point to some provisions of the
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LGC that expressly grant its exemption from local taxes. (NATIONAL POWER CORPORATION v.
CITY OF CABANATUAN G.R. No. 149110 April 9, 2003)

Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed
"broad, pragmatic analysis" alone without substantial supportive evidence, lest governmental
operations suffer due to diminution of much needed funds. While international comity is invoked
in this case on the nebulous representation that the funds involved in the loans are those of a
foreign government, scrupulous care must be taken to avoid opening the floodgates to the
violation of our tax laws. (COMMISSIONER OF INTERNAL REVENUE v. MITSUBISHI METAL
CORPORATION G.R. No. L-54908 January 22, 1990)
The claimed statutory exemption of the John Hay SEZ from taxation should be manifest and
unmistakable from the language of the law on which it is based; it must be expressly granted in
a statute stated in a language too clear to be mistaken. If it were the intent of the legislature to
grant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it
would have so expressly provided in the R.A. No. 7227. (JOHN HAY PEOPLES ALTERNATIVE
COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)
The Court in PLDT v. City of Davao, held that in approving Section 23 of RA No. 7925, Congress
did not intend it to operate as a blanket tax exemption to all telecommunications entities. The
Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the
word "exemption" as used in the statute refers or pertains merely to an exemption from
regulatory or reporting requirements of the Department of Transportation and Communication
or the National Transmission Corporation and not to an exemption from the grantees tax
liability. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21,
2009)

In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna, the issue that
the Court had to resolve was whether PLDT was liable to pay franchise tax to the Province of
Laguna in view of the "in lieu of all taxes" clause in its franchise and Section 23 of RA 7925.
Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts
are resolved in favor of municipal corporations in interpreting statutory provisions on municipal
taxing powers, the Court held that Section 23 of RA 7925 could not be considered as having
amended petitioner's franchise so as to entitle it to exemption from the imposition of local
franchise taxes. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491,
July 21, 2009)

The "in lieu of all taxes" clause in a legislative franchise should categorically state that the
exemption applies to both local and national taxes; otherwise, the exemption claimed should be
strictly construed against the taxpayer and liberally in favor of the taxing authority. (SMART
COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)

PLDTs contention that the in-lieu-of-all-taxes clause does not refer to tax exemption but to
tax exclusion and hence, the strictissimi juris rule does not apply. The Supreme Court explains
that these two terms actually mean the same thing, such that the rule that tax exemption
should be applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions (PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY vs PROVINCE OF LAGUNA G.R. No. 151899, August 16, 2005)
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(ii) Exception

However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid
rule of construction does not apply because the practical effect of the exemption is merely to
reduce the amount of money that has to be handled by the government in the course of its
operations. (MCIAA v. Marcos, G.R. No. 120082, September 11, 1996)

There is parity between tax refund and tax exemption only when the former is based either on
a tax exemption statute or a tax refund statute. Obviously, that is not the situation here since
Fortune Tobaccos claim for refund is premised on its erroneous payment of the tax, or better
still, the governments exaction in the absence of a law. (COMMISSIONER OF INTERNAL
REVENUE v. FORTUNE TOBACCO CORPORATION, G.R. Nos. 167274-75, July 21, 2008)

A claim for tax refund may be based on statutes granting tax exemption or tax refund and in
such case, the rule of strict interpretation against the taxpayer is applicable as the claim for
refund partakes of the nature of an exemption, a legislative grace, which cannot be allowed
unless granted in the most explicit and categorical language. Tax refunds (or tax credits), on
the other hand, are not founded principally on legislative grace but on the legal principle which
underlies all quasi-contracts abhorring a persons unjust enrichment at the expense of another.
(COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION, G.R. Nos.
167274-75, July 21, 2008)

As a necessary corollary, when the taxpayers entitlement to a refund stands undisputed, the
State should not misuse technicalities and legalisms, however exalted, to keep money not
belonging to it. The government is not exempt from the application of solutio indebiti, a basic
postulate proscribing one, including the State, from enriching himself or herself at the expense
of another. (COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION,
G.R. Nos. 167274-75, September 11, 2013)

c) Tax rules and regulations
(i) General rule only

While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations
to implement statutes, they are without authority to limit the scope of the statute to less than
what it provides, or extend or expand the statute beyond its terms, or in any way modify
explicit provisions of the law. Hence, in case of discrepancy between the basic law and an
interpretative or administrative ruling, the basic law prevails. (FORT BONIFACIO DEVELOPMENT
CORPORATION v. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, September 4,
2012)

Revenue Memorandum Circulars (RMCs) must not override, supplant, or modify the law, but
must remain consistent and in harmony with the law they seek to apply and implement.
(COMMISSIONER OF INTERNAL REVENUE v. SM PRIME HOLDINGS, INC. 613 SCRA 774 (2010))

Admittedly the government is not estopped from collecting taxes legally due because of
mistakes or errors of its agents. But like other principles of law, this admits of exceptions in the
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interest of justice and fair play, as where injustice will result to the taxpayer. (COMMISSIONER
OF INTERNAL REVENUE v. COURT OF APPEALS, G.R. No. 117982, February 6, 1997)

"When a statute is susceptible of the meaning placed upon it by a ruling of the government
agency charged with its enforcement and the [l]egislature thereafter [reenacts] the provisions
[without] substantial change, such action is to some extent confirmatory that the ruling carries
out the legislative purpose." (COMMISSIONER OF INTERNAL REVENUE v. AMERICAN EXPRESS
INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June 29, 2005)

BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax
refunds and credits. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of
its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010,
where this Court held that the 120+30 day periods are mandatory and jurisdictional. (TEAM
ENERGY CORPORATION (Formerly MIRANT PAGBILAO CORPORATION) v. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 197760, January 13, 2014)

d) Penal provisions of tax laws

In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its
right to prosecute. They receive strict construction in favour of the Government and limitations
in such cases will not be presumed in the absence of clear legislation. (LIM, et al. v. COURT OF
APPEALS, G.R. No. 48134-37, October 18, 1990)

e) Non-retroactive application to taxpayers

Revenue statutes are substantive laws and in no sense must their application be equated with
that of remedial laws. As well said in a prior case, revenue laws are not intended to be liberally
construed. (COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA, G.R. No.
154068, August 3, 2007)

(i) Exceptions

While it is a settled principle that rulings, circulars, rules and regulations promulgated by the
BIR have no retroactive application if to so apply them would be prejudicial to the taxpayers,
this rule does not apply: (a) where the taxpayer deliberately misstates or omits material facts
from his return or in any document required of him by the Bureau of Internal Revenue; (b)
where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad
faith. Not being the taxpayer who, in the first instance, sought a ruling from the CIR, however,
FDC cannot invoke the foregoing principle on non-retroactivity of BIR rulings. (COMMISSIONER
OF INTERNAL REVENUE v. FILINVEST DEVELOPMENT CORPORATION, G.R. No. 163653, July
19, 2011)

I. Scope and limitation of taxation
1. Inherent limitations
a) Public purpose

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Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III, Section 5 of P.D. 1468
completely ignore the fact that coco-levy funds are public funds raised through taxation. And
since taxes could be exacted only for a public purpose, they cannot be declared private
properties of individuals although such individuals fall within a distinct group of persons.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN
v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

The Court of course grants that there is no hard-and-fast rule for determining what constitutes
public purpose. But the assailed provisions, which removed the coco-levy funds from the
general funds of the government and declared them private properties of coconut farmers, do
not appear to have a color of social justice for their purpose. (PAMBANSANG KOALISYON NG
MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R.
Nos. 147036-37 April 10, 2012)

It would be a robbery for the State to tax its citizens and use the funds generated for a private
purpose. When a tax law is only a mask to exact funds from the public when its true intent is to
give undue benefit and advantage to a private enterprise, that law will not satisfy the
requirement of "public purpose." (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,
G.R. No. 166006, March 14, 2008)

Jurisprudence states that "public purpose" should be given a broad interpretation. It does not
only pertain to those purposes which are traditionally viewed as essentially government
functions, such as building roads and delivery of basic services, but also includes those
purposes designed to promote social justice. (PLANTERS PRODUCTS, INC. v. FERTIPHIL
CORPORATION, G.R. No. 166006, March 14, 2008)


b) Inherently legislative
(i) General rule

The power to tax is purely legislative, and which the central legislative body cannot delegate
either to the executive or judicial department of the government without infringing upon the
theory of separation of powers. ((Pepsi-Cola Bottling Company of the Phil. V. Mun. of Tanauan,
Leyte, 69 SCRA 460)

The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power, which can never be delegated,
has been described as the authority to make a complete law complete as to the time when it
shall take effect and as to whom it shall be applicable and to determine the expediency of its
enactment. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R.
No. 168056 September 1, 2005)

(ii) Exceptions
(a) Delegation to local governments

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before,
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but pursuant to direct authority conferred by Section 5, Article X of the Constitution.

(MCIAA v.
Marcos, G.R. No. 120082 September 11, 1996)

The power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units. It may also be relevant to recall that the
original reasons for the withdrawal of tax exemption privileges granted to government-owned
and controlled corporations and all other units of government were that such privilege resulted
in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises.
(MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)

Taxation assumes even greater significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative
bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article
X, section 5 of the 1987 Constitution. (NATIONAL POWER CORPORATION v. CITY OF
CABANATUAN G.R. No. 149110 April 9, 2003)

Clearly then, while a new slant on the subject of local taxation now prevails in the sense that
the former doctrine of local government units delegated power to tax had been effectively
modified with Article X, Section 5 of the 1987 Constitution now in place, the basic doctrine on
local taxation remains essentially the same. For as the Court stressed in Mactan, "the power to
tax is [still] primarily vested in the Congress." (QUEZON CITY, et al. v. ABS-CBN
BROADCASTING CORPORATION, G.R. No. 162015, March 6, 2006)

Section 5, Article X of the Constitution does not change the doctrine that municipal corporations
do not possess inherent powers of taxation; what it does is to confer municipal corporations a
general power to levy taxes and otherwise create sources of revenue and they no longer have
to wait for a statutory grant of these powers and the power of the legislative authority relative
to the fiscal powers of local governments has been reduced to the authority to impose
limitations on municipal powers. The important legal effect of Section 5 is thus to reverse the
principle that doubts are resolved against municipal corporations; henceforth, in interpreting
statutory provisions on municipal fiscal powers, doubts will be resolved in favor of municipal
corporations. (QUEZON CITY, et al. v. ABS-CBN BROADCASTING CORPORATION, G.R. No.
162015, March 6, 2006)

(b) Delegation to the President

Assuming that Section 28(2) Article VI did not exist, the enactment of the SMA [Safeguard
Measure Act] by Congress would be voided on the ground that it would constitute an undue
delegation of the legislative power to tax. The constitutional provision shields such delegation
from constitutional infirmity, and should be recognized as an exceptional grant of legislative
power to the President, rather than the affirmation of an inherent executive power. (SOUTHERN
CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, G.R. No. 158540, August 3, 2005)

When Congress tasks the President or his/her alter egos to impose safeguard measures under
the delineated conditions, the President or the alter egos may be properly deemed as agents of
Congress to perform an act that inherently belongs as a matter of right to the legislature. It is
basic agency law that the agent may not act beyond the specifically delegated powers or
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disregard the restrictions imposed by the principal. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)

Delegation of legislative powers to the President is permitted in Sections 23 (2) and 28 (2) of
Article VI of the Constitution. By virtue of a valid delegation of legislative power, it may also be
exercised by the President and administrative boards, as well as the lawmaking bodies of all
municipal levels, including the barangay. (Camarines North Electric Cooperative v. Torres, GR
No. 127249, February 27, 1998)

(c) Delegation to administrative agencies

Clearly, the legislature may delegate to executive officers or bodies the power to determine
certain facts or conditions, or the happening of contingencies, on which the operation of a
statute is, by its terms, made to depend, but the legislature must prescribe sufficient standards,
policies or limitations on their authority. While the power to tax cannot be delegated to
executive agencies, details as to the enforcement and administration of an exercise of such
power may be left to them, including the power to determine the existence of facts on which its
operation depends. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R.
No. 168056 September 1, 2005)
In the present case, in making his recommendation to the President on the existence of either
of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or
even her subordinate; he is acting as the agent of the legislative department, to determine and
declare the event upon which its expressed will is to take effect. Thus, being the agent of
Congress and not of the President, the President cannot alter or modify or nullify, or set aside
the findings of the Secretary of Finance and to substitute the judgment of the former for that of
the latter. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA
and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R. No. 168056
September 1, 2005)
c) Territorial
(i) Situs of taxation
(a) Meaning
(b) Situs of income tax

The important factor therefore which determines the source of income of personal services is
not the residence of the payor, or the place where the contract for service is entered into, or
the place of payment, but the place where the services were actually rendered.
(COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793, August
29, 2006)

(1) From sources within the Philippines

The reinsurance premiums remitted to appellants by virtue of the reinsurance contracts,
accordingly, had for their source the undertaking to indemnify Commonwealth Insurance Co.
against liability. Said undertaking is the activity that produced the reinsurance premiums, and
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the same took place in the Philippines. (Alexander Howden & Co., Ltd. v. Collector of Internal
Revenue as cited in COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R.
No. 153793, August 29, 2006)

The "sale of tickets" in the Philippines is the "activity" that produced the income and therefore
BOAC should pay income tax in the Philippines because it undertook an income producing
activity in the country. The tickets exchanged hands here and payments for fares were also
made here in Philippine currency; thus, the situs of the source of payments is the Philippines.
(Commissioner of Internal Revenue v. British Overseas Airways Corporation (BOAC) as cited in
COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793, August
29, 2006)

For the source of income to be considered as coming from the Philippines, it is sufficient that
the income is derived from activities within this country regardless of the absence of flight
operations within Philippine territory. Indeed, the sale of tickets is the very lifeblood of the
airline business, the generation of sales being the paramount objective. (COMMISSIONER OF
INTERNAL REVENUE v. JAPAN AIR LINES, INC., G.R. No. 60714, March 6, 1991)

(2) From sources without the Philippines
(3) Income partly within and partly without the Philippines
(c) Situs of property taxes
(1) Taxes on real property
(2) Taxes on personal property
(d) Situs of excise tax

Since it partakes of the nature of an excise tax, the situs of taxation is the place where the
privilege is exercised, in this case in the City of Iriga, where CASURECO III has its principal
office and from where it operates, regardless of the place where its services or products are
delivered. (CITY OF IRIGA v. CAMARINES SUR III ELECTRIC COOPERATIVE, INC., G.R. No.
192945, September 5, 2012)

(1) Estate tax
(2) Donors tax
(e) Situs of business tax
(1) Sale of real property
(2) Sale of personal property

It is not the place where the contract was perfected, but the place of delivery which determines
the taxable situs of the property sought to be taxed. In the cases of Soriano y Cia. v. Collector
of Internal Revenue, 51 O.G. 4548; Vegetable Oil Corporation v. Trinidad, 45 Phil. 822;
and Earnshaw Docks and Honolulu Iron Works vs. Collector of Internal Revenue, 54 Phil. 696, it
has been ruled that for a sale to be taxed in the Philippines it must be consummated there;
thus indicating that the place of consummation (associated with the delivery of the things
subject matter of the contract) is the accepted criterion in determining the situs of the contract
for purposes of taxation, and not merely the place of the perfection of the contract.
(THE MUNICIPALITY OF JOSE PANGANIBAN, PROVINCE OF CAMARINES NORTE, ETC. v. THE
SHELL COMPANY OF THE PHILIPPINES, LTD., G.R. No. L-18349, July 30, 1966)

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(3) Value-Added Tax (VAT)
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed;
thus, exports are zero-rated, while imports are taxed. (COMMISSIONER OF INTERNAL REVENUE
v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June
29, 2005)
Consumption is "the use of a thing in a way that thereby exhausts it, and applied to services,
the term means the performance or "successful completion of a contractual duty, usually
resulting in the performers release from any past or future liability." The services rendered by
respondent are performed or successfully completed upon its sending to its foreign client the
drafts and bills it has gathered from service establishments here; thus, its services, having been
performed in the Philippines, are also consumed in the Philippines. (COMMISSIONER OF
INTERNAL REVENUE v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R.
No. 152609, June 29, 2005)
Unlike goods, services cannot be physically used in or bound for a specific place where their
destination is determined but instead, there can only be a "predetermined end of a
course" when determining the service "location or position for legal purposes." Respondents
facilitation service has no physical existence, yet takes place upon rendition, and therefore upon
consumption, in the Philippines. (COMMISSIONER OF INTERNAL REVENUE v.AMERICAN
EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June 29, 2005)
d) International comity
e) Exemption of government entities, agencies, and instrumentalities

The Court rules that the Authority [PFDA] is not a GOCC but an instrumentality of the national
government which is generally exempt from payment of real property tax. However, said
exemption does not apply to the portions of the IFPC which the Authority leased to private
entities. (Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 169836, 31
July 2007)

As property of public dominion, the Lucena Fishing Port Complex is owned by the Republic of
the Philippines and thus exempt from real estate tax. (PHILIPPINE FISHERIES DEVELOPMENT
AUTHORITY (PFDA) v. CENTRAL BOARD OF ASSESSMENT APPEALS, G.R. No. 178030,
December 15, 2010)

2. Constitutional limitations
a) Provisions directly affecting taxation
(i) Prohibition against imprisonment for non-payment of poll tax
(ii) Uniformity and equality of taxation

Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation; inequalities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional limitation.
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(KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC. v. HON.
BIENVENIDO TAN, G.R. No. 81311, June 30, 1988)

(iii) Grant by Congress of authority to the president to impose tariff rates

It is Congress which authorizes the President to impose tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts. Thus, the authority cannot come
from the Finance Department, the National Economic Development Authority, or the World
Trade Organization, no matter how insistent or persistent these bodies may be. (SOUTHERN
CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, G.R. No. 158540, August 3, 2005)

The authorization granted to the President must be embodied in a law. Hence, the justification
cannot be supplied simply by inherent executive powers. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)

The authorization to the President can be exercised only within the specified limits set in the
law and is further subject to limitations and restrictions which Congress may impose.
Consequently, if Congress specifies that the tariff rates should not exceed a given amount, the
President cannot impose a tariff rate that exceeds such amount. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)

Assuming there is a conflict between the specific limitation in Section 28 (2), Article VI of the
Constitution and the general executive power of control and supervision, the former prevails in
the specific instance of safeguard measures such as tariffs and imposts, and would thus serve
to qualify the general grant to the President of the power to exercise control and supervision
over his/her subalterns. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005)

(iv) Prohibition against taxation of religious, charitable entities, and educational
entities

The word "charitable" is not restricted to relief of the poor or sick. The test whether an
enterprise is charitable or not is whether it exists to carry out a purpose recoganized in law as
charitable or whether it is maintained for gain, profit, or private advantage. (LUNG CENTER OF
THE PHILIPPINES v.QUEZON CITY, G.R. No. 144104, June 29, 2004)

Even as we find that the petitioner is a charitable institution, we hold that those portions of its
real property that are leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable purposes. On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes. (LUNG CENTER
OF THE PHILIPPINES v.QUEZON CITY, G.R. No. 144104, June 29, 2004)

To be a charitable institution, however, an organization must meet the substantive test of
charity in Lung Center. Charity is essentially a gift to an indefinite number of persons which
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lessens the burden of government. In other words, charitable institutions provide for free goods
and services to the public which would otherwise fall on the shoulders of government.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)

In Lung Center, this Court declared: "exclusive" is defined as possessed and enjoyed to the
exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in
a manner to exclude; as enjoying a privilege exclusively." The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively" without doing violence to
the Constitution and the law. Solely is synonymous with exclusively. (COMMISSIONER OF
INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26,
2012)

Services to paying patients are activities conducted for profit. There is a "purpose to make profit
over and above the cost" of services. (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S
MEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)

Section 30(E) and (G) of the NIRC requires that an institution be "operated exclusively" for
charitable or social welfare purposes to be completely exempt from income tax. An institution
under Section 30(E) or (G) does not lose its tax exemption if it earns income from its for-profit
activities. Such income from for-profit activities, under the last paragraph of Section 30, is
merely subject to income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B). (COMMISSIONER OF INTERNAL REVENUE v.
ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)

A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of
gift inter vivos, the imposition of which on property used exclusively for religious purposes, does
not constitute an impairment of the Constitution. The phrase "exempt from taxation," as
employed in the Constitution should not be interpreted to mean exemption from all kinds of
taxes. (REV. FR. CASIMIRO LLADOC v. The COMMISSIONER OF INTERNAL REVENUE, G.R. No.
L-19201, June 16, 1965)

(v) Prohibition against taxation of non-stock, non-profit institutions

An organization may be considered as non-profit if it does not distribute any part of its income
to stockholders or members. However, despite its being a tax exempt institution, any income
such institution earns from activities conducted for profit is taxable, as expressly provided in the
last paragraph of Section 30. (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL
CENTER, INC. G.R. No. 195909 September 26, 2012)

(vi) Majority vote of Congress for grant of tax exemption

The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of
the same to the John Hay SEZ finds no support therein. The challenged grant of tax exemption
would circumvent the Constitution's imposition that a law granting any tax exemption must
have the concurrence of a majority of all the members of Congress. (JOHN HAY PEOPLES
ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)

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(vii) Prohibition on use of tax levied for special purpose

The coco-levy funds, on the other hand, belong to the government and are subject to its
administration and disposition. Thus, these funds, including its incomes, interests, proceeds, or
profits, as well as all its assets, properties, and shares of stocks procured with such funds must
be treated, used, administered, and managed as public funds; the coco-levy funds are evidently
special funds. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA
SA NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

(viii) Presidents veto power on appropriation, revenue, tariff bills

An "item" in a revenue bill does not refer to an entire section imposing a particular kind of tax,
but rather to the subject of the tax and the tax rate; thus, in the portion of a revenue bill which
actually imposes a tax, a section identifies the tax and enumerates the persons liable therefor
with the corresponding tax rate. To construe the word "item" as referring to the whole section
would tie the President's hand in choosing either to approve the whole section at the expense
of also approving a provision therein which he deems unacceptable or veto the entire section at
the expense of foregoing the collection of the kind of tax altogether. (COMMISSIONER OF
INTERNAL REVENUE v. HON. COURT OF TAX APPEALS, G.R. No. L-47421, May 14, 1990)

(ix) Non-impairment of jurisdiction of the Supreme Court
(x) Grant of power to the local government units to create its own sources of
revenue

For a long time, the country's highly centralized government structure has bred a culture of
dependence among local government leaders upon the national leadership. The only way to
shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to generate their own sources for the purpose.
(NATIONAL POWER CORPORATION v. CITY OF CABANATUAN G.R. No. 149110 April 9, 2003)

Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish
the payment of local franchise tax; it merely replaced the national franchise tax that was
previously paid by telecommunications franchise holders and in its stead VAT. The imposition of
local franchise tax is not inconsistent with the advent of the VAT, which renders functus officio
the franchise tax paid to the national government for VAT inures to the benefit of the national
government, while a local franchise tax is a revenue of the local government unit. (SMART
COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)

(xi) Flexible tariff clause
(xii) Exemption from real property taxes

For real property taxes, the incidental generation of income is permissible because the test of
exemption is the use of the property and this test requires that the institution use the property
in a certain way, i.e. for a charitable purpose. Thus, the Court held that the Lung Center of the
Philippines did not lose its charitable character when it used a portion of its lot for commercial
purposes since the effect of failing to meet the use requirement is simply to remove from the
tax exemption that portion of the property not devoted to charity. (COMMISSIONER OF
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INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26,
2012)

The Constitution exempts charitable institutions only from real property taxes while the NIRC
extends the exemption to income taxes. However, the way Congress crafted Section 30(E) of
the NIRC is materially different from Section 28(3), Article VI of the Constitution: Section 30(E)
of the NIRC defines the corporation or association that is exempt from income tax while Section
28(3), Article VI of the Constitution does not define a charitable institution, but requires that the
institution "actually, directly and exclusively" use the property for a charitable purpose.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)

To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires
that a charitable institution use the property "actually, directly and exclusively" for charitable
purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be "organized and operated exclusively" for charitable purposes.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)

(xiii) No appropriation or use of public money for religious purposes
b) Provisions indirectly affecting taxation
(i) Due process

In Sison, Jr. v. Ancheta, et al., we held that the due process clause may properly be invoked to
invalidate, in appropriate cases, a revenue measure when it amounts to a confiscation of
property. But in the same case, we also explained that we will not strike down a revenue
measure as unconstitutional (for being violative of the due process clause) on the mere
allegation of arbitrariness by the taxpayer. (Chamber of Real Estate and Builders Association,
Inc. v. Romulo, 614 SCRA 605 (2010))

The support for the poor is generally recognized as a public duty and has long been an
accepted exercise of police power in the promotion of the common good but, in the instant
case, the declarations do not distinguish between wealthy coconut farmers and the
impoverished ones. Consequently, such declarations are void since they appropriate public
funds for private purpose and, therefore, violate the citizens right to substantive due process.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN
v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

(ii) Equal protection

The real estate industry is, by itself, a class and can be validly treated differently from other
business enterprises. What distinguishes the real estate business from other manufacturing
enterprises, for purposes of the imposition of the CWT, is not their production processes but the
prices of their goods sold and the number of transactions involved. (Chamber of Real Estate
and Builders Association, Inc. v. Romulo, 614 SCRA 605 (2010))

PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislative
records of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on
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Ways and Means, show that PAGCORs exemption from payment of corporate income tax, as
provided in Section 27 (c) of R.A. No. 8424, or the National Internal Revenue Code of 1997,
was not made pursuant to a valid classification based on substantial distinctions. The legislative
records show that the basis of the grant of exemption to PAGCOR from corporate income tax
was PAGCORs own request to be exempted. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15,
2011)

(iii) Religious freedom

The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraints of such right
can only be justified like other restraints of freedom of expression on the grounds that there is
a clear and present danger of any substantive evil which the State has the right to prevent.
(AMERICAN BIBLE SOCIETY v. CITY OF MANILA, G.R. No. L-9637, April 30, 1957)

It may be true that in the case at bar the price asked for the bibles and other religious
pamphlets was in some instances a little bit higher than the actual cost of the same but this
cannot mean that appellant was engaged in the business or occupation of selling said
"merchandise" for profit. For this reason We believe that the City of Manila Ordinance No. 2529
requiring the payment of license fee cannot be applied to appellant, for in doing so it would
impair its free exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs. (AMERICAN BIBLE SOCIETY v. CITY OF MANILA,
G.R. No. L-9637, April 30, 1957)

With respect to Ordinance No. 3000 which requires the obtention of the Mayor's permit before
any person can engage in any of the businesses, trades or occupations enumerated therein, We
do not find that it imposes any charge upon the enjoyment of a right granted by the
Constitution, nor tax the exercise of religious practices. But as the City of Manila is powerless to
license or tax the business of plaintiff Society, We find that Ordinance No. 3000 is also
inapplicable to said business, trade or occupation of the plaintiff. (AMERICAN BIBLE SOCIETY v.
CITY OF MANILA, G.R. No. L-9637, April 30, 1957)

The Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from
the sales are used to subsidize the cost of printing copies which are given free to those who
cannot afford to pay so that to tax the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to differentiate it from any other economic
imposition that might make the right to disseminate religious doctrines costly. (ARTURO M.
TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)

On the other hand the registration fee of P1,000.00 imposed by Sec. 107 of the NIRC, as
amended by Sec. 7 of R.A. No. 7716, although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such as those relating to accounting in
Sec. 108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the
VAT does not excuse it from the payment of this fee because it also sells some copies.
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(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

The withdrawal of the exemption did not also violate freedom of religion as regards the
activities of PBS on religious articles, as the Free Exercise of Religious clause does not prohibit
imposing a generally applicable sale and use tax on the sale of religious materials by a religious
organization as held by the US Supreme Court in Jimmy Swaggart Ministries v. Board of
Equalization (1990).
The VAT registration fee does not constitute censorship of such freedom as held in the
American Bible Society case. The fee is a mere administrative fee and not imposed on the
exercise of a privilege, much less a constitutional right. But for the purpose of defraying cost of
registration which is a requirement and a central feature in the VAT system so as to provide
record of tax credits of the taxpayer. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE
and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

(iv) Non-impairment of obligations of contracts

Contractual tax exemptions, in the real sense of the term and where the non-impairment clause
of the Constitution can rightly be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its private capacity, sheds its
cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may
not be revoked without impairing the obligations of contracts. but these contractual tax
exemptions are not to be confused with tax exemptions granted under franchisesthe latter
partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE
BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15, 2011)

Even though such taxation may affect particular contracts, as it may increase the debt of one
person and lessen the security of another, or may impose additional burdens upon one class
and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true
legal sense." Indeed not only existing laws but also "the reservation of the essential attributes
of sovereignty, is read into contracts as a postulate of the legal order." (ARTURO M.
TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)


J. Stages of taxation
1. Levy

Levy is an exercise of the power to tax, which is exclusively legislative in nature and character.
Clearly, taxes are not levied by the executive branch of government. (NPC v. Albay, 186 SCRA
198 (1990))

2. Assessment and collection
3. Payment
4. Refund
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K. Definition, nature, and characteristics of taxes

Taxes are enforced proportional contributions from persons and property, levied by the State by
virtue of its sovereignty for the support of the government and for all its public needs.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN
v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

L. Requisites of a valid tax
M. Tax as distinguished from other forms of exactions
1. Tariff
2. Toll

A tax is imposed under the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures; toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways. Taxes may be imposed only by the
government under its sovereign authority, toll fees may be demanded by either the government
or private individuals or entities, as an attribute of ownership. (RENATO V. DIAZ and AURORA
MA. F. TIMBOL v. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense.
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OF
FINANCE, G.R. No. 193007, July 19, 2011)

3. License fee

To be considered a license fee, the imposition must relate to an occupation or activity that so
engages the public interest in health, morals, safety and development as to require regulation
for the protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into account not only the
costs of direct regulation but also its incidental consequences as well. Accordingly, a charge of a
fixed sum which bears no relation at all to the cost of inspection and regulation may be held to
be a tax rather than an exercise of police power. (PROGRESSIVE DEVELOPMENT CORP. v.
QUEZON CITY, G.R. No. L-36081, April 24, 1989)

If the purpose is primarily revenue, or if revenue is at least, one of the real and substantial
purposes, then the exaction is properly called a tax. (LAND TRANSPORTATION OFFICE v. CITY
OF BUTUAN, G.R. No. 131512, January 20, 2000)

4. Special assessment
5. Debt

Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off. (CALTEX PHILIPPINES, INC. v. THE
HONORABLE COMMISSION ON AUDIT, G.R. No. 92585, May 8, 1992)

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N. Kinds of taxes
1. As to object
a) Personal, capitation, or poll tax
b) Property tax
c) Privilege tax

A contractor's tax is generally in the nature of an excise tax on the exercise of a privilege of
selling services or labor rather than a sale on products; and is directly collectible from the
person exercising the privilege.

Being an excise tax, it can be levied by the taxing authority only
when the acts, privileges or business are done or performed within the jurisdiction of said
authority. (COMMISSIONER OF INTERNAL REVENUE v. MARUBENI CORPORATION, G.R. No.
137377, December 18, 2001)

A franchise tax is a tax on the privilege of transacting business in the state and exercising
corporate franchises granted by the state. It is not levied on the corporation simply for existing
as a corporation, upon its property or its income, but on its exercise of the rights or privileges
granted to it by the government.

(CITY OF IRIGA v. CAMARINES SUR III ELECTRIC
COOPERATIVE, INC., G.R. No. 192945, September 5, 2012)


2. As to burden or incidence
a) Direct
b) Indirect

In context, direct taxes are those that are exacted from the very person who, it is intended or
desired, should pay them; they are impositions for which a taxpayer is directly liable on the
transaction or business he is engaged in. On the other hand, indirect taxes are those that are
demanded, in the first instance, from, or are paid by, one person in the expectation and
intention that he can shift the burden to someone else. (COMMISSIONER OF INTERNAL
REVENUE VS PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, G.R. No. 140230, December
15, 2005)

Indirect taxes, like VAT and excise tax, are different from withholding taxes: To distinguish, in
indirect taxes, the incidence of taxation falls on one person but the burden thereof can be
shifted or passed on to another person, such as when the tax is imposed upon goods before
reaching the consumer who ultimately pays for it. On the other hand, in case of withholding
taxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The
burden of taxation is not shifted to the withholding agent who merely collects, by withholding,
the tax due from income payments to entities arising from certain transactions and remits the
same to the government. (ASIA INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OF
INTERNAL REVENUE G.R. No. 179115 September 26, 2012)

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive since what it simply provides is that Congress shall "evolve a progressive system of
taxation." The constitutional provision has been interpreted to mean simply that "direct taxes
are to be preferred [and] as much as possible, indirect taxes should be minimized." (ARTURO
M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)

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The seller remains directly and legally liable for payment of the VAT, but the buyer bears its
burden since the amount of VAT paid by the former is added to the selling price. Once shifted,
the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in
order to purchase the good, property or service. (RENATO V. DIAZ and AURORA MA. F. TIMBOL
v. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

3. As to tax rates
a) Specific
b) Ad valorem
c) Mixed
4. As to purposes
a) General or fiscal
b) Special, regulatory, or sumptuary
5. As to scope or authority to impose
a) National internal revenue taxes
b) Local real property tax, municipal tax
6. As to graduation
a) Progressive
b) Regressive
c) Proportionate



INCOME TAXATION
A. Income taxation
1. Income tax systems
a) Global tax system
Global treatment is a system where the tax treatment views indifferently the tax
base and generally treats in common all categories of taxable income of the
taxpayer. (TAN v. DEL ROSARIO, JR. 237 SCRA 324)
b) Schedular tax system
Schedular approach is a system employed where the income tax treatment varies
and made to depend on the kind or category of taxable income of the taxpayer.
(TAN v. DEL ROSARIO, JR. 237 SCRA 324)
c) Semi-schedular or semi-global tax system
2. Features of the Philippine income tax law
a) Direct tax
b) Progressive
c) Comprehensive
d) Semi-schedular or semi-global tax system
3. Criteria in imposing Philippine income tax
a) Citizenship principle
b) Residence principle
c) Source principle
A non-resident German citizen, president of a domestic corporation, filed a claim
for refund with the BIR, contending that her sales commission income is not
taxable in the Philippines because the same was a compensation for her services
rendered in Germany and therefore considered as income from sources outside
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the Philippines. While it is the rule that source of income relates to the
property, activity or service that produced the income, the documents presented
by respondent did not constitute substantial evidence that it was in Germany
where she performed the income-producing service and thus the tax refund
should be denied. (Commissioner of Internal Revenue vs. Juliane Baier-Nickel,
G.R. No. 153793, August 29, 2006)

4. Types of Philippine income tax
5. Taxable period
a) Calendar period
b) Fiscal period
c) Short period
6. Kinds of taxpayers
a) Individual taxpayers
(i) Citizens
(a) Resident citizens
(b) Non-resident citizens
(ii) Aliens
(a) Resident aliens
(b) Non-resident aliens
(1) Engaged in trade or business
(2) Not engaged in trade or business
(iii) Special class of individual employees
(a) Minimum wage earner
(b) Corporations
(i) Domestic corporations
(ii) Foreign corporations
Marubeni Japan claimed a refund for excess taxes it had paid,
contending that since it had a Philippine branch, it is a resident
foreign corporation liable to pay only 10% intercorporate final tax
on dividends received from a domestic corporation (and not to the
branch profit remittance tax) following the principal-agent theory.
Marubeni Japan is considered a non-resident foreign corporation
as to the dividends because when the foreign corporation
transacts business in the Philippines independently of its branch,
the principal-agent relationship is set aside. (Marubeni Corp. vs.
Commissioner of Internal Revenue, et al., G.R. No. 76573,
September 14, 1989)

BOAC is a resident foreign corporation because it maintained a
general sales agent in the Philippines. There is no specific criterion
as to what constitutes doing or engaging in or "transacting
business. The term implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of
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commercial gain or for the purpose and object of the business
organization. In order that a foreign corporation may be regarded
as doing business within a State, there must be continuity of
conduct and intention to establish a continuous business, such as
the appointment of a local agent, and not one of a temporary
character. (CIR vs BOAC, G.R. No. L-65773-74 April 30, 1987)

(a) Resident foreign corporations
(b) Non-resident foreign corporations
(iii) Joint venture and consortium
c) Partnerships
Pursuant to reinsurance treaties, a number of local insurance firms formed
themselves into a pool in order to facilitate the handling of business contracted
with a nonresident foreign reinsurance company. The insurance pool is deemed a
partnership or association taxable as a corporation under the NIRC because
Section 24 (on tax on corporations) [now Sec. 27 of the 1997 NIRC] covered
these unregistered partnerships and even associations or joint accounts, which
had no legal personalities apart from their individual members; moreover, the
insurance pool, though unregistered, satisfies the requisites of a partnership: (1)
mutual contribution to a common stock, and (2) joint interest in the profits.
(Afisco Insurance Corp., et al. vs. Court of Appeals, et al., G.R. No. 112675,
January 25, 1999)

The original purpose of the co-owners of the two lots was to divide the lots for
residential purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of construction, then they had no
choice but to resell the same to dissolve the co-ownership. The division of the
profit was merely incidental to the dissolution of the co-ownership which was in
the nature of things a temporary state. The sharing of gross returns does not of
itself establish a partnership, whether or not the persons sharing them have a
joint or common right or interest in any property (Obillos Jr. vs CIR, G.R. No. L-
68118, October 29, 1985)
d) General professional partnerships
e) Estates and trusts
f) Co-ownerships
7. Income taxation
a) Definition
b) Nature
c) General principles
8. Income
a) Definition
b) Nature
c) When income is taxable
(i) Existence of income
(ii) Realization of income
(a) Tests of realization
(b) Actual vis--vis constructive receipt
(iii) Recognition of income
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(iv) Methods of accounting
(a) Cash method vis--vis accrual method
The accrual method relies upon the taxpayers right to receive
amounts or its obligation to pay them, in opposition to actual
receipt or payment, which characterizes the cash method of
accounting. Amounts of income accrue where the right to
receive them become fixed, where there is created an
enforceable liability. Similarly, liabilities are accrued when
fixed and determinable in amount, without regard to
indeterminacy merely of time of payment.

For a taxpayer
using the accrual method, the determinative question is, when
do the facts present themselves in such a manner that the
taxpayer must recognize income or expense? The accrual of
income and expense is permitted when the all-events test has
been met. This test requires: (1) fixing of a right to income or
liability to pay; and (2) the availability of the reasonable
accurate determination of such income or liability. (CIR vs
Isabela Cultural Corp., GR 172231, February 12, 2007)
(b) Installment payment vis--vis deferred payment vis--
vis percentage completion (in long-term contracts)
d) Tests in determining whether income is earned for tax purposes
(i) Realization test
(ii) Claim of right doctrine or doctrine of ownership, command,
or control
(iii) Economic benefit test, doctrine of proprietary interest
(iv) Severance test
(v) All events test
9. Gross income
a) Definition
b) Concept of income from whatever source derived
c) Gross income vis--vis net income vis--vis taxable income
d) Classification of income as to source
(i) Gross income and taxable income from sources within the
Philippines
(ii) Gross income and taxable income from sources without the
Philippines
(iii) Income partly within or partly without the Philippines
e) Sources of income subject to tax
(i) Compensation income
(ii) Fringe benefits
(a) Special treatment of fringe benefits
(b) Definition
(c) Taxable and non-taxable fringe benefits
(iii) Professional income
(iv) Income from business
(v) Income from dealings in property
(a) Types of properties
(1) Ordinary assets
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(2) Capital assets
The proceeds from the inherited land of petitioners, which
they subdivided into small lots and in the process
converted into a residential subdivision and given the
name Don Mariano Subdivision, is taxable as ordinary
income. Property initially classified as a capital asset may
thereafter be treated as an ordinary asset if a combination
of the factors indubitably tend to show that the activity
was in furtherance of or in the course of the taxpayer's
trade or business; thus, a sale of inherited real property
usually gives capital gain or loss even though the property
has to be subdivided or improved or both to make it
salable--however, if the inherited property is substantially
improved or very actively sold or both it may be treated as
held primarily for sale to customers in the ordinary course
of the heir's business. (Tomas Calasanz, et al. vs.
Commissioner of Internal Revenue, et al., G.R. No. L-
26284, October 9, 1986)

(b) Types of gains from dealings in property
(1) Ordinary income vis--vis capital gain
(2) Actual gain vis--vis presumed gain
(3) Long term capital gain vis--vis short-term
capital gain
(4) Net capital gain, net capital loss
(5) Computation of the amount of gain or loss
(6) Income tax treatment of capital loss
(a) Capital loss limitation rule (applicable to
both corporations and individuals)
(b) Net loss carry-over rule (applicable only
to individuals)
(7) Dealings in real property situated in the
Philippines
(8) Dealings in shares of stock of Philippine
corporations
(a) Shares listed and traded in the stock
exchange
(b) Shares not listed and traded in the stock
exchange
(9) Sale of principal residence
(vi) Passive investment income
(a) Interest income
(b) Dividend income
(1) Cash dividend
(2) Stock dividend
Stock dividends, strictly speaking, represent capital and do not
constitute income to its
recipient. So that the mere issuance thereof is not yet subject to
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income tax as they are nothing but an enrichment through
increase in value of capital
investment. However, the redemption or cancellation of stock
dividends, depending on the time and manner it was made, is
essentially equivalent to a distribution of taxable dividends,
making the proceeds thereof taxable income to the extent it
represents profits. The exception was designed to prevent the
issuance and cancellation or redemption of stock dividends, which
is fundamentally not taxable, from being made use of as a device
for the actual distribution of cash dividends, which is taxable. (CIR
vs CA, G.R. No. 108576 January 20, 1999)
(3) Property dividend
(4) Liquidating dividend
(c) Royalty income
(d) Rental income
(1) Lease of personal property
(2) Lease of real property
(3) Tax treatment of
(a) Leasehold improvements by lessee
(b) VAT added to rental/paid by the lessee
(c) Advance rental/long term lease
(vii) Annuities, proceeds from life insurance or other types of insurance
(viii) Prizes and awards
(ix) Pensions, retirement benefit, or separation pay
(x) Income from any source whatever
(a) Forgiveness of indebtedness
(b) Recovery of accounts previously written-off when
taxable/when not taxable
(c) Receipt of tax refunds or credit
(d) Income from any source whatever
(e) Source rules in determining income from within and without
(1) Interests
(2) Dividends
(3) Services
(4) Rentals
(5) Royalties
(6) Sale of real property
(7) Sale of personal property
(8) Shares of stock of domestic corporation
(f) Situs of income taxation (see page 2 under inherent
limitations, territorial)
(g) Exclusions from gross income
(1) Rationale for the exclusions
(2) Taxpayers who may avail of the exclusions
(3) Exclusions distinguished from deductions and tax
credit
(4) Under the Constitution
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(a) Income derived by the government or its
political subdivisions from the exercise of any
essential governmental function
(5) Under the Tax Code
(a) Proceeds of life insurance policies
(b) Return of premium paid
(c) Amounts received under life insurance,
endowment or annuity contracts
(d) Value of property acquired by gift, bequest,
devise or descent
(e) Amount received through accident or health
insurance
(f) Income exempt under tax treaty
(g) Retirement benefits, pensions, gratuities, etc.
Respondent terminated petitioners services due to her illness,
rendering her incapable of continuing to work, and gave her
retirement benefits but withheld the tax due thereon. The
retirements benefits are taxable because the petitioner was only
41 yrs old at the time of retirement and had rendered only 8 years
of service; for these benefits to be exempt from tax, the following
requisites must concur: (1) a reasonable private benefit plan is
maintained by the employer; (2) the retiring official or employee
has been in the service of the same employer for at least ten (10)
years; (3) the retiring official or employee is not less than fifty
(50) years of age at the time of his retirement; and (4) the benefit
had been availed of only once. (Ma. Isabel T. Santos vs. Servier
Phil., Inc., et al., G.R. No. 166377, November 28, 2008)

Respondents contend that petitioner did not withhold the taxes
due on their retirement benefits because it had obliged itself to
pay the taxes due thereon. This was done to induce respondents
to agree to avail of the optional retirement scheme. It was only
when respondents demanded the payment of their salary
differentials that petitioner alleged, for the first time, that it had
failed to present the 1993 CBA to the BIR for approval, rendering
such retirement benefits not exempt from taxes; consequently,
they were obliged to refund to it the amounts it had remitted to
the BIR in payment of their taxes. Petitioner used this failure as
an afterthought, as an excuse for its refusal to remit to the
respondents their salary differentials. Patently, petitioner is
estopped from doing so. It cannot renege on its commitment to
pay the taxes on respondents retirement benefits on the pretext
that the new management had found the policy
disadvantageous. (Intercontinental Broadcasting Corp. vs. Noemi
B. Amarilla, et al., G.R. No. 162775, October 27, 2006)

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Severance of employment is a condition sine qua non for the
release of retirement benefits. Retirement benefits are not meant
to recompense employees who are still in the employ of the
government. (Devt. Bank of the Phil. vs. Commission on Audit,
G.R. No. 144516, February 11, 2004)
(h) Winnings, prizes, and awards, including those in
sports competition
(6) Under special laws
(a) Personal Equity and Retirement Account
(h) Deductions from gross income
(1) General rules
(a) Deductions must be paid or incurred in
connection with the taxpayers trade, business or
profession
(b) Deductions must be supported by adequate
receipts or invoices (except standard deduction)
(c) Additional requirement relating to withholding
(2) Return of capital (cost of sales or services)
(a) Sale of inventory of goods by manufacturers
and dealers of properties
(b) Sale of stock in trade by a real estate dealer and
dealer in securities
(c) Sale of services
(3) Itemized deductions
(a) Expenses
(1) Requisites for deductibility
(a) Nature: ordinary and necessary
The expenses paid by Atlas for the services
rendered by a public relations firm, aimed
at creating a favorable image for Atlas, is
not an allowable deduction as business
expense under the NIRC. Efforts to
establish reputation are akin to acquisition
of capital assets and, therefore, expenses
related thereto are not business expense
but capital expenditures. (Atlas
Consolidated Mining & Devt. Corp. vs.
Commissioner of Internal Revenue, G.R. No.
L-26911, January 27, 1981)

A stock listing fee paid annually to a stock
exchange for the privilege of having a
corporations stock listed is an ordinary and
business expense. This is distinguished from
a single payment made to the stock
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exchange, which is considered a capital
expenditure. (Atlas Consolidated Mining &
Devt. Corp. vs. Commissioner of Internal
Revenue, G.R. No. L-26911, January 27,
1981)

The subject media advertising expense for
Tang incurred by respondent corporation
was not an ordinary and necessary
expense, but rather a capital expenditure
because it failed the two conditions set by
U.S. jurisprudence in determining whether
or not it is an ordinary expense: first,
reasonableness of the amount incurred and
second, the amount incurred must not be a
capital outlay to create goodwill for the
product and/or private respondents
business. The subject expense for the
advertisement of a single product is
inordinately large; furthermore, the
corporations venture to protect its brand
franchise was tantamount to efforts to
establish a reputation and was akin to the
acquisition of capital assets. (Commissioner
of Internal Revenue vs. General Foods, Inc.,
G.R. No. 143672, April 24, 2003)
(b) Paid and incurred during taxable
year
(2) Salaries, wages and other forms of
compensation for personal services actually
rendered, including the grossed-up monetary
value of the fringe benefit subjected to fringe
benefit tax which tax should have been paid
Payment by the taxpayer-corporation to its
controlling stockholder (Hoskins) of 50% of its
supervision fees (paid by a client of the corporation
for the latter's services as managing agent of a
subdivision project) or the amount of P99,977.91 is
not a deductible ordinary and necessary expense
because it does not pass the test of reasonable
compensation. If independently, a one-time
P100,000.00-fee to plan and lay down the rules for
supervision of a subdivision project were to be paid
to an experienced realtor such as Hoskins, its
fairness and deductibility by the taxpayer could be
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conceded; however, the fee paid to Hoskins
continued every year since 1955 up to 1963 and for
as long as its contract with the subdivision owner
subsisted, regardless of whether services were
actually rendered by Hoskins. (C. M. Hoskins & Co.,
Inc. vs. Commissioner of Internal Revenue, G.R.
No. L-24059, November 28, 1969)
(3) Travelling/transportation expenses
(4) Cost of materials
(5) Rentals and/or other payments for use or
possession of property
(6) Repairs and maintenance
(7) Expenses under lease agreements
(8) Expenses for professionals
(9) Entertainment/Representation expenses
(10) Political campaign expenses
(11) Training expenses
(b) Interest
(1) Requisites for deductibility
(2) Non-deductible interest expense
(3) Interest subject to special rules
(a) Interest paid in advance
(b) Interest periodically amortized
(c) Interest expense incurred to
acquire property for use in
trade/business/profession
(d) Reduction of interest
expense/interest arbitrage
(c) Taxes
Margin fees paid by the petitioner to the Central Bank on
its profit remittances to its New York head office are not
allowable deductions as taxes because it is not a tax but
an exaction designed to curb the excessive demands upon
our international reserve. Margin fees are also not ordinary
and necessary business expenses because they are not
expenses in connection with the production or earning of
petitioner's incomes in the Philippines; they were expenses
incurred in the disposition of said incomes. (Esso Standard
Eastern, Inc. vs. Commissioner of Internal Revenue, G.R.
Nos. 28508-9, July 7, 1989)
(1) Requisites for deductibility
(2) Non-deductible taxes
(3) Treatments of surcharges/interests/fines
for delinquency
(4) Treatment of special assessment
(5) Tax credit vis--vis deduction

(d) Losses
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(1) Requisites for deductibility
(2) Other types of losses
(a) Capital losses
(b) Securities becoming worthless
Securities becoming worthless resulting
from China Banks equity investment in the
First CBC Capital (Asia) Ltd., a Hongkong
subsidiary, is capital loss and not an
ordinary loss. An equity investment is a
capital, not ordinary, asset of the investor
the sale or exchange of which results in
either a capital gain or a capital loss; shares
of stock would be ordinary assets only to a
dealer in securities or a person engaged in
the purchase and sale of, or an active
trader (for his own account) in, securities.
(China Banking Corp. vs. Court of Appeals,
et al., G.R. No. 125508, July 19, 2000)
(c) Losses on wash sales of stocks or
securities
(d) Wagering losses
(e) Net Operating Loss Carry-Over
(NOLCO)
(e) Bad debts
In claiming deductions for bad debts, the only evidentiary
support given by PRC was the explanation posited by its
accountant, whose allegations were not supported by any
documentary evidence. One of the requisites to qualify as
bad debt is that the debt must be actually ascertained to
be worthless and uncollectible during the taxable year, and
the taxpayer must prove that he exerted diligent efforts to
collect the debts by (1) sending of statement of accounts;
(2) sending of collection letters; (3) giving the account to a
lawyer for collection; and (4) filing a collection case in
court. (Philippine Refining Company vs. Court of Appeals,
et al., G.R. No. 118794, May 8, 1996)
(1) Requisites for deductibility
(2) Effect of recovery of bad debts

(f) Depreciation
Depreciation is the gradual diminution in the useful value
of tangible property resulting from wear and tear and
normal obsolescense. The term is also applied to
amortization of the value of intangible assets, the use of
which in the trade or business is definitely limited in
duration. Depreciation commences with the acquisition of
the property and its owner is not bound to see his property
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gradually waste, without making provision out of earnings
for its replacement. (Basilan Estates, Inc. vs.
Commissioner of Internal Revenue, et al., G.R. No. L-
22492, September 5, 1967)

Both depletion and depreciation are predicated on the
same basic promise of avoiding a tax on capital. The
allowance for depletion is based on the theory that the
extraction of minerals gradually exhausts the capital
investment in the mineral deposit. The purpose of the
depiction deduction is to permit the owner of a capital
interest in mineral in place to make a tax-free recovery of
that depleting capital asset. A depletion is based upon the
concept of the exhaustion of a natural resource whereas
depreciation is based upon the concept of the exhaustion
of the property, not otherwise a natural resource, used in
a trade or business or held for the production of income.
Thus, depletion and depreciation are made applicable to
different types of assets. And a taxpayer may not deduct
that which the Code allows as of another. (Consolidated
Mines, Inc. vs. Court of Tax Appeals, et al., G.R. Nos. L-
18843 & 18844, August 29, 1974)

(1) Requisites for deductibility
(2) Methods of computing depreciation
allowance
(a) Straight-line method
(b) Declining-balance method
(c) Sum-of-the-years-digit method
(g) Charitable and other contributions
(1) Requisites for deductibility
(2) Amount that may be deducted
(h) Contributions to pension trusts
(1) Requisites for deductibility

(i) Deductions under special laws
(4) Optional standard deduction
(a) Individuals, except non-resident aliens
(b) Corporations, except non-resident foreign
corporations
(c) Partnerships
(5) Personal and additional exemption (R.A. No. 9504, Minimum
Wage Earner Law)
The increased personal and additional exemptions under the NIRC cannot
be availed of by the petitioner for purposes of computing his income tax
liability for the taxable year 1997. Since the NIRC took effect on January
1, 1998, the increased amounts of personal and additional exemptions
under Section 35, can only be allowed as deductions from the individual
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taxpayers gross or net income, as the case maybe, for the taxable year
1998 to be filed in 1999; the NIRC made no reference that the personal
and additional exemptions shall apply on income earned before January
1, 1998, and it is a rule that tax laws are to be applied prospectively
unless its retroactive application is expressly provided. (Carmelino F.
Pansacola vs. CIR, G.R. No. 159991, November 16, 2006)
(a) Basic personal exemptions
(b) Additional exemptions for taxpayer with dependents
(c) Status-at-the-end-of-the-year rule
(d) Exemptions claimed by non-resident aliens
(6) Items not deductible
(a) General rules
(b) Personal, living or family expenses
(c) Amount paid for new buildings or for permanent
improvements (capital expenditures)
(d) Amount expended in restoring property (major
repairs)
(e) Premiums paid on life insurance policy covering life or
any other officer or employee financially interested
(f) Interest expense, bad debts, and losses from sales of
property between related parties
(g) Losses from sales or exchange or property
(h) Non-deductible interest
(i) Nondeductible taxes
(j) Non-deductible losses
(k) Losses from wash sales of stock or securities
(7) Exempt corporations
(a) Propriety educational institutions and hospitals
(b) Government-owned or controlled corporations
(c) Others

10. Taxation of resident citizens, non-resident citizens, and resident aliens
a) General rule that resident citizens are taxable on income from all
sources within and without the Philippines
(i) Non-resident citizens
b) Taxation on compensation income
(i) Inclusions
(a) Monetary compensation
(1) Regular salary/wage
(2) Separation pay/retirement benefit not
otherwise exempt
(3) Bonuses, 13th month pay, and other benefits
not exempt
(4) Directors fees
(b) Non-monetary compensation
(1) Fringe benefit not subject to tax
(ii) Exclusions
(a) Fringe benefit subject to tax
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(b) De minimis benefits
(c) 13th month pay and other benefits, and payments
specifically
excluded from taxable compensation income
(iii) Deductions
(a) Personal exemptions and additional exemptions
(b) Health and hospitalization insurance
(c) Taxation of compensation income of a minimum wage
earner
(1) Definition of statutory minimum wage
(2) Definition of minimum wage earner
(3) Income also subject to tax exemption: holiday
pay, overtime pay, night-shift differential, and
hazard pay
c) Taxation of business income/income from practice of profession
d) Taxation of passive income
(i) Passive income subject to final tax
(a) Interest income
(i) Treatment of income from long-term deposits
(b) Royalties
(c) Dividends from domestic corporations
(d) Prizes and other winnings
(ii) Passive income not subject to final tax
e) Taxation of capital gains
(i) Income from sale of shares of stock of a
Philippine corporation
(a) Shares traded and listed in the stock
exchange
(b) Shares not listed and traded in the stock
exchange
(ii) Income from the sale of real property situated
in the Philippines
(iii) Income from the sale, exchange, or other
disposition of other capital assets
The acquisition by the Government of private properties
through the exercise of the power of eminent domain, said
properties being justly compensated, is embraced within
the meaning of the term sale or disposition of property
and the definition of gross income. Profit from the
transaction constitutes capital gain. (Gonzales vs CTA, GR
L-14532, May 26, 1965)
11. Taxation of non-resident aliens engaged in trade or business
a) General rules
b) Cash and/or property dividends
c) Capital gains
Exclude: non-resident aliens not engaged in trade or business
12. Individual taxpayers exempt from income tax
a) Senior citizens
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b) Minimum wage earners
c) Exemptions granted under international agreements
13. Taxation of domestic corporations
a) Tax payable
(i) Regular tax
(ii) Minimum Corporate Income Tax (MCIT)
For its fiscal year ending 31 March 2001 (FY 2000-2001), PAL incurred
zero taxable income and did not pay MCIT, for which BIR assessed PAL
for deficiency MCIT. PAL is not liable to pay MCIT because under its
franchise, PAL has the option to pay basic corporate income tax or
franchise tax, whichever is lower; and the tax so paid shall be in lieu of all
other taxes, except real property tax. MCIT falls within the category of
all other taxes from which PAL is exempted because although both are
income taxes, the MCIT is different from the basic corporate income tax,
not just in the rates, but also in the bases for their computation.
(Commissioner of Internal Revenue vs. PAL, Inc., G.R. No. 180066, July
7, 2009)

(a) Imposition of MCIT
MBC being a new thrift bank is not yet liable to the MCIT since it
will apply only beginning on the 4
th
years from commencement of
its operations. The date of commencement of operations of a
thrift bank is the date it was registered with the SEC or the date it
was granted authority by BSP to operate as such, whichever
comes later. As newly operated thrift bank it is entitled to a grace
period of 4 years counted from the date when it was authorized
by BSP to operate as thrift bank. MBC is entitled to the refund of
the taxes paid under the MCIT.

The intent of Congress relative to the MCIT is to grant a 4 year
suspension of tax payment to newly formed corporations.
Corporations still starting have to stabilize their venture in order to
obtain stronghold in the industry. It is not a surprise when many
corporations reported losses in their initial years of operations.
(Manila Banking Corp. v. CIR, 499 SCRA 782)

(b) Carry forward of excess minimum tax
(c) Relief from the MCIT under certain conditions
(d) Corporations exempt from the MCIT
(e) Applicability of the MCIT where a corporation is
governed both under the regular tax system and a special
income tax system
b) Allowable deductions
(i) Itemized deductions
(ii) Optional standard deduction
c) Taxation of passive income
(i) Passive income subject to tax
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(a) Interest from deposits and yield, or any other
monetary benefit from deposit substitutes and from trust
funds and similar arrangements and royalties
(b) Capital gains from the sale of shares of stock not
traded in the stock exchange
(c) Income derived under the expanded foreign currency
deposit system
(d) Inter-corporate dividends
(e) Capital gains realized from the sale, exchange, or
disposition of lands and/or buildings
(ii) Passive income not subject to tax
d) Taxation of capital gains
(i) Income from sale of shares of stock
(ii) Income from the sale of real property situated in the
Philippines
(iii) Income from the sale, exchange, or other disposition of
other capital assets
e) Tax on proprietary educational institutions and hospitals
St. Lukes is a proprietary non-stock and non-profit hospital catering to non-
paying patients but also derives profit from paying patients. It is subject to the
preferential tax rate of 10% for its profit-generating activities under sec. 27(B) of
NIRC; it cannot be exempt from income tax under sec. 30(E) and (G) because it
is not organized and operated exclusively for charitable purposes, which is a
requirement under the aforementioned provision. (CIR vs. St. Luke's Medical
Center, Inc., G.R. Nos. 195909 & 195960, September 26, 2012)
f) Tax on government-owned or controlled corporations, agencies or
instrumentalities
14. Taxation of resident foreign corporations
a) General rule
b) With respect to their income from sources within the Philippines
c) Minimum Corporate Income Tax
d) Tax on certain income
(i) Interest from deposits and yield, or any other monetary
benefit from deposit substitutes, trust funds and similar
arrangements and royalties
(ii) Income derived under the expanded foreign currency deposit
system
(iii) Capital gains from sale of shares of stock not traded in the
stock
exchange
(iv) Inter-corporate dividends
Exclude:
(i) International carrier
(ii) Offshore banking units
(iii) Branch profits remittances
(iv) Regional or area headquarters and regional operating headquarters of
multinational companies
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15. Taxation of non-resident foreign corporations
a) General rule
b) Tax on certain income
(i) Interest on foreign loans
(ii) Inter-corporate dividends
(iii) Capital gains from sale of shares of stock not traded in the
stock exchange
Exclude:
(i) Non-resident cinematographic film-owner, lessor or distributor
(ii) Non-resident owner or lessor of vessels chartered by Philippine
nationals
(iii) Non-resident owner or lessor of aircraft machineries and other
equipment
16. Improperly accumulated earnings of corporations
Petitioner cannot avoid paying surtax on improperly accumulated earnings because the
purchase of the U.S.A. Treasury bonds were in no way related to petitioners business of
importing and selling wines liquors. The immediacy test determines the reasonable
needs of the business in order to justify an accumulation of earningsthat is, if the
corporation did not prove an immediate need for the accumulation of the earnings and
profits, the accumulation was not for the reasonable needs of the business, and the
penalty tax would apply; investment of the earnings and profits of the corporation in
stock or securities of an unrelated business usually indicates an accumulation beyond
the reasonable needs of the business (Manila Wine Merchants, Inc. vs. Commissioner of
Internal Revenue, G.R. No. L-26145, February 20, 1984)

BIR assessed petitioner for surtax on improperly accumulated profits, which petitioner
contested. In order to determine whether profits are accumulated for the reasonable
needs of the business, it must be shown that: (1) the controlling intention of the
taxpayer is manifest at the time of accumulation, not intentions declared subsequently,
which are mere afterthoughts; and (2) the accumulated profits must be used within a
reasonable time after the close of the taxable year. (Cyanamid Philippines, Inc. vs.
Court of Appeals, et al., G.R. No. 108067, January 20, 2000)
Previous accumulations should be considered in determining unreasonable
accumulations for the year concerned. In determining whether accumulations of
earnings or profits in a particular year are within the reasonable needs of a corporation,
it is necessary to take into account prior accumulations, since accumulations prior to
the year involved may have been sufficient to cover the business needs and additional
accumulations during the year involved would not reasonably be necessary. (Basilan
Estates, Inc. vs. Commissioner of Internal Revenue, et al., G.R. No. L-22492,
September 5, 1967)
17. Exemption from tax on corporations
YMCA, a non-stock non-profit corporation with charitable objectives, claimed
exemption from payment of income tax by invoking the NIRC and the Constitution.
While the income received by the organizations enumerated in Section 26 of the NIRC
is, as a rule, exempted from the payment of tax in respect to income received by
them as such, the exemption does not apply to income derived from any of their
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properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income; Moreover, charitable institutions
under Art. VI, sec. 28 of the Constitution are only exempted from property taxes, and
YMCA is not an educational institution under Article XIV, Section 4 of the Constitution.
(Commissioner of Internal Revenue vs. Court of Appeals, et al., G.R. No. 124043,
October 14, 1998)
Lung Center, charitable institution, does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution. However, it is not
exempt from real property tax as to the portions of the land leased to private entities
as well as those parts of the hospital leased to private individuals because under the
Constitution, it is only exempt when its real properties are actually, directly, and
exclusively used for charitable purposes. (Lung Center of the Phil. vs. Quezon City, et
al., G.R. No. 144104, June 29, 2004)
18. Taxation of partnerships
19. Taxation of general professional partnerships
20. Withholding tax
a) Concept
b) Kinds
(i) Withholding of final tax on certain incomes
(ii) Withholding of creditable tax at source
c) Withholding of VAT
d) Filing of return and payment of taxes withheld
(i) Return and payment in case of government employees
(ii) Statements and returns
e) Final withholding tax at source
Citytrust and Asianbank are domestic corporations which paid gross receipts tax
and claimed a refund on the basis of a CTA ruling that the 20% FWT on a banks
passive income does not form part of the taxable gross receipts. The 20% FWT
on a banks interest income forms part of the taxable gross receipts because
gross receipts means the entire receipts without any deduction; moreover,
the imposition of the 20% FWT and 5% GRT does not constitute double taxation
because GRT is a percentage tax while FWT is an income tax, and the two
concepts are different from each other. (Commissioner of Internal Revenue vs.
Citytrust Investment Phils., Inc., G.R. Nos. 139786 & 140857, September 27,
2006)
f) Creditable withholding tax
(i) Expanded withholding tax
(ii) Withholding tax on compensation
g) Timing of withholding

B. Estate tax
1. Basic principles
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2. Definition
3. Nature
4. Purpose or object
5. Time and transfer of properties

Post-mortem dispositions typically

(1) Convey no title or ownership to the transferee before the death of the
transferor; or, what amounts to the same thing, that the transferor should retain
the ownership (full or naked) and control of the property while alive;

(2) That before the [donors] death, the transfer should be revocable by the
transferor at will, ad nutum; but revocability may be provided for indirectly by
means of a reserved power in the donor to dispose of the properties conveyed;


(3) That the transfer should be void if the transferor should survive the
transferee;


[4] [T]he specification in a deed of the causes whereby the act may be revoked
by the donor indicates that the donation is inter vivos, rather than a
disposition mortis causa;

[5] That the designation of the donation as mortis causa, or a provision in the
deed to the effect that the donation is to take effect at the death of the donor
are not controlling criteria; such statements are to be construed together with
the rest of the instrument, in order to give effect to the real intent of
the transferor; and

(6) That in case of doubt, the conveyance should be deemed donation inter vivos rather
than mortis causa, in order to avoid uncertainty as to the ownership of the property
subject of the deed. (GONZALO VILLANUEVA vs. SPOUSES FROILAN, G.R. No. 172804,
January 24, 2011)

The conveyance in question is not, first of all, one of mortis causa, which should be embodied
in a will. In this case, the monies subject of savings account were in the nature of conjugal
funds. In the case relied on, Rivera v. People's Bank and Trust Co., we rejected claims that a
survivorship agreement purports to deliver one party's separate properties in favor of the other,
but simply, their joint holdings. (ROMARICO G. VITUG vs. THE HONORABLE COURT OF
APPEALS and ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)

But although the survivorship agreement is per se not contrary to law its operation or effect
may be violative of the law. For instance, if it be shown in a given case that such agreement is
a mere cloak to hide an inofficious donation, to transfer property in fraud of creditors, or to
defeat the legitime of a forced heir, it may be assailed and annulled upon such grounds.
(ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-
CORONA, G.R. No. 82027, March 29, 1990)
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6. Classification of decedent
7. Gross estate vis--vis net estate
8. Determination of gross estate and net estate
9. Composition of gross estate
10. Items to be included in gross estate
11. Deductions from estate

As held in Propstra v. U.S., where a lien claimed against the estate was certain and enforceable
on the date of the decedent's death, the fact that the claimant subsequently settled for lesser
amount did not preclude the estate from deducting the entire amount of the claim for estate tax
purposes. These pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction. (RAFAEL ARSENIO
S. DIZON vs. COURT OF TAX APPEALS, G.R. No. 140944, April 30, 2008)

We express our agreement with the date-of-death valuation rule. There is no law, nor do we
discern any legislative intent in our tax laws, which disregards the date-of-death valuation
principle and particularly provides that post-death developments must be considered in
determining the net value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports,
tax statutes being construed strictissimi juris against the government. (RAFAEL ARSENIO S.
DIZON vs. COURT OF TAX APPEALS, G.R. No. 140944, April 30, 2008)

Such construction finds relevance and consistency in our Rules on Special Proceedings wherein
the term "claims" required to be presented against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which could have been enforced against the
deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)

Administration expenses, as an allowable deduction from the gross estate of the decedent for
purposes of arriving at the value of the net estate, have been construed by the federal and
state courts of the United States to include all expenses "essential to the collection of the
assets, payment of debts or the distribution of the property to the persons entitled to it." In
other words, the expenses must be essential to the proper settlement of the estate and
expenditures incurred for the individual benefit of the heirs, devisees or legatees are not
deductible. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No.
123206, March 22, 2000)
Thus, in Lorenzo v. Posadas, the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the compensation paid to a trustee of
the decedent's estate when it appeared that such trustee was appointed for the purpose of
managing the decedent's real estate for the benefit of the testamentary heir. In another case,
the Court disallowed the premiums paid on the bond filed by the administrator as an expense of
administration since the giving of a bond is in the nature of a qualification for the office, and
not necessary in the settlement of the estate. Neither may attorney's fees incident to litigation
incurred by the heirs in asserting their respective rights be claimed as a deduction from the
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gross estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No.
123206, March 22, 2000)
The notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such
settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property should also
be considered as a deductible administration expense as PNB provided a detailed accounting of
decedent's property and gave advice as to the proper settlement of the latter's estate, acts
which contributed towards the collection of decedent's assets and the subsequent settlement of
the estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No.
123206, March 22, 2000)
12. Exclusions from estate
13. Tax credit for estate taxes paid in a foreign country
14. Exemption of certain acquisitions and transmissions
15. Filing of notice of death
16. Estate tax return


C. Donors tax
1. Basic principles
2. Definition
3. Nature
4. Purpose or object
5. Requisites of valid donation

Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it
was to take effect after the death of one party. Secondly, it is not a donation between the
spouses because it involved no conveyance of a spouse's own properties to the other.
(ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-
CORONA, G.R. No. 82027, March 29, 1990)

In the case at bar, when the spouses Vitug opened savings account, they merely put what
rightfully belonged to them in a money-making venture. They did not dispose of it in favor of
the other, which would have arguably been sanctionable as a prohibited donation. (ROMARICO
G. VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-CORONA, G.R.
No. 82027, March 29, 1990)

The granting clause shows that Diego donated the properties out of love and affection for the
donee which is a mark of a donation inter vivos; second, the reservation of lifetime usufruct
indicates that the donor intended to transfer the naked ownership over the properties; third,
the donor reserved sufficient properties for his maintenance in accordance with his standing in
society, indicating that the donor intended to part with the six parcels of land; lastly, the donee
accepted the donation. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT
OF APPEALS, G.R. No. 111904, October 5, 2000)
In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an acceptance clause
is a mark that the donation is inter vivos. Acceptance is a requirement for donations inter vivos.
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Donations mortis causa, being in the form of a will, are not required to be accepted by the
donees during the donors' lifetime. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA
vs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000)
Crucial in resolving whether the donation was inter vivos or mortis causa is the determination of
whether the donor intended to transfer the ownership over the properties upon the execution of
the deed. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF APPEALS,
G.R. No. 111904, October 5, 2000)

A remuneratory donation is one where the donee gives something to reward past or future
services or because of future charges or burdens, when the value of said services, burdens or
charges is less than the value of the donation. (De Luna v. Abrigo, G.R. No. L-57455, January
18, 1990)

6. Transfers which may be constituted as donation
a) Sale/exchange/transfer of property for insufficient consideration
b) Condonation/remission of debt
7. Transfer for less than adequate and full consideration
8. Classification of donor
9. Determination of gross gift
10. Composition of gross gift
11. Valuation of gifts made in property
12. Tax credit for donors taxes paid in a foreign country
13. Exemptions of gifts from donors tax
14. Person liable
15. Tax basis


D. Value-Added Tax (VAT)
1. Concept

As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in
the chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not
just on the value added by the taxpayer, but on the entire selling price of his goods, properties
or services. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION,
G.R. No. 187485, February 12, 2013)

However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who
sold him the inputs for his goods, properties, or services. The net effect is that the taxpayer
pays the VAT only on the value that he adds to the goods, properties, or services that he
actually sells. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
VAT is a tax on transactions, imposed at every stage of the distribution process on the sale,
barter, exchange of goods or property, and on the performance of services, even in the
absence of profit attributable thereto. The term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not
the entity is profit-oriented. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS,
G.R. No. 125355, March 30, 2000)
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The VAT is not a license tax; it is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties
or the sale or exchange of services and the lease of properties purely for revenue purposes.
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

2. Characteristics/Elements of a VAT-Taxable transaction

VAT is not a singular-minded tax on every transactional level; its assessment bears direct
relevance to the taxpayer's role or link in the production chain. Hence, as affirmed by Section
99 [now Sec. 105] of the Tax Code and its subsequent incarnations, the tax is levied only on
the sale, barter or exchange of goods or services by persons who engage in such activities, in
the course of trade or business. (COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY
LINES, INC., G.R. No. 146984. July 28, 2006)

The Court rules that given the undisputed finding that the transaction in question was not made
in the course of trade or business of the seller, NDC that is, the sale is not subject to VAT
pursuant to Section 99 [now Sec. 105] of the Tax Code, no matter how the said sale may hew
to those transactions deemed sale as defined under Section 100 [now Sec. 106].
(COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R. No. 146984. July
28, 2006)
Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be
levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to
Sony; it was but a dole out by SIS and not in payment for goods or properties sold, bartered or
exchanged by Sony. (COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES,
INC., G.R. No. 178697, November 17, 2010)
Goods or properties must be used directly or indirectly in the production or sale of taxable
goods and services. (Kepco Philipppines Corp. v. CIR, G.R. No. 179356, December 14, 2009)

it is immaterial whether the primary purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on services rendered. As long as the
entity provides service for a fee, remuneration or consideration, then the service rendered is
subject to VAT. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 125355, March 30, 2000)

3. Impact of tax

Under Section 105 of the Tax Code, VAT is imposed on any person who, in the course of trade
or business, sells or renders services for a fee. In other words, the seller of services, who in this
case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of
VAT to the tollway user as part of the toll fees. (RENATO V. DIAZ and AURORA MA. F. TIMBOL
vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

4. Incidence of tax
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The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the seller's liability
but merely the burden of the VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears
its burden since the amount of VAT paid by the former is added to the selling price. Once
shifted, the VAT ceases to be a tax and simply becomes part of the cost that the buyer must
pay in order to purchase the good, property or service. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

A seller who is directly and legally liable for the payment of an indirect tax, such as the VAT on
goods or services is not necessarily the person who ultimately bears the burden of the same
tax. It is the final purchaser of consumer of such goods or services who, although not directly
and legally liable for the payment thereof, ultimately bears the burden of the tax. (Contex v.
CIR, G.R. No. 151135, July 2, 2004)

In the case of the VAT, the law minimizes the regressive effects of indirect taxation by providing
for zero rating of certain transactions, while granting exemptions to other transactions. On the
other hand, the transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. (ARTURO M. TOLENTINO
v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
5. Tax credit method
6. Destination principle

According to the Destination Principle, goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT, while those destined for use or
consumption within the Philippines shall be imposed with 10% VAT. (ATLAS CONSOLIDATED
MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
Nos. 141104 & 148763, June 8, 2007)

Applying the destination principle to the exportation of goods, automatic zero rating is primarily
intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such
seller internationally competitive by allowing the refund or credit of input taxes that are
attributable to export sales. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Under the cross-border principle of the VAT system being enforced by the Bureau of Internal
Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority. If exports of goods and
services from the Philippines to a foreign country are free of the VAT, then the same rule holds
for such exports from the national territory except specifically declared areas to an
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ecozone. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
While an ecozone is geographically within the Philippines, it is deemed a separate customs
territory and is regulated in laws as foreign soul. Sales by supplies outside the borders of
ecozone to this separate customs territory are deemed exports and treated as export sales.
(CIR v. Seksui Jushi Phils, Inc. G.R. No. 149671, July 21, 2006)

For as long as the goods remain within the zone, whether we call it an economic zone or a
freeport zone, for as long as we say in this law that all goods entering this particular territory
will be duty-free and tax-free, for as long as they remain there, consumed there or re-exported
or destroyed in that place, then they are not subject to duties and taxes in accordance with the
laws of the Philippines. (Coconut Oil Refiners Association v. Executive Secretary, G.R. No.
132527, July 29, 2005)

7. Persons liable
8. VAT on sale of goods or properties

Goods, as commonly understood in the business sense, refer to the product which the VAT-
registered person offers for sale to the public. With respect to real estate dealers, it is the real
properties themselves which constitute their goods. Such real properties are the operating
assets of the real estate dealer. (Fort Bonifacio Development Corporation vs. CIR, G.R. Nos.
158885 and 170630, April 2, 2009)

a) Requisites of taxability of sale of goods or properties

Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction. However, it does not
follow that an isolated transaction cannot be an incidental transaction for purposes of VAT
liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction
"in the course of trade or business" includes "transactions incidental thereto." (MINDANAO II
GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301,
March 11, 2013)
Prior to the sale, the Nissan Patrol was part of Mindanao IIs property, plant, and equipment.
Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of
Mindanao IIs business which should be liable for VAT. (MINDANAO II GEOTHERMAL
PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
9. Zero-rated sales of goods or properties, and effectively zero-rated sales of goods
or properties

Zero-rated transactions generally refer to the export sale of goods and supply of services. The
tax rate is set at zero and when applied to the tax base, such rate obviously results in no tax
chargeable against the purchaser. The seller of such transactions charges no output tax, but
can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R.
No. 153866, February 11, 2005)

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Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to
persons or entities whose exemption under special laws or international agreements to which
the Philippines is a signatory effectively subjects such transactions to a zero rate. Again, as
applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The
seller who charges zero output tax on such transactions can also claim a refund of or a tax
credit certificate for the VAT previously charged by suppliers. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

If respondent is located in an export processing zone within that ecozone, sales to the export
processing zone, even without being actually exported, shall in fact be viewed as constructively
exported under EO 226. Considered as export sales, such purchase transactions by respondent
would indeed be subject to a zero rate. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

PAGCOR's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly
and extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation. Acesite sought the refund of the amount it paid as VAT on the ground that its
transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.
The Court ruled that PAGCOR and Acesite were both exempt from paying VAT. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL
REVENUE, G.R. No. 172087, March 15, 2011)

No prior application for the effective zero rating of its transactions is necessary. The BIR
regulations additionally requiring an approved prior application for effective zero rating cannot
prevail over the clear VAT nature of respondent's transactions. Other than the general
registration of a taxpayer the VAT status of which is aptly determined, no provision under our
VAT law requires an additional application to be made for such taxpayer's transactions to be
considered effectively zero-rated. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

The Omnibus Investments Code of 1987 recognizes as export sales the sales of export products
to another producer or to an export trader, provided that the export products are actually
exported. For purposes of VAT zero-rating, such producer or export trader must be registered
with the BOI and is required to actually export more than 70% of its annual production. (ATLAS
CONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007)
In terms of the VAT computation, zero rating and exemption are the same, but the extent of
relief that results from either one of them is not. In both instances of zero rating, there is total
relief for the purchaser from the burden of the tax but in an exemption there is only partial
relief, because the purchaser is not allowed any tax refund of or credit for input taxes
paid. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
10. Transactions deemed sale
a) Transfer, use or consumption not in the course of business of goods/properties
originally intended for sale or use in the course of business
b) Distribution or transfer to shareholders, investors or creditors
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c) Consignment of goods if actual sale not made within 60 days from date of
consignment
d) Retirement from or cessation of business with respect to inventories on hand
11. Change or cessation of status as VAT-registered person
a) Subject to VAT
(i) Change of business activity from VAT taxable status to VAT-exempt status
(ii) Approval of request for cancellation of a registration due to reversion to exempt
status
(iii) Approval of request for cancellation of registration due to desire to revert to
exempt status after lapse of 3 consecutive years
b) Not subject to VAT
(i) Change of control of a corporation
(ii) Change in the trade or corporate name
(iii) Merger or consolidation of corporations
12. VAT on importation of goods
a) Transfer of goods by tax exempt persons
13. VAT on sale of service and use or lease of properties

Service has been defined as the art of doing something useful for a person or company for a
fee or useful labor or work rendered or to be rendered another for a fee. (CIR v. American
Express International, Inc., G.R. No. 152609, June 29, 2005)

By qualifying "services" with the words "all kinds," Congress has given the term "services" an
all-encompassing meaning. The listing of specific services are intended to illustrate how
pervasive and broad is the VAT's reach rather than establish concrete limits to its application;
thus, every activity that can be imagined as a form of "service" rendered for a fee should be
deemed included unless some provision of law especially excludes it. (RENATO V. DIAZ and
AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

Tollway operators not only come under the broad term "all kinds of services," they also come
under the specific class described in Section 108 as "all other franchise grantees" who are
subject to VAT, "except those under Section 119 of this Code." Tollway operators are franchise
grantees and they do not belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less than P10 million and gas and water
utilities) that Section 119 spares from the payment of VAT. (RENATO V. DIAZ and AURORA MA.
F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

In specifically including by way of example electric utilities, telephone, telegraph, and
broadcasting companies in its list of VAT-covered businesses, Section 108 opens other
companies rendering public service for a fee to the imposition of VAT. Businesses of a public
nature such as public utilities and the collection of tolls or charges for its use or service is a
franchise. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE,
G.R. No. 193007, July 19, 2011)
In the case of CIR v. Court of Appeals (CA), the Court had the occasion to rule that services
rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are
also subject to VAT. In that case, COMASERCO rendered service to its affiliates and, in turn, the
affiliates paid the former reimbursement-on-cost which means that it was paid the cost or
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expense that it incurred although without profit. (COMMISSIONER OF INTERNAL REVENUE vs.
SONY PHILIPPINES, INC., G.R. No. 178697, November 17, 2010)
Among those included in the enumeration is the lease of motion picture films, films, tapes and
discs. This, however, is not the same as the showing or exhibition of motion pictures or films. The
legislative intent is not to impose VAT on persons already covered by the amusement tax and this holds
true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the
VAT law was intended to replace the percentage tax on certain services. (CIR v. SM Prime Holdings,
Inc. and First Asia Realty Development Corp., G.R. No. 183505, February 26, 2010)

a) Requisites for taxability
14. Zero-rated sale of services
15. VAT exempt transactions
An exempt transaction involves goods or services which, by their nature, are specifically listed in
and expressly exempted from the VAT under the Tax Code, without regard to the tax status
VAT-exempt or not of the party to the transaction. Indeed, such transaction is not subject to
the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R.
No. 153866, February 11, 2005)
An exempt party, on the other hand, is a person or entity granted VAT exemption under the
Tax Code, a special law or an international agreement to which the Philippines is a signatory,
and by virtue of which its taxable transactions become exempt from the VAT. Such party is also
not subject to the VAT, but may be allowed a tax refund of or credit for input taxes paid,
depending on its registration as a VAT or non-VAT taxpayer. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
a) VAT exempt transactions, in general

By extending the exemption to entities or individuals dealing with PAGCOR, the legislature
clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of
VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the
goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities
or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being
liable to indirect taxes. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs.
THE BUREAU OF INTERNAL REVENUE, G.R. No. 172087, March 15, 2011)

The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension
of such exemption to entities or individuals dealing with PAGCOR in casino operations are best
elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons,
Inc., where the absolute tax exemption of the World Health Organization (WHO) upon an
international agreement was upheld. We held in said case that the exemption of contractee
WHO should be implemented to mean that the entity or person exempt is the contractor itself
who constructed the building owned by contractee WHO, and such does not violate the rule
that tax exemptions are personal because the manifest intention of the agreement is to exempt
the contractor so that no contractor's tax may be shifted to the contractee WHO. (PHILIPPINE
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AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL
REVENUE, G.R. No. 172087, March 15, 2011)
Pawnshops- considered as non-bank financial intermediary is exempted from VAT but liable to
percentage tax. (Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085, January 21, 2010)
b) Exempt transaction, enumerated
16. Input tax and output tax, defined

Under the present method that relies on invoices, an entity can credit against or subtract from
the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R.
No. 153866, February 11, 2005)

If at the end of a taxable quarter the output taxes charged by a seller are equal to the input
taxes passed on by the suppliers, no payment is required. It is when the output taxes exceed
the input taxes that the excess has to be paid. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

17. Sources of input tax
a) Purchase or importation of goods
b) Purchase of real properties for which a VAT has actually been paid
c) Purchase of services in which VAT has actually been paid
d) Transactions deemed sale
e) Presumptive input
f) Transitional input

Prior payment of taxes is not necessary before a taxpayer could avail of the 8% transitional
input tax credit: first, it was never mentioned in Section 105 of the old NIRC [now Sec. 111]
that prior payment of taxes is a requirement; second, since the law (Section 105 of the NIRC)
does not provide for prior payment of taxes, to require it now would be tantamount to judicial
legislation which, to state the obvious, is not allowed; third, a transitional input tax credit is not
a tax refund per se but a tax credit; fourth, if the intent of the law were to limit the input tax to
cases where actual VAT was paid, it could have simply said that the tax base shall be the actual
value-added tax paid; and fifth, this Court had already declared that prior payment of taxes is
not required in order to avail of a tax credit. (FORT BONIFACIO DEVELOPMENT CORPORATION
vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, January 22, 2013)

Section 112 of the Tax Code does not prohibit cash refund or tax credit of transitional input tax
in the case of zero-rated or effectively zero-rated VAT registered taxpayers, who do not have
any output VAT. The phrase "except transitional input tax" in Section 112 of the Tax Code was
inserted to distinguish creditable input tax from transitional input tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425,
January 22, 2013)

It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT
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status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer.
(FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)

18. Persons who can avail of input tax credit

In a VAT-exempt transaction, the seller is not allowed to charge VAT to his customer. Since no
output tax is shifted by the seller, there is no output tax against which the related input taxes
may be credited. Neither can he credit this input tax against the VAT due on other sales. In this
case, he is treated as the end user who will shoulder the cost of the input VAT.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)

Unlike the input taxes related to exempt sales, input taxes related to zero-rated sales may be
credited against output taxes on other sales and in case it is not fully utilized, the excess may
be carried over to the succeeding quarter or quarters and there is no prescription period for the
carry-over. The law gives the taxpayer another option for the recovery of used input taxes:
application for refund or tax credit certificate. (COMMISSIONER OF INTERNAL REVENUE vs.
SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013)

19. Determination of output/input tax; VAT payable; excess input tax credits
a) Determination of output tax
b) Determination of input tax creditable
c) Allocation of input tax on mixed transactions
d) Determination of the output tax and VAT payable and computation of VAT
payable or excess tax credits
20. Substantiation of input tax credits
21. Refund or tax credit of excess input tax

If, however, the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively
zero-rated transactions or from the acquisition of capital goods, any excess over the output
taxes shall instead be refunded to the taxpayer or credited against other internal revenue
taxes. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)

While a tax liability is essential to the availment or use of any tax credit, prior tax payments are
not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a
prior tax payment is needed. (FORT BONIFACIO DEVELOPMENT CORPORATION
vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, January 22, 2013)

As regards Section 110, while the law only provides for a tax credit, a taxpayer who erroneously
or excessively pays his output tax is still entitled to recover the payments he made either as a
tax credit or a tax refund. In this case, since petitioner still has available transitional input tax
credit, it filed a claim for refund to recover the output VAT it erroneously or excessively paid for
the 1st quarter of 1997. Thus, there is no reason for denying its claim for tax refund/credit.
(FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
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Even if the law does not expressly state that the Ironcons excess creditable VAT withheld is
refundable, it may be the subject-of a claim for refund as an erroneously collected tax under
Sec. 204 (C) and 229 of the NIRC. It should be clarified that this ruling only refers to creditable
VAT withheld pursuant to Sec. 114 of the NIRC prior to its amendment. After its amendment by
R.A. 9337, the amount withheld under Sec. 114 of the NIRC is now treated as final VAT, no
longer under the creditable withholding tax system (CIR v. Ironcon Builders and Development
Corp., G.R. No. 180042, February 8, 2010)
The input VAT is not "excessively" collected as understood under Section 229 because at the
time the input VAT is collected the amount paid is correct and proper. The person
legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere
existence of an "excess" input VAT. The term "excess" input VAT simply means that the input
VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected
because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT
cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)

If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek
a refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT
System does not allow such refund or credit and such "excess" input VAT is not an "excessively"
collected tax under Section 229. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE
POWER CORPORATION, G.R. No. 187485, February 12, 2013)

a) Who may claim for refund/apply for issuance of tax credit certificate

Having determined that respondent's purchase transactions are subject to a zero VAT rate, the
tax refund or credit is in order. To repeat, the VAT is a tax imposed on consumption, not on
business. Although respondent as an entity is exempt, the transactions it enters into are not
necessarily so. The VAT payments made in excess of the zero rate that is imposable may
certainly be refunded or credited. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

b) Period to file claim/apply for issuance of tax credit certificate

The Court, in San Roque, ruled that equitable estoppel had set in when respondent issued BIR
Ruling No. DA-489-03 which was a general interpretative rule, which effectively misled all
taxpayers into filing premature judicial claims with the CTA. Thus, taxpayers could rely on the
ruling from its issuance on 10 December 2003 up to its reversal on 6 October 2010, when CIR v.
Aichi Forging Company of Asia, lnc. was promulgated. (PROCTER & GAMBLE ASIA PTE LTD.
vs.COMMISSIONER OF INTERNAL REVENUE, G.R. No. 202071, February 19, 2014)
In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or
credit of unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows:

(1) An administrative claim must be filed with the CIR within two years after the close of
the taxable quarter when the zero-rated or effectively zero-rated sales were made.

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(2) The CIR has 120 days from the date of submission of complete documents in
support of the administrative claim within which to decide whether to grant a refund or
issue a tax credit certificate. The 120-day period may extend beyond the two-year
period from the filing of the administrative claim if the claim is filed in the later part of
the two-year period. If the 120-day period expires without any decision from the CIR,
then the administrative claim may be considered to be denied by inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the
CIRs decision denying the administrative claim or from the expiration of the 120-day
period without any action from the CIR.

(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October
2010, as an exception to the mandatory and jurisdictional 120+30 day periods.
(COMMISSIONER OF INTERNAL REVENUE vs.TOLEDO POWER, INC., G.R. No. 183880,
January 20, 2014)

The lessons of this case may be summed up as follows:

A. Two-Year Prescriptive Period

1. It is only the administrative claim that must be filed within the two-year prescriptive
period. (Aichi)

2. The proper reckoning date for the two-year prescriptive period is the close of the
taxable quarter when the relevant sales were made. (San Roque)

3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12
September 2008. Atlas states that the two-year prescriptive period for filing a claim for
tax refund or credit of unutilized input VAT payments should be counted from the date
of filing of the VAT return and payment of the tax. (San Roque)

B. 120+30 Day Period

1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within
thirty days after the Commissioner denies the claim within the 120-day period, or (2) file
the judicial claim within thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.

2. The 30-day period always applies, whether there is a denial or inaction on the part of
the CIR.

3. As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional.
(Aichi and San Roque)

4. As an exception to the general rule, premature filing is allowed only if filed between
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10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in
force. (San Roque)

5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-
03 was in force. (San Roque) (COMMISSIONER OF INTERNAL REVENUE vs. MINDANAO
II GEOTHERMAL PARTNERSHIP, G.R. No. 191498, January 15, 2014)

It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. Failure to comply with the 120-day waiting period violates a mandatory provision
of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that the CTA does not acquire
jurisdiction over the taxpayers petition. (MINDANAO II GEOTHERMAL PARTNERSHIP vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)

Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial
claim with the CTA but to the filing of the administrative claim with the Commissioner. As held
in Aichi, the "phrase within two years x x x apply for the issuance of a tax credit or refund
refers to applications for refund/credit with the CIR and not to appeals made to the CTA."
(MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 193301, March 11, 2013)

San Roque's failure to comply with the 120-day mandatory period renders its petition for
review with the CTA void as Article 5 of the Civil Code provides, "Acts executed against
provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes
their validity." San Roque's void petition for review cannot be legitimized by the CTA or this
Court because Article 5 of the Civil Code states that such void petition cannot be legitimized
"except when the law itself authorizes [its] validity," and there is no law authorizing the
petition's validity. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)


Sec. 112(A) clearly provides in no uncertain terms that unutilized input VAT payments not
otherwise used for any internal revenue tax due the taxpayer must be claimed within two
years reckoned from the close of the taxable quarter when the relevant sales were
made pertaining to the input VAT regardless of whether said tax was paid or not.
The reckoning frame would always be the end of the quarter when the pertinent sales or
transaction was made, regardless when the input VAT was paid. (COMMISSIONER OF
INTERNAL REVENUE vs. MIRANT PAGBILAO CORPORATION, G.R. No. 172129. September 12,
2008)

This prescriptive period has no relation to the date of payment of the "excess" input VAT since
the "excess" input VAT may have been paid for more than two years but this does not bar the
filing of a judicial claim for "excess" VAT under Section 112 (A), which has a different reckoning
period from Section 229. Moreover, the person claiming the refund or credit of the input VAT is
not the person who legally paid the input VAT. (COMMISSIONER OF INTERNAL REVENUE vs.
SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013)

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The mere filing by a taxpayer of a judicial claim with the CTA before the expiration of the 120-
day period cannot operate to divest the Commissioner of his jurisdiction to decide an
administrative claim within the 120-day mandatory period, unless the Commissioner has clearly
given cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax
Code. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R.
No. 187485, February 12, 2013)

Because the 120+30 day period is jurisdictional, the issue of whether petitioner complied with
the said time frame may be broached at any stage, even on appeal. (NIPPON EXPRESS
(PHILIPPINES) CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 196907,
March 13, 2013)

c) Manner of giving refund
d) Destination principle or cross-border doctrine
22. Invoicing requirements

For a judicial claim for refund to prosper, however, respondent must not only prove that it is a
VAT registered entity and that it filed its claims within the prescriptive period. It
must substantiate the input VAT paid by purchase invoices or official receipts: 1) A "sales
or commercial invoice" is a written account of goods sold or services rendered indicating the
prices charged therefor or a list by whatever name it is known which is used in the ordinary
course of business evidencing sale and transfer or agreement to sell or transfer goods and
services; and 2) A "receipt" on the other hand is a written acknowledgment of the fact of
payment in money or other settlement between seller and buyer of goods, debtor or creditor, or
person rendering services and client or customer. (ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
Nos. 141104 & 148763, June 8, 2007)

a) Invoicing requirements in general

The requisite that the receipt be issued showing the name, business style, if any, and address
of the purchaser, customer or client is precise so that when the books of accounts are subjected
to a tax audit examination, all entries therein could be shown as adequately supported and
proven as legitimate business transactions. The absence of official receipts issued in the
taxpayer's name is tantamount to non-compliance with the substantiation requirements
provided by law. (BONIFACIO WATER CORPORATION (formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142, July 22,
2013)

Taxpayers claiming for a refund or tax credit certificate must comply with the strict and
mandatory invoicing and accounting requirements provided under the 1997 NIRC, as amended,
and its implementing rules and regulations. Thus, the change of petitioner's name to "Bonifacio
GDE Water Corporation," being unauthorized and without approval of the SEC, and the issuance
of official receipts under that name which were presented to support petitioner's claim for tax
refund, cannot be used to allow the grant of tax refund or issuance of a tax credit certificate in
petitioner's favor. (BONIFACIO WATER CORPORATION (formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142, July 22,
2013)
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Failure to print the word zero-rated on the invoices or receipts is fatal to a claim for credit of
refund of input VAT on zero-rated sales (J.R.A. Philippines, Inc. v. CIR, G.R. No. 177127,
October 11, 2010)

If the claim for refund/ tax credit certificate is based on the existence of zero-rated sales by the
taxpayer but it fails to comply with the invoicing requirements in the issuance of sales invoices
(e.g. failure to indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be
denied considering that the invoice it is issuing to its customers does not depict its being a VAT-
registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment
is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate
expense account or asset account subject to depreciation, whichever is applicable (Panasonic
Comm. Imaging Corp. of the Phil. v. CIR, G.R. No. 178090, February 8, 2010)

b) Invoicing and recording deemed sale transactions
c) Consequences of issuing erroneous VAT invoice or VAT official receipt
23. Filing of return and payment
24. Withholding of final VAT on sales to government



TAX REMEDIES UNDER THE NIRC
a) Assessment
An assessment contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. It also signals the time when penalties and protests
begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies
thereon, due process requires that it must be served on and received by the taxpayer.
Accordingly, an affidavit, which was executed by revenue officers stating the tax
liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be
deemed an assessment that can be questioned before the Court of Tax Appeals. (CIR vs
Pascor Realty and Development Corp., GR no. 128315, June 29, 1999)
(i) Concept of assessment
(a) Requisites for valid assessment
(b) Constructive methods of income determination
The rule is that in the absence of the accounting records of a taxpayer,
his tax liability may be determined by estimation. The petitioner is not
required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of the taxes due is justified. To hold
otherwise would be tantamount to holding that skillful concealment is an
invincible barrier to proof. However, the rule does not apply where the
estimation is arrived at arbitrarily and capriciously. In fine, then, the
petitioner acted arbitrarily and capriciously in relying on and giving weight
to the machine copies of the Consumption Entries in fixing the tax
deficiency assessments against the respondent. (CIR vs Hantex Trading
Co., GR no. 136975, March 31, 2005)
The "best evidence" envisaged in Section 16 of the 1977 NIRC [now Sec.
6, 1997 NIRC], as amended, includes the corporate and accounting
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records of the taxpayer who is the subject of the assessment process, the
accounting records of other taxpayers engaged in the same line of
business, including their gross profit and net profit sales. The law allows
the BIR access to all relevant or material records and data in the person
of the taxpayer. It places no limit or condition on the type or form of the
medium by which the record subject to the order of the BIR is kept. The
purpose of the law is to enable the BIR to get at the taxpayers records in
whatever form they may be kept. Such records include computer tapes of
the said records prepared by the taxpayer in the course of business.
68
In
this era of developing information-storage technology, there is no valid
reason to immunize companies with computer-based, record-keeping
capabilities from BIR scrutiny. The standard is not the form of the record
but where it might shed light on the accuracy of the taxpayers return.
However, the best evidence obtainable under Section 16 of the 1977
NIRC [now Sec. 6, 1997 NIRC], as amended, does not include mere
photocopies of records/documents. The petitioner, in making a
preliminary and final tax deficiency assessment against a taxpayer,
cannot anchor the said assessment on mere machine copies of
records/documents. Mere photocopies of the Consumption Entries have
no probative weight if offered as proof of the contents thereof. (CIR vs
Hantex Trading Co., GR no. 136975, March 31, 2005)

(c) Inventory method for income determination
(d) Jeopardy assessment
(e) Tax delinquency and tax deficiency
(ii) Power of the Commissioner to make assessments and prescribe additional
requirements for tax administration and enforcement
(a) Power of the Commissioner to obtain information, and to
summon/examine, and take testimony of persons
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law on prescription, being a
remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed. Sec. 15 of the NIRC, on the other hand,
provides that "[w]hen a report required by law as a basis for the assessment
of any national internal revenue tax shall not be forthcoming within the time
fixed by law or regulation, or when there is reason to believe that any such
report is false, incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence obtainable."
Clearly, Section 15 does not provide an exception to the statute of limitations
on the issuance of an assessment, by allowing the initial assessment to be
made on the basis of the best evidence available. Having made its initial
assessment in the manner prescribed, the commissioner could not have been
authorized to issue, beyond the five-year prescriptive period, the second and
the third assessments under consideration before us. (CIR vs BF Goodrich
Phils., Inc., GR no. 104171, February 24, 1999)
(iii) When assessment is made
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An assessment is deemed made only when the collector of internal revenue
releases, mails or sends such notice to the taxpayer. (CIR vs Pascor Realty and
Development Corp., GR no. 128315, June 29, 1999)
(a) Prescriptive period for assessment
The statute of limitations on assessment and collection of taxes is for the
protection of the taxpayer and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it
principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he
will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time. (BPI vs CIR, GR 139736, October
17, 2005)

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the
computation of legal periods. Under the Civil Code, a year is equivalent to
365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar
months. Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant. There obviously exists a manifest incompatibility
in the manner of computing legal periods under the Civil Code and the
Administrative Code of 1987. For this reason, we hold that Section 31,
Chapter VIII, Book I of the Administrative Code of 1987, being the more
recent law, governs the computation of legal periods. (CIR vs Primetown
Property Group Inc., GR 162155, August 28, 2007)

Considering that the deficiency assessment was based on the amended
return which, as aforestated, is substantially different from the original
return, the period of limitation of the right to issue the same should be
counted from the filing of the amended income tax return. We believe that to
hold otherwise, we would be paving the way for taxpayers to evade the
payment of taxes by simply reporting in their original return heavy losses and
amending the same more than five years later when the Commissioner of
Internal Revenue has lost his authority to assess the proper tax thereunder.
The object of the Tax Code is to impose taxes for the needs of the
Government, not to enhance tax avoidance to its prejudice. (CIR vs Phoenix
Assurance Co., L-19127, May 20, 1965)

A waiver of the statute of limitations under the NIRC, to a certain extent, is a
derogation of the taxpayers right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly
construed. The waiver of the statute of limitations is not a waiver of the right
to invoke the defense of prescription as erroneously held by the Court of
Appeals. It is an agreement between the taxpayer and the BIR that the
period to issue an assessment and collect the taxes due is extended to a date
certain. The waiver does not mean that the taxpayer relinquishes the right to
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invoke prescription unequivocally particularly where the language of the
document is equivocal. The Waiver of Statute of Limitations, signed by
petitioners comptroller on September 22, 1997 is not valid and binding
because it does not conform with the provisions of RMO No. 20-90. It did not
specify a definite agreed date between the BIR and petitioner, within which
the former may assess and collect revenue taxes. Thus, petitioners waiver
became unlimited in time, violating Section 222(b) of the NIRC. (Philippine
Journalists, Inc vs CIR, GR 162852, December 16, 2004)

The waiver required under the Tax Code is one which is not unilateral nor
can it be said that concurrence to such agreement is a mere formality
because it is the very signatures of both the Commissioner and the taxpayer
which give birth to such valid agreement. (CIR v. CA, G.R. 115712, Feb. 25,
1999)

A waiver of the statute of limitations being a derogation of the taxpayers
right to security against prolonged and unscrupulous investigations must be
carefully and strictly construed. (CIR v. FMF Devt Corp., 556 SCRA 698)

The requirement to furnish the taxpayer a copy of the waiver of the Statute
of Limitations is not only to give notice of the existence of the document but
of the acceptance by the BIR and the perfection of the agreement. (Phil.
Journalists, Inc. v. CIR, GR 162852, Dec. 16, 2004)


(1) False, fraudulent, and non-filing of returns
Petitioner insists that private respondent committed "falsity" when it sold
the property for a price lesser than its declared fair market value. This
fact alone did not constitute a false return which contains wrong
information due to mistake, carelessness or ignorance.
13
It is possible
that real property may be sold for less than adequate consideration for
a bona fide business purpose; in such event, the sale remains an "arm's
length" transaction. In the present case, the private respondent was
compelled to sell the property even at a price less than its market value,
because it would have lost all ownership rights over it upon the expiration
of the parity amendment. (CIR vs BF Goodrich Phils., Inc., GR no.
104171, February 24, 1999)
Fraud cannot be presumed but must be proven. As a corollary thereto,
we can also state that fraudulent intent could not be deduced from
mistakes however frequent they may be, especially if such mistakes
emanate from erroneous entries or erroneous classification of items in
accounting methods utilized for determination of tax liabilities. The lower
court's conclusion regarding the existence of fraudulent intent to evade
payment of taxes was based merely on a presumption and not on
evidence establishing a willful filing of false and fraudulent returns so as
to warrant the imposition of the fraud penalty. The fraud contemplated by
law is actual and not constructive. It must be intentional fraud, consisting
of deception willfully and deliberately done or resorted to in order to
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induce another to give up some legal right. Negligence, whether slight or
gross, is not equivalent to the fraud with intent to evade the tax
contemplated by the law. (Aznar vs CTA, GR L-20569, August 23, 1974)
(b) Suspension of running of statute of limitations
Petitioners also argue that the governments right to assess and collect the
subject tax had prescribed. Petitioners admitted in their Motion for
Reconsideration before the Court of Appeals that the pool changed its
address, for they stated that the pools information return filed in 1980
indicated therein its present address. The Court finds that this falls short of
the requirement of Section 333 [now section 223] of the NIRC for the
suspension of the prescriptive period. The law clearly states that the said
period will be suspended only if the taxpayer informs the Commissioner of
Internal Revenue of any change in the address. (Afisco Insurance vs CA, GR
112675, January 25, 1999)

Sec. 271 [1977 NIRC] (now Sec. 223 of 1997 NIRC) limits the suspension of
the running of prescription to instances when reinvestigation is requested by
a taxpayer and is granted by the CIR. Only a request for reinvestigation can
toll the running of the period of the statute of limitations because it would
entail reception and evaluation of additional evidence and will take more time
than a request for reconsideration where the evaluation of the evidence is
limited only to the evidence already at hand. (CIR v. Phil. Global
Communications, 506 SCRA 427)

(iv) General provisions on additions to the tax
(a) Civil penalties
(b) Interest
(c) Compromise penalties
It does not appear that petitioner accepted the imposition of the compromise
amounts. It is now a well settled doctrine that compromise penalty cannot be
imposed or collected without the agreement or conformity of the taxpayer.
(Wonder Mechanical Engineering vs CTA, GR L-22805 & L-27858, June 30,
1975)
(v) Assessment process
(a) Tax audit
(b) Notice of informal conference
Under Rev. Reg. 12-99, a notice of informal conference is sent to the taxpayer
informing him of the findings of the audit conducted on his books and records
indicating that there is a discrepancy in his tax payments which has to be paid.
However under Rev. Reg. 18-2013 dated Nov. 28, 2013 the requirement for the
issuance of a letter of informal conference has been removed.
(c) Issuance of preliminary assessment notice
Sec. 228 of the Tax Code clearly requires that the taxpayer must be informed
that he is liable for deficiency taxes through the sending of a Preliminary
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Assessment Notice. The sending of a PAN to the taxpayer is to inform him of the
assessment made is but part of due process requirement in the issuance of a
deficiency tax assessment, the absence of which renders nugatory any
assessment made by the tax authorities. (CIR v. Metro Star Superama, Inc. 637
SCRA 633)

(d) Notice of informal conference [ is this same as (b) above?]
(e) Issuance of preliminary assessment notice [ is this same as (c)?]
(f) Exceptions to issuance of preliminary assessment notice
(g) Reply to preliminary assessment notice
(h) Issuance of formal letter of demand and assessment notice/final
assessment notice
Tax assessments by tax examiners are presumed correct and made in good faith.
The taxpayer has the duty to prove otherwise. In the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a Bureau
of Internal Revenue examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of tax assessments.
(Sy Po vs CTA, GR 81446, August 18, 1988)
An assessment fixes and determines the tax liability of a taxpayer. As soon as it
is served, an obligation arises on the part of the taxpayer concerned to pay the
amount assessed and demanded. Hence, assessments should not be based on
mere presumptions no matter how reasonable or logical said presumptions may
be. In order to stand the test of judicial scrutiny, the assessment must be based
on actual facts. (CIR vs Island Garment Manufacturing Co., GR L-46644,
September 11, 1987)
Taxpayers shall be informed in writing of the law and the facts on which the
assessment is made, otherwise, the assessment shall be void. The old
requirement of merely notifying the taxpayer of the CIRs findings was changed
in 1998 to inform the taxpayer of not only the law but also the facts on which an
assessment would be made. Failure to comply with Sec. 228 of the Tax Code
does not only render the assessment void, but also finds no validation in any
provision in the Tax Code. (CIR vs. Reyes, 480 SCRA 382)
A taxpayer must be informed in writing of the legal and factual bases of the tax
assessment made against him. This is a mandatory requirement. The advice of a
tax deficiency given by the CIR to an employee of Enron as well as the
preliminary 5-day letter notice, were not valid substitutes for the mandatory
notice in writing of the legal and factual bases of the assessment. Sec. 228 of the
NIRC requires that the legal and factual bases be stated in the formal letter of
demand and assessment notice. Otherwise the law and RR 12-99 would be
rendered nugatory. In view of the absence of a fair opportunity for Enron to be
informed of the bases of the assessment, the assessment was void. This is a
requirement of due process. (CIR v. Enron Subic Power Corp. 575 SCRA 212)

(i) Disputed assessment
(j) Administrative decision on a disputed assessment
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The authority to make tax assessments may be delegated to subordinate
officers. Said assessment has the same force and effect as that issued by the
Commissioner himself, if not reviewed or revised by the latter. (Oceanic Network
Wireless Inc., GR 148380, December 9, 2005)
(vi) Protesting assessment
(a) Protest of assessment by taxpayer
(1) Protested assessment
(2) When to file a protest
(3) Forms of protest
This Court had consistently ruled in a number of cases that a request for
reconsideration or reinvestigation by the taxpayer, without a valid waiver
of the prescriptive periods for the assessment and collection of tax, as
required by the Tax Code and implementing rules, will not suspend the
running thereof. (BPI vs CIR, GR 139736, October 17, 2005)

It bears to emphasize that under Section 224 of the Tax Code of 1977, as
amended, the running of the prescriptive period for collection of taxes
can only be suspended by a request for reinvestigation, not a request for
reconsideration. Undoubtedly, a reinvestigation, which entails the
reception and evaluation of additional evidence, will take more time than
a reconsideration of a tax assessment, which will be limited to the
evidence already at hand; this justifies why the former can suspend the
running of the statute of limitations on collection of the assessed tax,
while the latter can not. (BPI vs CIR, GR 139736, October 17, 2005)

(4) Content and validity of protest

(b) Submission of documents within 60 days from filing of protest
Petitioner cannot insist on the submission of proof of DST payment because such
document does not exist as respondent claims that it is not liable to pay, and has
not paid, the DST on the deposit on subscription. The term relevant supporting
documents should be understood as those documents necessary to support the
legal basis in disputing a tax assessment as determined by the taxpayer. The BIR
can only inform the taxpayer to submit additional documents. The BIR cannot
demand what type of supporting documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require the production of
documents that a taxpayer cannot submit. (CIR vs First Express Pawnshop
Company, GR 172045-46, June 16, 2009)

(c) Effect of failure to protest
The rule is that for the Court of Tax Appeals to acquire jurisdiction, an
assessment must first be disputed by the taxpayer and ruled upon by the
Commissioner of Internal Revenue to warrant a decision from which a petition
for review may be taken to the Court of Tax Appeals. Where an adverse ruling
has been rendered by the Commissioner of Internal Revenue with reference to a
disputed assessment or a claim for refund or credit, the taxpayer may appeal the
same within thirty (30) days after receipt thereof. A request for reconsideration
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must be made within thirty (30) days from the taxpayers receipt of the tax
deficiency assessment, otherwise, the decision becomes final, unappealable and
therefore, demandable. A tax assessment that has become final, executory and
enforceable for failure of the taxpayer to assail the same as provided in Section
228 can no longer be contested. (Oceanic Network Wireless Inc., GR
148380, December 9, 2005)

(d) Period provided for the protest to be acted upon
(vii) Rendition of decision by Commissioner
(a) Denial of protest
Records show that petitioner disputed the PAN but not the Formal Letter of Demand
with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a
protest against the Formal Letter of Demand with Assessment Notices since the
language used and the tenor of the demand letter indicate that it is the final decision of
the respondent on the matter. We have time and again reminded the CIR to indicate,
in a clear and unequivocal language, whether his action on a disputed assessment
constitutes his final determination thereon in order for the taxpayer concerned to
determine when his or her right to appeal to the tax court accrues. Viewed in the light of
the foregoing, respondent is now estopped from claiming that he did not intend the
Formal Letter of Demand with Assessment Notices to be a final decision. (Allied Banking
Corporation vs CIR, G.R. No. 175097, February 5, 2010)
(1) Commissioners actions equivalent to denial of protest
The request for reinvestigation and reconsideration was in effect
considered denied by petitioner when the latter filed a civil suit for
collection of deficiency income. Under the circumstances, the
Commissioner of Internal Revenue, not having clearly signified his
final action on the disputed assessment, legally the period to
appeal has not commenced to run. Thus, it was only when private
respondent received the summons on the civil suit for collection of
deficiency income on December 28, 1978 that the period to
appeal commenced to run. (CIR vs Union Shipping Corporation,
GR L-66160, May 21, 1990)

The letter of February 18, 1963, in the view of the Court, is
tantamount to a denial of the reconsideration or protest of the
respondent corporation on the assessment made by the
petitioner, considering that the said letter is in itself a reiteration
of the demand by the Bureau of Internal Revenue for the
settlement of the assessment already made, and for the
immediate payment of the sum of P758, 687.04 in spite of the
vehement protest of the respondent corporation on April 21,
1961. This certainly is a clear indication of the firm stand of
petitioner against the reconsideration of the disputed
assessment in view of the continued refusal of the respondent
corporation to execute the waiver of the period of limitation upon
the assessment in question. (CIR vs Ayala Securities Corp., GR L-
29485, March 31, 1976)

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(a) Filing of criminal action against taxpayer
(b) Issuing a warrant of distraint and levy
(2) Inaction by Commissioner
(viii) Remedies of taxpayer to action by Commissioner
(a) In case of denial of protest
(b) In case of inaction by Commissioner within 180 days from
submission of documents
In case the Commissioner failed to act on the disputed assessment within
the 180-day period from date of submission of documents, a taxpayer
can either: (1) file a petition for review with the Court of Tax Appeals
within 30 days after the expiration of the 180-day period; or (2) await the
final decision of the Commissioner on the disputed assessments and
appeal such final decision to the Court of Tax Appeals within 30 days
after receipt of a copy of such decision. (RCBC vs CIR, G.R. No.
168498, April 24, 2007)
(c) Effect of failure to appeal
b) Collection
(i) Requisites
(ii) Prescriptive periods
The BIR has three years, counted from the date of actual filing of the return or
from the last date prescribed by law for the filing of such return, whichever
comes later, to assess a national internal revenue tax or to begin a court
proceeding for the collection thereof without an assessment. In case of a false
or fraudulent return with intent to evade tax or the failure to file any return at
all, the prescriptive period for assessment of the tax due shall be 10 years from
discovery by the BIR of the falsity, fraud, or omission. When the BIR validly
issues an assessment, within either the three-year or ten-year period, whichever
is appropriate, then the BIR has another three years [now 5 years under Sec.
222, 1997 NIRC] after the assessment within which to collect the national
internal revenue tax due thereon by distraint, levy, and/or court proceeding. (BPI
vs CIR, GR 139736, October 17, 2005)

Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential
that the Warrant of Distraint and/or Levy be fully executed so that it can suspend
the running of the statute of limitations on the collection of the tax. It is enough
that the proceedings have validly began or commenced and that their execution
has not been suspended by reason of the voluntary desistance of the respondent
BIR Commissioner. Existing jurisprudence establishes that distraint and levy
proceedings are validly begun or commenced by the issuance of the
Warrant and service thereof on the taxpayer. It is only logical to require that the
Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer
in order to suspend the running of the prescriptive period for collection of an
assessed tax, because it may only be upon the service of the Warrant that the
taxpayer is informed of the denial by the BIR of any pending protest of the said
taxpayer, and the resolute intention of the BIR to collect the tax assessed. (BPI
vs CIR, GR 139736, October 17, 2005)

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While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the running of
the period of limitation for in such case there is need of a written agreement to extend
the period between the Collector and the taxpayer, there are cases however where a
taxpayer may be prevented from setting up the defense of prescription even if he has
not previously waived it in writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or injustice is meant
by the Government. (CIR vs Kudos Metal Corp., GR 178087, May 5, 2010)

The running of the prescription period where the acts of the taxpayer did not
prevent the government from collecting the tax. Partial payment would not
prevent the government from suing the taxpayer. Because, by such act of
payment, the government is not thereby persuaded to postpone collection to
make him feel that the demand was not unreasonable or that no harassment or
injustice is meant. (CIR vs Philippine Global Communication, GR 167146,
October 31, 2006)

The act of requesting a reinvestigation alone does not suspend the period. The
request should first be granted, in order to effect suspension. The burden of
proof that the taxpayers request for reinvestigation had been actually granted
shall be on respondent BIR Commissioner. The grant may be expressed in
communications with the taxpayer or implied from the actions of the respondent
BIR Commissioner or his authorized BIR representatives in response to the
request for reinvestigation. (BPI vs CIR, GR 139736, October 17, 2005)

(iii) Distraint of personal property including garnishment
The prohibition against examination of or inquiry into a bank deposit under
Republic Act 1405 does not preclude its being garnished to insure satisfaction of
a judgment. Indeed there is no real inquiry in such a case, and if existence of the
deposit is disclosed the disclosure is purely incidental to the execution process. It
is hard to conceive that it was ever within the intention of Congress to enable
debtors to evade payment of their just debts, even if ordered by the Court,
through the expedient of converting their assets into cash and depositing the
same in a bank. (PCIB vs CA, GR 84526, January 28, 1991)
(a) Summary remedy of distraint of personal property
(1) Purchase by the government at sale upon distraint
(2) Report of sale to the Bureau of Internal Revenue (BIR)
(3) Constructive distraint to protect the interest of the
government
(iv) Summary remedy of levy on real property
(a) Advertisement and sale
(b) Redemption of property sold
(c) Final deed of purchaser
(v) Forfeiture to government for want of bidder
(a) Remedy of enforcement of forfeitures
(1) Action to contest forfeiture of chattel
(b) Resale of real estate taken for taxes
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(c) When property to be sold or destroyed
(d) Disposition of funds recovered in legal proceedings or
obtained from forfeiture
(vi) Further distraint or levy
(vii) Tax lien
It is settled that the claim of the government predicated on a tax lien is superior
to the claim of a private litigant predicated on a judgment. The tax lien attaches
not only from the service of the warrant of distraint of personal property but
from the time the tax became due and payable. Besides, the distraint on the
subject properties of Maritime Company of the Philippines as well as the notice of
their seizure were made by petitioner, through the Commissioner of Internal
Revenue, long before the writ of execution was issued by the Regional Trial
Court. (Republic vs Enriquez, GR 78391, October 21, 1988)
(viii) Compromise
(a) Authority of the Commissioner to compromise and abate
taxes
(ix) Civil and criminal actions
(a) Suit to recover tax based on false or fraudulent returns
The contention is made, and is here rejected, that an assessment of the
deficiency tax due is necessary before the taxpayer can be prosecuted
criminally for the charges preferred. The crime is complete when the
violator has, as in this case, knowingly and willfully filed fraudulent
returns with intent to evade and defeat a part or all of the tax. While
there can be no civil action to enforce collection before the assessment
procedures provided in the Code have been followed, there is no
requirement for the precise computation and assessment of the tax
before there can be a criminal prosecution under the Code. (Ungab vs
Cusi Jr., GR L-41919-24, May 30, 1980)

Sec. 269 [now Sec. 222 of the 1997 NIRC] provides that when fraudulent
tax returns are involved, a proceeding in court after the collection of such
tax may be begun without assessment. The gross disparity in the taxes
due and the amounts actually declared constitutes badges of fraud.
Applying Ungab v. Cusi, 97 SCRA 877 [1980], assessment is not
necessary in filing criminal complaints for tax violations. Assessment of a
deficiency is not necessary to a criminal prosecution for tax evasion. The
crime is complete when the violator knowingly and willfully filed
fraudulent return with intention to evade the tax. (Adamson v. Court of
Appeals, 588 SCRA 27)


c) Refund
A corporation entitled to a tax credit or refund of the excess estimated quarterly income
taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the
issuance of a tax credit certificate or to claim a cash refund. If the option to carry over
the excess credit is exercised, the same shall be irrevocable for that taxable period. This
is known as the irrevocability rule and is embodied in the last sentence of Section 76 of
the Tax Code. (Systra Philippines vs CIR, GR 176290, September 21, 2007)
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No refund for documentary stamp taxes: documentary stamp taxes are levied on the
exercise by persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific instruments.
Documentary stamp taxes are thus levied on the exercise of these privileges through the
execution of specific instruments, independently of the legal status of the transactions
giving rise thereto. The documentary stamp taxes must be paid upon the issuance of the
said instruments, without regard to whether the contracts which gave rise to them are
rescissible, void, voidable, or unenforceable. (Philippine Home Assurance Corp. vs CA,
GR 119446, January 21, 1999)

Sec. 79 of the 1997 NIRC laid down the irrevocability rule. The taxpayer with excess
income tax credits is given the option to either (1) to credit the same to its tax liability
for the succeeding taxable periods; or (2) refund the amount or issue tax credit
certificate. Once the carry-over option is taken, actually or constructively, it becomes
irrevocable. It can never be refunded. The controlling factor for the operation of the
irrevocability rule is that the taxpayer chose an option; and once it had already done so,
it could no longer make another one. No application for refund or tax credit certificate
shall be allowed. The option of the BPI to carry-over the 1998 excess credits is
irrevocable. BPI cannot anymore apply for the refund in the event it is unable to credit
the said excess. The crediting of the excess credits in the succeeding taxable periods
has no prescription unlike the claim for refund which prescribes after two years from the
filing of the ITR. In the event the taxpayer fails to make an appropriate marking of its
option in the ITR, does not mean that the taxpayer is barred from choosing his option
later on. The reason for requiring that a choice be made upon the filing of the ITR is to
ease tax administration. Failure to make a choice means that the taxpayer is still
uncertain and would show simple negligence or plain oversight. The taxpayer may still
make his choice later but once the choice is made, irrevocability of the said choice sets
in. (CIR vs. BPI, 592 SCRA 219)

(i) Grounds and requisites for refund
(ii) Requirements for refund as laid down by cases
In cases before tax courts, Rules of Court applies only by analogy or in a
suppletory character and whenever practicable and convenient shall be liberally
construed in order to promote its objective of securing a just, speedy and
inexpensive disposition of every action and proceeding. Since it is not disputed
that petitioner is entitled to tax exemption, it should not be precluded from
presenting evidence to substantiate the amount of refund it is claiming on mere
technicality especially in this case, where the failure to present invoices at the
first instance was adequately explained by petitioner. (Philippine Phosphate
Fertilizer Corp. vs CIR, GR 141973, June 28, 2005)
(a) Necessity of written claim for refund
A claimant must first file a written claim for refund, categorically
demanding recovery of overpaid taxes with the CIR, before resorting to
an action in court. This obviously is intended, first, to afford the CIR an
opportunity to correct the action of subordinate officers; and second, to
notify the government that such taxes have been questioned, and the
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notice should then be borne in mind in estimating the revenue available
for expenditure. (CIR vs Acosta, GR 154068, August 3, 2007)
(b) Claim containing a categorical demand for reimbursement
(c) Filing of administrative claim for refund and the
suit/proceeding before the CTA within 2 years from date of
payment regardless of any supervening cause

This two-year prescriptive period is intended to apply to suits or
proceedings for the recovery of taxes, penalties or sums erroneously,
excessively, illegally or wrongfully collected. Accordingly, an availment of
a tax credit granted by law may have a different prescriptive period.
Absent any specific provision in the Tax Code or special laws, that period
would be ten years under Article 1144 of the Civil Code. (Concurring
opinion of Justice Vitug in CIR vs The Philippine American Life Insurance
Co., G.R. No. 105208, May 29, 1995)

Section 230 [now Sec. 229, 1997 NIRC] of the Tax Code, as couched,
particularly its statute of limitations component, is, in context, intended to
apply to suits for the recovery of internal revenue taxes or sums
erroneously, excessively, illegally or wrongfully collected. Black defines
the term erroneous or illegal tax as one levied without statutory
authority. In the strict legal viewpoint, therefore, PNBs claim for tax
credit did not proceed from, or is a consequence of overpayment of tax
erroneously or illegally collected. It is beyond cavil that respondent PNB
issued to the BIR the check for P180 Million in the concept of tax
payment in advance, thus eschewing the notion that there was error or
illegality in the payment. (CIR vs PNB, GR 161997, October 25, 2005)

Whenever applicable, the two-year prescriptive period starts from
the full and final payment of the tax sought to be recovered. (Concurring
opinion of Justice Vitug in CIR vs The Philippine American Life Insurance
Co., G.R. No. 105208, May 29, 1995)

For corporations, the two-year prescriptive period within which to claim a
refund commences to run, at the earliest, on the date of the filing of the
adjusted final tax return. The rationale in computing the two-year
prescriptive period with respect to the petitioner corporation's claim for
refund from the time it filed its final adjustment return is the fact that it
was only then that ACCRAIN could ascertain whether it made profits or
incurred losses in its business operations. (ACCRA Investments vs CA,
G.R. No. 96322, December 20, 1991)

Even if the two (2)-year prescriptive period, if applicable, had already
lapsed, the same is not jurisdictional and may be suspended for reasons
of equity and other special circumstances. Records show that the BIRs
very own conduct led PNB to believe all along that its original intention to
apply the advance payment to its future income tax obligations will be
respected by the BIR. (CIR vs PNB, GR 161997, October 25, 2005)
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The claim for refund with the Commissioner of Internal Revenue and the
subsequent action before the Court of Tax Appeals regarding the refund
should all be done within the said period of two years. (CIR vs NPC, G.R.
No. L-18874 January 30, 1970)
(iii) Legal basis of tax refunds
(iv) Statutory basis for tax refund under the tax code
(a) Scope of claims for refund
(b) Necessity of proof for claim or refund
(c) Burden of proof for claim of refund
Tax refunds, like tax exemptions, are construed strictly against the
taxpayer. The claimants have the burden of proof to establish the factual
basis of their claim for refund or tax credit. (Hitachi Global vs CIR, G.R.
No. 174212, October 20, 2010)

The Commissioners contention that a tax refund partakes the nature of a
tax exemption does not apply to the tax refund to which Fortune Tobacco
is entitled. There is parity between tax refund and tax exemption only
when the former is based either on a tax exemption statute or a tax
refund statute. Obviously, that is not the situation here. Quite the
contrary, Fortune Tobaccos claim for refund is premised on its erroneous
payment of the tax, or better still the governments exaction in the
absence of a law. (CIR vs Fortune Tobacco Corp., GR 167274-75, July
21, 2008)
(d) Nature of erroneously-paid tax/illegally assessed collected
(e) Tax refund vis--vis tax credit
Formally, a tax refund requires a physical return of the sum erroneously
paid by the taxpayer, while a tax credit involves the application of the
reimbursable amount against any sum that may be due and collectible
from the taxpayer. On the practical side, the taxpayer to whom the tax is
refunded would have the option, among others, to invest for profit the
returned sum, an option not proximately available if the taxpayer chooses
instead to receive a tax credit. (CIR vs Philippine Phosphate Fertilizer
Corporation, G.R. No. 144440, September 1, 2004)
(f) Essential requisites for claim of refund
(v) Who may claim/apply for tax refund/tax credit
(a) Taxpayer/withholding agents of non-resident foreign
corporation
The proper party to question, or seek a refund of an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and
who paid the same even if he shifts the burden thereof to another. Even
if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the
price which Silkair had to pay as a purchaser. (Silkair vs CIR, G.R. Nos.
171383 & 172379, November 14, 2008)

A withholding agent is a proper party to claim tax refund. He is liable to
pay the tax and subject to tax. The withholding agent is constituted
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the agent of both the Government and the taxpayer. With respect to the
collection and/or withholding of the tax, he is the Government's agent. In
regard to the filing of the necessary income tax return and the payment
of the tax to the Government, he is the agent of the taxpayer. (CIR vs
Procter & Gamble, GR L-66838, December 2, 1991)

(vi) Prescriptive period for recovery of tax erroneously or illegally
collected
(vii) Other consideration affecting tax refunds

2. Government remedies
a) Administrative remedies
(i) Tax lien
(ii) Levy and sale of real property
(iii) Forfeiture of real property to the government for want of bidder
(iv) Further distraint and levy
(v) Suspension of business operation
(vi) Non-availability of injunction to restrain collection of tax
The National Internal Revenue Code of 1997 (NIRC) expressly provides that no
court shall have the authority to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge imposed by the code. The
situation, however, is different in the case of the collection of local taxes as there
is no express provision in the LGC prohibiting courts from issuing an injunction to
restrain local governments from collecting taxes. Such statutory lapse or intent,
however it may be viewed, may have allowed preliminary injunction where local
taxes are involved but cannot negate the procedural rules and requirements
under Rule 58. (Angeles City vs. Angeles City Electric Corp., GR 166134, June 29,
2010)
b) Judicial remedies

3. Statutory offenses and penalties
a) Civil penalties
It is mandatory to collect penalty and interest at the stated rate in case of delinquency.
The intention of the law is to discourage delay in the payment of taxes due the
Government and, in this sense, the penalty and interest are not penal but compensatory
for the concomitant use of the funds by the taxpayer beyond the date when he is
supposed to have paid them to the Government. If penalties could be condoned for
flimsy reasons, the law imposing penalties for delinquencies would be rendered
nugatory, and the maintenance of the Government and its multifarious activities will be
adversely affected. (Philippine Refining Company vs. CA, GR 118794, May 8, 1996)

The taxpayer should be liable only for tax proper and should not be held liable for the
surcharge and interest when it appears that the assessment is highly controversial. The
Commissioner at the outset was not certain as to petitioner's income tax liability.
(Cagayan Electric Power Light vs CIR, G.R. No. L-60126, September 25, 1985)

(i) Surcharge
(ii) Interest
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(a) In general
(b) Deficiency interest
(c) Delinquency interest
(d) Interest on extended payment
4. Compromise and abatement of taxes
a) Compromise
Compromise may be the favored method to settle disputes, but when it involves taxes, it
may be subject to closer scrutiny by the courts. A compromise agreement involving
taxes would affect not just the taxpayer and the BIR, but also the whole nation, the
ultimate beneficiary of the tax revenues collected. (PNOC vs CA, G.R. No. 109976, April
26, 2005)

The discretionary authority to compromise granted to the BIR Commissioner is never
meant to be absolute, uncontrolled and unrestrained. No such unlimited power may be
validly granted to any officer of the government, except perhaps in cases of national
emergency. The BIR Commissioner would have to exercise his discretion within the
parameters set by the law, and in case he abuses his discretion, the CTA may correct
such abuse if the matter is appealed to them. (PNOC vs CA, G.R. No. 109976, April 26,
2005)
RMO No. 39-86 expressly allows a withholding agent, who failed to withhold the
required tax because of neglect, ignorance of the law, or his belief that he was not
required by law to withhold tax, to apply for a compromise settlement of his withholding
tax liability under E.O. No. 44. A withholding agent, in such a situation, may
compromise the withholding tax assessment against him precisely because he is being
held directly accountable for the tax. RMO No. 39-86 distinguishes between the
withholding agent in the foregoing situation from the withholding agent who withheld
the tax but failed to remit the amount to the Government. A withholding agent in the
latter situation is the one disqualified from applying for a compromise settlement
because he is being made accountable as an agent, who held funds in trust for the
Government. (PNOC vs CA, G.R. No. 109976, April 26, 2005)
b) Abatement
The BIR may therefore abate or cancel the whole or any unpaid portion of a tax liability,
inclusive of increments, if its assessment is excessive or erroneous; or if the
administration costs involved do not justify the collection of the amount due. No mutual
concessions need be made, because an excessive or erroneous tax is not compromised;
it is abated or canceled. Only correct taxes should be paid. (People vs Sandiganbayan,
GR 152532, August 16, 2005)
F. Organization and Function of the Bureau of Internal Revenue
1. Rule-making authority of the Secretary of Finance
The authority of the Minister of Finance (now the Secretary of Finance), in conjunction
with the Commissioner of Internal Revenue, to promulgate all needful rules and
regulations for the effective enforcement of internal revenue laws cannot be
controverted. Neither can it be disputed that such rules and regulations, as well as
administrative opinions and rulings, ordinarily should deserve weight and respect by the
courts. Much more fundamental than either of the above, however, is that all such
issuances must not override, but must remain consistent and in harmony with, the law
they seek to apply and implement. Administrative rules and regulations are intended to
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carry out, neither to supplant nor to modify, the law. (CIR vs CA, G.R. No. 108358,
January 20, 1995)
a) Authority of Secretary of Finance to promulgate rules and
regulations
b) Specific provisions to be contained in rules and regulations
c) Non-retroactivity of rulings
2. Power of the Commissioner to suspend the business operation of a
taxpayer


III. Local Government Code of 1991, as amended
A. Local government taxation
1. Fundamental principles

The fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still see to it that (a) the
taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b)
each local government unit will have its fair share of available resources, (c) the resources of
the national government will not be unduly disturbed; and (d) local taxation will be fair,
uniform, and just.(Manila Electric Co. v. Province of Laguna, G.R. No. 131359, May 05, 1999)

2. Nature and source of taxing power

Under the now prevailing Constitution, where there is neither a grant nor prohibition by
statute, the taxing power of local governments must be deemed to exist although Congress may
provide statutory limitations and guidelines in order to safeguard the viability and self-sufficiency
of local government units by directly granting them general and broad tax powers. (City
Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999)

a) Grant of local taxing power under the local government code

Local governments do not have the inherent power to tax except to the extent that such
power might be delegated to them either by the basic law or by statute. Presently, under
Article X of the 1987 Constitution, a general delegation of that power has been given in favor of
local government units. (Manila Electric Company vs Province of Laguna, G.R. No. 131359, May
5, 1999)

b) Authority to prescribe penalties for tax violations
c) Authority to grant local tax exemptions
d) Withdrawal of exemptions
e) Authority to adjust local tax rates
f) Residual taxing power of local governments
g) Authority to issue local tax ordinances

An ordinance carries with it the presumption of validity. The question of reasonableness
though is open to judicial inquiry.(Victorias Milling Co., Inc. v. Municipality of Victorias, G.R. No.
L-21183, September 27, 1968)
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3. Local taxing authority
a) Power to create revenues exercised through Local Government Units
b) Procedure for approval and effectivity of tax ordinances

It is clear under Sec. 188 of R.A. No. 7160 and Art. 277 of its implementing rules that
the requirement of publication is MANDATORY and leaves no choice. The use of the word
"shall" in both provisions is imperative, operating to impose a duty that may be enforced (Coca-
Cola Bottlers Phil., Inc. v. City of Manila, G.R. No. 156252, June 27, 2006)

It is categorical, therefore, that a public hearing be held prior to the enactment of an
ordinance levying taxes, fees, or charges; and that such public hearing be conducted as
provided under Section 277 of the Implementing Rules and Regulations of the Local
Government Code.(Ongsuco v. Malones, G.R. No. 182065, October 27, 2009)

4. Scope of taxing power

The taxing power of cities, municipalities and municipal districts may be used (1) upon
any person engaged in any occupation or business, or exercising any privilege therein; (2) for
services rendered by those political subdivisions or rendered in connection with any business,
profession or occupation being conducted therein, and (3) to levy, for public purposes just and
uniform taxes, licenses or fees (Philippine Match Co., Ltd. v. City of Cebu, G.R. No. L-30745,
January 18, 1978)

5. Specific taxing power of Local Government Units
a) Taxing powers of provinces
(i) Tax on transfer of real property ownership
(ii) Tax on business of printing and publication
(iii) Franchise tax

As commonly used, a franchise tax is "a tax on the privilege of transacting business in
the state and exercising corporate franchises granted by the state." To determine whether the
petitioner is covered by franchise tax, the following requisites should concur: (1) that petitioner
has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising
its rights or privileges under this franchise within the territory of the respondent city
government. (National Power Corporation v. City of Cabanatuan, G.R. No. 149110, April 09,
2003)

Meralco is subject to the local franchise tax. Its exemption has been withdrawn under
Sec. 137 and Sec. 193 of RA 7160. The LGU (San Pablo and Laguna) is correct on relying the
provisions of Secs. 137 & 193 that Meralcos tax exemption has been withdrawn. Sec. 137
authorizes the province to impose franchise tax notwithstanding any exemption granted by any
law or other special law. The local franchise tax is imposable despite any exemption enjoyed
under special laws. Sec. 193 provides the withdrawal of all tax exemptions or incentives granted
to or presently enjoyed by all persons whether natural or juridical including GOCCs. Thus, any
existing tax exemption or incentive enjoyed by Meralco under existing law was clearly intended
to be withdrawn. Further, the LGC contains a general repealing clause in its Sec. 534 (f).

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Accordingly, we held in Mactan Cebu Intl Airport Authority v. Marcos, 261 SCRA 667,
that Sec. 193 of the LGC prescribes the general rule, viz., the tax exemptions or incentives
granted to persons are withdrawn upon effectivity of RA 7160, except to those entities
enumerated. Invoking the non-impairment clause is non-availing because a franchise granted is
subject to amendment, or repeal by Congress when public interest so requires, which restriction
was not only present in 1935 Constitution (Art. XIV, Sec. 8) but in the 1973 (Art. XIV, Sec. 5),
as well as in the 1987 Constitution (Art. XII, Sec. 11). With or without reservation clause,
franchises are subject to alterations as an exercise of police power or the power to tax. (City of
San Pablo v. Judge Reyes, 305 SCRA 353; Meralco v. Prov. Of Laguna, 306 SCRA 750)

(iv) Tax on sand, gravel and other quarry services

Under the Local Tax Code. there is no question that the authority to impose the license
fees collected from the hauling of sand and gravel excavated properly belongs to the province
concerned and not to the municipality where they are found which is specifically prohibited
under Section 22 of the same Code "from levying taxes, fees and charges that the province or
city is authorized to levy in this Code." (Municipality of San Fernando, La Union v. Sta. Romana,
G.R. No. L-30159, March 31, 1987)

In order for an entity to legally undertake a quarrying business, he must first comply
with all the requirements imposed not only by the national government, but also by the local
government unit where his business is situated. Particularly, Section 138 (2) of RA
7160 requires that such entity must first secure a governor's permit prior to the start of his
quarrying operations||| (Province of Cagayan v. Lara, G.R. No. 188500, July 24, 2013)

The principle that when a company is taxed on its main business, it is no longer taxable
for engaging in an activity that is but a part of, incidental to, and necessary to such
main business, applies to business taxes and not to taxes such as the sand and gravel tax
imposed by the provincial government, based on the reasoning that the incidental activity could
not be treated as a business separate and distinct from the main business of the taxpayer as
the sand and gravel tax is an excise tax imposed on the privilege of extracting sand and gravel.
It is settled that provincial governments can levy excise taxes on quarry resources
independently from national government. (Lepanto Consolidated Mining Company v. Ambanloc,
G.R. No. 180639, June 29, 2010)

(v) Professional tax
(vi) Amusement tax

Resorts, swimming pools, bath houses, hot springs, and tourist spots are not among
those places expressly mentioned by Section 140 of the LGC as being subject to amusement
taxes. (Principle of Ejusdem Generis) (Pelizloy Realty Corp. v. Province of Benguet, G.R. No.
183137, April 10, 2013)

In determining the meaning of the phrase "other places of amusement," under Sec. 13
of the Local Tax Code, one must refer to the prior enumeration of theaters, cinematographs,
concert halls and circuses with artistic expression as their common characteristic. Professional
basketball games do not fall under the same category as theaters, cinematographs, concert
halls and circuses as the latter basically belong to artistic forms of entertainment while the
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former caters to sports and gaming. (Philippine Basketball Assn. v. Court of Appeals, G.R. No.
119122, August 08, 2000)

It is the intent of the legislature not to impose VAT on persons already covered by the
amusement tax. (CIR v. SM Prime Holdings, Inc., G.R. No. 183505, February 26, 2010)

(vii) Tax on delivery truck/van

b) Taxing powers of cities
c) Taxing powers of municipalities
(i) Tax on various types of businesses

Business taxes imposed in the exercise of police power for regulatory purposes are paid
for the privilege of carrying on a business in the year the tax was paid. It is paid at the
beginning of the year as a fee to allow the business to operate for the rest of the year. It is
deemed a prerequisite to the conduct of business.||| (Mobil Philippines Inc. v. City Treasurer of
Makati, G.R. No. 154092, July 14, 2005)

When a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce,
pursuant to Section 143 (a) of the LGC, said municipality or city may no longer subject the
same manufacturers, etc. to a business tax under Section 143 (h) of the same Code. Section
143 (h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage
tax under the NIRC, and that are "not otherwise specified in preceding paragraphs".
(City of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 181845, August 04, 2009)

By its very nature a condominium corporation is not engaged in business, and any profit
that it derives is merely incidental, hence it may not be subject to business taxes. (Yamane , etc.
v. BA Lepanto Condominium Corporation, G. R. No. 154993, October 25, 2005)

(ii) Ceiling on business tax impossible on municipalities within Metro Manila
(iii) Tax on retirement on business
(iv) Rules on payment of business tax

Tax should be computed based on gross receipts; the right to receive income, and not
the actual receipt, determines when to include the amount in gross income. The imposition of
local business tax based on petitioners gross revenue will inevitably result in the constitutionally
proscribed double taxation taxing of the same person twice by the same jurisdiction for the
same thing inasmuch as petitioners revenue or income for a taxable year will definitely
include its gross receipts already reported during the previous year and for which local business
tax has already been paid. (Ericsson Telecoms vs. City of Pasig. G.R. NO. 176667, November
22, 2007)

(v) Fees and charges for regulation & licensing
A municipality is authorized to impose three kinds of licenses: 1) license for regulation of
useful occupations or enterprises; 2) license for restriction or regulation of non-useful
occupations or enterprises; and 3) license for revenue. The first two easily fall within the broad
police power granted under the general welfare clause; the third class, however, is for revenue
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purposes. (Victorias Milling Co., Inc. v. Municipality of Victorias, G.R. No. L-21183, September
27, 1968)

(vi) Situs of tax collected

The power to levy an excise upon the performance of an act or the engaging in an
occupation does not depend upon the domicile of the person subject to the excise, nor upon
the physical location of the property and in connection with the act or occupation taxed, but
depends upon the place in which the act is performed or occupation engaged in. (Allied Thread
Co., Inc. v. City Mayor of Manila, G.R. No. L-40296, November 21, 1984)

Under a city ordinance which imposes tax on sales of goods in the city, the city can
validly tax sales to customers outside of the city as long as the orders were booked and paid
for, and the goods were delivered to the carrier, in the city. The goods can be regarded as sold
in the city because delivery to the carrier is delivery to the buyer.||| (Philippine Match Co., Ltd.
v. City of Cebu, G.R. No. L-30745, January 18, 1978)

d) Taxing powers of barangays
e) Common revenue raising powers
(i) Service fees and charges
(ii) Public utility charges
(iii) Toll fees or charges
f) Community tax

6. Common limitations on the taxing powers of LGUs

The fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still see to it that (a) the
taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b)
each local government unit will have its fair share of available resources; (c) the resources of
the national government will not be unduly disturbed; and (d) local taxation will be fair,
uniform, and just. (Manila Electric Company vs Province of Laguna, G.R. No. 131359, May 5,
1999)

While the power to tax by local governments may be exercised by local legislative
bodies, no longer merely be virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the Constitution, the basic doctrine on local
taxation remains essentially the same, the power to tax is [still] primarily vested in the
Congress. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City, et al. v. Bayan Telecommunications,
Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169 in turn referring to Mactan Cebu
International Airport Authority, v. Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA
667, 680)

Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees
as well as all other taxes or charges in any form whatsoever on goods or merchandise. It
is therefore irrelevant if the fees imposed are actually for police surveillance on the goods,
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because any other form of imposition on goods passing through the territorial jurisdiction of the
municipality is clearly prohibited by Section 133(e). (Palma Development Corp. v. Municipality of
Malangas, G.R. No. 152492, October 16, 2003)

The language of Section 133 (h) of RA No. 7160 makes plain that the prohibition with
respect to petroleum products extends not only to excise taxes thereon, but all "taxes, fees and
charges." ||| While local government units are authorized to burden all such other class of
goods with "taxes, fees and charges", excepting excise taxes, a specific prohibition is imposed
barring the levying of any other type of taxes with respect to petroleum products. (Petron
Corporation v. Tiangco, G.R. No. 158881, April 16, 2008)


7. Collection of business tax
a) Tax period and manner of payment
b) Accrual of tax
c) Time of payment
d) Penalties on unpaid taxes, fees or charges
e) Authority of treasurer in collection and inspection of books

8. Taxpayers remedies

As a general precept, a taxpayer may file a complaint assailing the validity of the
ordinance and praying for a refund of its perceived overpayments without first filing a protest to
the payment of taxes due under the ordinance. (Jardine Davies Insurance Brokers Inc. v.
Aliposa, G.R. No. 118900, February 27, 2003)

a) Periods of assessment and collection of local taxes, fees or charges
b) Protest of assessment
c) Claim for refund of tax credit for erroneously or illegally collected tax, fee or
charge

9. Civil remedies by the LGU for collection of revenues

a) Local governments lien for delinquent taxes, fees or charges
b) Civil remedies, in general
(i) Administrative action
(ii) Judicial action

Unlike the National Internal Revenue Code, the Local Tax Code does not contain any
specific provision prohibiting courts from enjoining the collection of local taxes. Such Statutory
lapse or intent, however it may be viewed, may have allowed preliminary injunction where local
taxes are involved but cannot negate the procedural rules and requirements under Rule
58. (Valley Trading Co., Inc. v. CFI of Isabela, Branch II, G.R. No. L-49529, March 31, 1989)

B. Real property taxation

1. Fundamental principles
2. Nature of real property tax
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3. Imposition of real property tax
a) Power to levy real property tax
b) Exemption from real property tax

As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out-
patient, or confined in the hospital, or receives subsidies from the government, so long as the
money received is devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons managing or operating the
institution. (Lung Center of the Phil. v. Quezon City, G.R. No. 144104, June 29, 2004)

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to
the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is
a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY
used for charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion
of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner
to exclude; as enjoying a privilege exclusively." (Lung Center of the Phil. v. Quezon City, G.R.
No. 144104, June 29, 2004)

Under Section 234(a), real property owned by the Republic is exempt from real estate
tax except when the government gives the beneficial use of the real property to a taxable
entity. The justification for the exception to the exemption is that the real property, although
owned by the Republic, is not devoted to public use or public service but devoted to the
private gain of a taxable person. (Manila International Airport Authority v. Court of Appeals,
G.R. No. 155650, July 20, 2006)

In MIAA v. Court of Appeals & Paraaque City, 495 SCRA 591 [2006], the Supreme Court
resolved this issue that MIAA is not a government owned or controlled corporation but a
government instrumentality vested with corporate powers and performing essential public
services. MIAA is not subject to any local tax except when its properties are used by taxable
entity or if the beneficial use of real property owned by the Republic is given to a taxable entity.

The airport lands and buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. They are owned by the State or the Republic under Art. 420 of
the NCC. Hence, the properties of MIAA are exempted from the real property tax under Sec.
234(a) LGC. Only those portions of the NAIA Pasay properties which are leased to taxable
persons like private parties are the ones subject to the real property tax by Pasay City. (MIAA v.
City of Pasay, 583 SCRA 234)


4. Appraisal and assessment of real property tax
a) Rule on appraisal of real property at fair market value

Real properties shall be appraised at the current and fair market value prevailing in the
locality where the property is situated and classified for assessment purposes on the basis of its
actual use. (Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005)

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In fixing the value of real property, assessors have to consider all the circumstances and
elements of value and must exercise prudent discretion in reaching conclusions. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126, October 11, 2005)

b) Declaration of real property

A tax declaration does not prove ownership; it is merely an indicium of a claim of
ownership. Neither tax receipts nor declaration of ownership for taxation purposes are evidence
of ownership or of the right to possess realty when not supported by other effective proofs. (De
Vera-Cruz v. Miguel, G.R. No. 144103, August 31, 2005)

Although tax declarations or realty tax payment of property are not conclusive
evidence of ownership, nevertheless, they are good indicia of possession in the
concept of owner, for no one in his right mind would be paying taxes for a property that is not
in his actual or constructive possession. They constitute at least proof that the holder has a
claim of title over the property. (Heirs of Santiago v. Heirs of Santiago, G.R. No. 151440, June
17, 2003)
It is `the duty of each person' acquiring real estate in the city to make a new
declaration thereof, with the advertence that failure to do so shall make the assessment in the
name of the previous owner 'valid and binding on all persons interested, and for all purposes,
as though the same had been assessed in the name of its actual owner.' (Heirs of Tajonera v.
Court of Appeals, G.R. No. L-26677, March 27, 1981)

c) Listing of real property in assessment rolls
d) Preparation of schedules of fair market value
(i) Authority of assessor to take evidence
(ii) Amendment of schedule of fair market value
e) Classes of real property
f) Actual use of property as basis of assessment
g) Assessment of real property
(i) Assessment levels
(ii) General revisions of assessments and property classification
(iii) Date of effectivity of assessment or reassessment
(iv) Assessment of property subject to back taxes
(v) Notification of new or revised assessment
h) Appraisal and assessment of machinery

5. Collection of real property tax
a) Date of accrual of real property tax and special levies
b) Collection of tax
(i) Collecting authority
(ii) Duty of assessor to furnish local treasurer with assessment rolls
(iii) Notice of time for collection of tax
c) Periods within which to collect real property tax
d) Special rules on payment
(i) Payment of real property tax in installments
(ii) Interests on unpaid real property tax
(iii) Condonation of real property tax
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e) Remedies of LGUs for collection of real property tax
(i) Issuance of notice of delinquency for real property tax payment

With regard to determining to whom the notice of sale should have been sent, settled is
the rule that, for purposes of real property taxation, the registered owner of the property is
deemed the taxpayer. Thus, in identifying the real delinquent taxpayer, a local treasurer cannot
rely solely on the tax declaration but must verify with the Register of Deeds who the registered
owner of the particular property is. (Spouses Hu v. Spouses Unico, G.R. No. 146534, September
18, 2009)

It has been ruled that the notices and publication, as well as the legal requirements for
a tax delinquency sale, are mandatory; and the failure to comply therewith can invalidate the
sale. The prescribed notices must be sent to comply with the requirements of due process. (De
Knecht v. Court of Appeals, G.R. No. 108015, 109234, May 20, 1998)

The delinquent taxpayer referred to under Sec. 72 of PD No. 464 is the actual owner of
the property at the time of the delinquency and mere compliance by the provincial or city
treasurer with Sec. 65 of the decree is no longer enough. The notification to the right person,
i.e., the real owner, is an essential and indispensable requirement of the law, non-compliance
with which renders the auction sale void. (Estate of Jacob v. Court of Appeals, G.R. No. 120435,
120974, December 22, 1997)

(ii) Local governments lien
(iii) Remedies in general
(iv) Resale of real estate taken for taxes, fees or charges
(v) Further levy until full payment of amount due

6. Refund or credit of real property tax
a) Payment under protest
b) Repayment of excessive collections

7. Taxpayers remedies
a) Contesting an assessment of value of real property
(i) Appeal to the Local Board of Assessment Appeals
(ii) Appeal to the Central Board of Assessment Appeals
(iii) Effect of payment of tax

b) Payment of real property tax under protest
(i) File protest with local treasurer

The protest contemplated under Sec. 252 of R.A. 7160 is needed where there is a
question as to the reasonableness of the amount assessed. Hence, if a taxpayer disputes the
reasonableness of an increase in a real estate tax assessment, he is required to "first pay the
tax" under protest; otherwise, the city or municipal treasurer will not act on his protest. (Ty v.
Trampe, G.R. No. 117577, December 01, 1995)

The trial court has no jurisdiction to entertain a Petition for Prohibition absent
petitioner's payment, under protest, of the tax assessed as required by Sec. 64 of the
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RPTC. Payment of the tax assessed under protest, is a condition sine qua non before the trial
court could assume jurisdiction over the petition and failure to do so, the RTC has no
jurisdiction to entertain it. (Manila Electric Co. v. Barlis, G.R. No. 114231, May 18, 2001)

Under then Sec. 30 of PD 464 [now under Sec. 226, LGC], having failed to appeal the
real property assessments to the LBAA, taxpayer now cannot assail the validity of the tax
assessment before the courts. For failure to exhaust administrative remedies, the assessment
became final. Under Sec. 64 of PD 464 [now under Sec. 252, LGC), the taxpayer must first pay
under protest and then assail the validity of the assessment. (Davao Oriental Electric Coop vs.
Prov. Dvo. of Oriental, 576 SCRA 645)


(ii) Appeal to the Local Board of Assessment Appeals

Under Section 226 of R.A. No 7160, the last action of the local assessor on a particular
assessment shall be the notice of assessment; it is this last action which gives the owner of the
property the right to appeal to the LBAA. The procedure likewise does not permit the property
owner the remedy of filing a motion for reconsideration before the local assessor. (Fels Energy,
Inc. v. Province of Batangas, G.R. No. 168557, 170628, February 16, 2007)

(iii) Appeal to the Central Board of Assessment Appeals
(iv) Appeal to the CTA
(v) Appeal to the Supreme Court


IV. Tariff and Customs Code of 1978, as amended
A. Tariff and duties, defined

"Customs duties" is "the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a
foreign country. (Nestle Philippines, Inc. v. Court of Appeals, G.R. No. 134114, July 06, 2001)

B. General rule: all imported articles are subject to duty.
1. Importation by the government taxable

C. Purpose for imposition
D. Flexible tariff clause
E. Requirements of importation
1. Beginning and ending of importation

Section 1202 of the Tariff and Customs Code provides that importation begins when the
carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload
therein. It is clear from the provision of the law that mere intent to unload is sufficient to
commence an importation and "intent," being a state of mind, is rarely susceptible of direct
proof, but must ordinarily be inferred from the facts, and therefore can only be proved by
unguarded, expressions, conduct and circumstances generally. (Feeder International Line, Pte.,
Ltd. v. Court of Appeals, G.R. No. 94262, May 31, 1991)

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Importation is terminated only upon the payment of duties, taxes and other charges
upon the articles, or secured to be paid, at the port of entry and the legal permit for withdrawal
shall have been granted. Payment of the duties, taxes, fees and other charges must be in full.
(Papa v. Mago, G.R. No. L-27360, February 28, 1968)

Under Section 1202 of the TCCP, importation takes place when merchandise is brought
into the customs territory of the Philippines with the intention of unloading the same at port.
An exception to this rule is transit cargo entered for immediate exportation which may be
allowed under Section 2103 of the TCCP when the following concur:
(a) there is a clear intent to export the article as shown in the bill of lading,
invoice, cargo manifest or other satisfactory evidence;
(b) the Collector must designate the vessel or aircraft wherein the articles are
laden as a constructive warehouse to facilitate the direct transfer of the
articles to the exporting vessel or aircraft;
(c) the imported articles are directly transferred from the vessel or aircraft
designated as a constructive warehouse to the exporting vessel or
aircraft and
(d) an irrevocable domestic letter of credit, bank guaranty or bond in an
amount equal to the ascertained duties, taxes and other charges is
submitted to the Collector (unless it appears in the bill of lading,
invoice, manifest or satisfactory evidence that the articles are destined
for transshipment). (Commissioner of Customs v. Court of Tax Appeals,
G.R. Nos. 171516-17, February 13, 2009)

2. Obligations of importer
a) Cargo manifest
b) Import entry

The term "entry" in Customs law has a triple meaning. It means (1) the documents filed
at the Customs house; (2) the submission and acceptance of the documents; and (3) the
procedure of passing goods through the Customs house. (Jardeleza v. People, G.R. No. 165265,
February 06, 2006)

c) Declaration of correct weight or value
d) Liability for payment of duties
e) Liquidation of duties
f) Keeping of records

F. Importation in violation of tax credit certificate
1. Smuggling

Smuggling is committed by any person who: (1) fraudulently imports or brings into the
Philippines any article contrary to law; (2) assists in so doing any article contrary to law; or (3)
receives, conceals, buys, sells or in any manner facilitate the transportation, concealment or
sale of such goods after importation, knowing the same to have been imported contrary to
law. (Jardeleza v. People, G.R. No. 165265, February 06, 2006)

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The Tariff and Customs law subjects to forfeiture any article which is removed contrary
to law from any public or private warehouse under customs supervision, or released irregularly
from Customs custody. Before forfeiture proceedings are instituted the law requires the
presence of probable cause; once established, the burden of proof is shifted to the
claimant. (Carrara Marble Phil., Inc. v. Commissioner of Customs, G.R. No. 129680, September
01, 1999)

In order to warrant forfeiture, it is not necessary that the vessel or aircraft must itself
carry the contraband. There is nothing in the law that so requires. (Llamado v. Commissioner of
Customs, G.R. No. L-28809, May 16, 1983)

2. Other fraudulent practices

G. Classification of goods
1. Taxable importation
2. Prohibited importation

Prohibited importations are subject to forfeiture whether the importation is direct or
indirect such as when the shipper and the consignee are one and the same person. (Paterok v.
Bureau of Customs, G.R. Nos. 90660-61, January 21, 1991)

Although the illegally imported articles may not be absolutely prohibited, but only
qualifiedly prohibited under Sec. 102 (K) of the Tariff and Customs Code, for it may be imported
subject to certain conditions, it is nonetheless prohibited and is a contraband (Comm. of
Customs vs. CTA & Dichoco, L-33471, Jan. 31, 1972), and the legal effects of the importation of
qualifiedly prohibited articles are the same as those of absolutely prohibited articles. (Auyong
Hian v. CTA, G.R. No. L-28782, September 12, 1974)

3. Conditionally-free importation


H. Classification of duties
1. Ordinary/regular duties
a) Ad valorem; methods of valuation
(i) Transaction value
(ii) Transaction value of identical goods
(iii) Transaction value of similar goods
(iv) Deductive value
(v) Computed value
(vi) Fallback value

b) Specific

2. Special duties
a) Dumping duties
b) Countervailing duties
c) Marking duties
d) Retaliatory/discriminatory duties
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e) Safeguard

I. Remedies
1. Government
a) Administrative/extrajudicial
(i) Search, seizure, forfeiture, arrest

It is quite clear that seizure and forfeiture proceedings under the tariff and customs laws
are not criminal in nature as they do not result in the conviction of the offender nor in the
imposition of the penalty provided for in section 3601 of the Code. As can be gleaned from
Section 2533 of the code, seizure proceedings, such as those instituted in this case, are purely
civil and administrative in character, the main purpose of which is to enforce the administrative
fines or forfeiture incident to unlawful importation of goods or their deliberate
possession. (People v. Court of First Instance of Rizal, G.R. No. L-41686, November 17, 1980)

In administrative proceedings, such as those before the BOC, technical rules of
procedure and evidence are not strictly applied and administrative due process cannot be fully
equated with due process in its strict judicial sense. The essence of due process is simply an
opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain
one's side or an opportunity to seek reconsideration of the action or ruling complained of. (El
Greco Ship Manning and Management Corporation v. Commissioner of Customs, G.R. No.
177188, December 04, 2008)

It is settled that the Bureau of Customs acquires exclusive jurisdiction over imported
goods for purposes of enforcing the Customs laws, from the moment the goods are actually in
possession and control of said Bureau even in the absence of any warrant of seizure or
detention. (Papa v. Mago, G.R. No. L-27360, February 28, 1968)

Regional trial courts are devoid of any competence to pass upon the validity or regularity
of seizure and forfeiture proceedings conducted by the BOC and to enjoin or otherwise interfere
with these proceedings. Regional trial courts are precluded from assuming cognizance over such
matters even through petitions for certiorari, prohibition or mandamus. (Subic Bay Metropolitan
Authority v. Rodriguez, G.R. No. 160270, April 23, 2010)

Even if the seizure by the Collector of Customs were illegal, which has yet to be proven,
we have said that such act does not deprive the Bureau of Customs of jurisdiction thereon. The
allegations of petitioners regarding the propriety of the seizure should properly be ventilated
before the Collector of Customs. (Jao v. Court of Appeals, G.R. No. 104604, 111223, October
06, 1995)

A forfeiture proceeding is in the nature of a proceeding in rem, i.e., directed against
the res or imported articles and entails a determination of the legality of their importation. In
this proceeding, it is in legal contemplation the property itself which commits the violation and
is treated as the offender, without reference whatsoever to the character or conduct of the
owner. (Transglobe International, Inc. v. Court of Appeals, G.R. No. 126634, January 25, 1999)

Settlement of the case by payment of the fine or redemption of the forfeited property,
prior to the filing of the criminal action, does not extinguish the offender's criminal liability
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under Section 3601 of the Tariff and Customs Code. (People v. Desiderio, G.R. No. L-20805,
November 29, 1965)

The requisites for the forfeiture of goods under Section 2530(f), in relation to (1) (3-5),
of the Tariff and Customs Code are: (a) the wrongful making by the owner, importer, exporter
or consignee of any declaration or affidavit, or the wrongful making or delivery by the same
person of any invoice, letter or paper all touching on the importation or exportation of
merchandise; (b) the falsity of such declaration, affidavit, invoice, letter or paper; and (c) an
intention on the part of the importer/consignee to evade the payment of the duties
due. (Republic v. CTA, G.R. No. 139050, October 02, 2001)

Once probable cause has been shown for the institution of forfeiture proceedings, the
burden of proof is upon claimant to establish that he fell within the purview of the exception.
The legal presumption in Section 5(j), Rule 131 of the Rules of Court and Article 541 of the Civil
Code are of a general character and cannot prevail over the specific provisions of the Tariff and
Customs Code. (Acting Commr. of Customs v. CTA, G.R. No. 62636, April 27, 1984)

b) Judicial
(i) Rules on appeal including jurisdiction

2. Taxpayer
a) Protest
b) Abandonment

Both the Import Entry Declaration (IED) and Import Entry and Internal Revenue
Declaration (IEIRD) should be filed within 30 days from the date of discharge of the last
package from the vessel or aircraft. (Chevron Philippines, Inc. v. Commr., G.R. No. 178759,
August 11, 2008)


c) Abatement and refund



V. Judicial Remedies (R.A. No. 1125, as amended, and the Revised Rules of the
Court of Tax Appeals)

A. Jurisdiction of the Court of Tax Appeals
1. Exclusive appellate jurisdiction over civil tax cases
a) Cases within the jurisdiction of the court en banc

The appellate jurisdiction of the CTA is not limited to cases which involve decisions of
the CIR on matters relating to assessments or refunds. Section 7 of Republic Act No.
1125||| covers other cases that arise out of the National Internal Revenue Code (NIRC) or
related laws administered by the Bureau of Internal Revenue (BIR). (Commr. v. Hambretch &
Quist Philippines, Inc., G.R. No. 169225, November 17, 2010)

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In line with the lifeblood doctrine, the National Internal Revenue Code of 1997 (NIRC)
expressly provides that no court shall have the authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee or charge imposed by the code. An exception
to this rule obtains only when in the opinion of the Court of Tax Appeals (CTA) the collection
thereof may jeopardize the interest of the government and/or the taxpayer. (Angeles City v.
Angeles Electric Corporation, G.R. No. 166134, June 29, 2010)

b) Cases within the jurisdiction of the court in divisions

Without the automatic review by the Commissioner of Customs and the Secretary of
Finance, a collector in any of our country's far-flung ports, would have absolute and unbridled
discretion to determine whether goods seized by him are locally produced, hence, not dutiable,
or of foreign origin, and therefore subject to payment of customs duties and taxes. His decision,
unless appealed by the aggrieved party (the owner of the goods), would become final with no
one the wiser except himself and the owner of the goods. (Yaokasin v. Commissioner of
Customs, G.R. No. 84111, December 22, 1989)

Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in providing for
appeals from '(1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other law
or part of the law administered by the Bureau of Internal Revenue allows an appeal from a
decision of the Collector in cases involving 'disputed assessments' as distinguished from cases
involving 'refunds of internal revenue taxes, fees or other charges, . . .'; To hold that the
taxpayer has now lost the right to appeal from the ruling on the disputed assessment but must
prosecute his appeal under Section 306 of the Tax Code, which requires a taxpayer to file a
claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect
require of him to go through a useless and needless ceremony that would only delay the
disposition of the case, for the Collector (now Commissioner) would certainly disallow the claim
for refund in the same way as he disallowed the protest against the assessment. (Vda. de San
Agustin v. Commr., G.R. No. 138485, September 10, 2001)

While the law confers on the CTA jurisdiction to resolve tax disputes in general, this
does not include cases where the constitutionality of a law or rule is challenged. Where what is
assailed is the validity or constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the regular courts
have jurisdiction to pass upon the same. (British American Tobacco v. Camacho, G.R. No.
163583, August 20, 2008)

The reviewable decision of the Bureau of Internal Revenue is that contained in the letter
of its Commissioner, that such constitutes the final decision on the matter which may be
appealed to the Court of Tax Appeals and not the warrants of distraint. It was likewise stressed
that the procedure enunciated is demanded by the pressing need for fair play, regularity and
orderliness in administrative action. (Commr. v. Union Shipping Corp., G.R. No. 66160, May 21,
1990)

A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer
the immediate payment of a tax deficiency assessment previously made, is tantamount to a
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denial of the taxpayer's request for reconsideration. Such letter amounts to a final decision on a
disputed assessment and is thus appealable to the Court of Tax Appeals (CTA). (Commr. v.
Isabela Cultural Corp., G.R. No. 135210, July 11, 2001)

If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the
said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise the
decision shall become final, executory and demandable.||| (Rizal Commercial Banking Corp. v.
Commr., G.R. No. 168498, June 16, 2006)

The period to appeal from a decision of the Commissioner of Internal Revenue to the
Court of Tax Appeals under Republic Act No. 1125 is jurisdictional and non-extendible and a
taxpayer may not delay indefinitely a tax assessment by reiterating his original defenses over
and over again, without substantial variation. (Filipinas Investment & Finance Corp. v. Commr.,
G.R. No. L-23501, May 16, 1967)

To allow a litigant to assume a different posture when he comes before the court and
challenge the position he had accepted at the administrative level, would be to sanction a
procedure whereby the Court which is supposed to review administrative determinations
would not review, but determine and decide for the first time, a question not raised at the
administrative forum. Thus, it is well settled that under the same underlying principle of prior
exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court
cannot be raised for the first time on appeal. (Commr. v. Wander Phils., Inc., G.R. No. 68375,
April 15, 1988)

By withdrawing the appeal, petitioner is deemed to have accepted the decision of the
CTA. Petitioner cannot be allowed to circumvent the denial of its request for a tax credit by
abandoning its appeal and filing a new claim. (Central Luzon Drug Corp. v. Commr., G.R. No.
181371, March 02, 2011)

Sec. 7 of RA 1125 provides that the CTA has exclusive appellate jurisdiction to review by
appeal decisions of the CIR in cases involving disputed assessments. Likewise Sec. 4 of the
1997 NIRC [RA 8424] provides that the CIR has the power to decide disputed assessments
subject to the exclusive appellate jurisdiction of the CTA. The latest law on the jurisdiction of
the CTA under Sec. 7 of RA 9282 provides that the CTA exercises exclusive appellate jurisdiction
to review by appeal decisions of the CIR in cases involving disputed assessments. Thus the
CTAs jurisdiction is to entertain an appeal only from a final decision or assessment of the CIR
or in cases where the CIR has not acted within the period prescribed by the NIRC. So when the
CIR has not issued an assessment, then there is nothing to protest or dispute. (Adamson vs.
Court of Appeals, 588 SCRA 27)

The period to appeal the decision or ruling of the RTC in local tax cases to CTA via
petition for review is governed by Sec. 11 of RA 9282 and Sec. 3(a), Rule 8 of the Revised
Rules of CTA, which is 30 days from receipt of decision or ruling. To appeal an adverse ruling of
the RTC to the CTA the taxpayer must file a petition for review with the CTA within 30 days
from receipt of the adverse decision or ruling. An extension may be granted for 15 days. With
the several extensions asked the CTA can dismiss the petition. Failure to comply with
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requirements would also be a ground to dismiss the petition. (City of Manila vs. Coca Cola
Bottlers Phils., 595 SCRA 299)

2. Criminal cases
a) Exclusive original jurisdiction
b) Exclusive appellate jurisdiction in criminal cases

B. Judicial procedures
1. Judicial action for collection of taxes
a) Internal revenue taxes

Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a
taxpayer's request for reinvestigation before he can go to court for the purpose of collecting the
tax assessed. On the contrary, Section 305 of the same Code withholds from all courts, except
the Court of Tax Appeals under Section 11 of Republic Act 1125, the authority to restrain the
collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative
policy to allow the Collector of Internal Revenue much latitude in the speedy and prompt
collection of taxes. (Republic v. Lim Tian Teng Sons & Co., Inc., G.R. No. L-21731, March 31,
1966)

For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the collection of taxes.
(Commissioner of Internal Revenue v. B.F. Goodrich Phils, Inc., (now Sime Darby International
Tire Co., Inc.), et al., G.R. No. 104171, February 24, 1999, 303 SCRA 546; Philippine Journalists,
Inc. v. Commissioner of Internal Revenue, G. R. No. 162852, December 16, 2004), as well as
their assessments.

The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because tax officers
would be obliged to act promptly in the making of assessment, and to citizens because after the
lapse of the period of prescription citizens would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect the books of taxpayers, not to determine
the latters real liability, but to take advantage of every opportunity to molest peaceful, law-
abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation
to always keep their books and keep them open for inspection subject to harassment by
unscrupulous tax agents. (Bank of Philippine Islands (Formerly Far East Bank and Trust
Company) v. Commissioner of Internal Revenue, G. R. No. 174942, March 7, 2008)

Unreasonable investigation contemplates cases where the period for assessment extends
indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected
to further investigation for taxes after the expiration of a reasonable period of time. (Philippine
Journalists, Inc. v. Commissioner of Internal Revenue, G. R. No. 162852, December 16, 2004)

For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the collection of
taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in
order to afford such protection and the exceptions to the law on prescription should perforce be
strictly construed. (Philippine Journalists Inc. v. Commr., G.R. No. 162852, December 16, 2004)
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The signatures of both the Commissioner and the taxpayer, are required for a waiver of
the prescriptive period, thus a unilateral waiver on the part of the taxpayer does not suspend the
prescriptive period. (Commissioner of Internal Revenue v. Court of Appeals, et al.,G.R. No.
115712, February 25, 1999)

The act of requesting a reinvestigation alone does not suspend the running of the
prescriptive period. The request for reinvestigation must be granted by the CIR. (Bank of
Philippine Islands (Formerly Far East Bank and Trust Company) v. Commissioner of Internal
Revenue, G. R. No. 174942, March 7, 2008)

b) Local taxes
(i) Prescriptive period

2. Civil cases
a) Who may appeal, mode of appeal, effect of appeal
(i) Suspension of collection of tax
a) Injunction not available to restrain collection
(ii) Taking of evidence
(iii) Motion for reconsideration or new trial

It is true that petitioner could not move for new trial on the basis of newly discovered
evidence because in order to have a new trial on the basis of newly discovered evidence, it
must be proved that: (a) the evidence was discovered after the trial; (b) such evidence could
not have been discovered and produced at the trial with reasonable diligence; (c) it is material,
not merely cumulative, corroborative or impeaching; and (d) it is of such weight that, if
admitted, will probably change the judgment. This does not mean however, that petitioner is
altogether barred from having a new trial if the reasons put forth by petitioner could fall under
mistake or excusable negligence. (Philippine Phosphate Fertilizer Corp. v. Commr., G.R. No.
141973, June 28, 2005)

Before the CTA En Banc could take cognizance of the petition for review concerning a
case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it
sought prior reconsideration or moved for a new trial with the concerned CTA division.
Procedural rules are not to be trifled with or be excused simply because their non-compliance
may have resulted in prejudicing a party's substantive rights. (Commisioner of Customs v.
Marina Sales, Inc., G.R. No. 183868, November 22, 2010)

The Commissioner of Internal Revenue, not having clearly signified his final action on
the disputed assessment, legally the period to appeal has not commenced to run. The request
for reinvestigation and reconsideration was in effect considered denied by CIR when the latter
filed a civil suit for collection of deficiency income. (Commissioner of Internal Revenue vs Union
Shipping Corporation and the Court of Tax Appeals, G.R. No. L-66160, May 21, 1990)

A letter of the BIR Commissioner reiterating to a taxpayer his previous demand to pay an
assessment is considered a denial of the request for reconsideration or protest and is appealable
to the Court of Tax Appeals. (Commr. v. Ayala Securities Corp., G.R. No. L-29485, March 31,
1976)
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b) Appeal to the CTA, en banc

The petition for review to be filed with the CTA en banc as the mode for appealing a
decision, resolution, or order of the CTA Division, under Section 18 of Republic Act No. 1125, as
amended, is not a totally new remedy, unique to the CTA, with a special application or use
therein. Accordingly, doctrines, principles, rules, and precedents laid down in jurisprudence by
this Court as regards petitions for review and appeals in courts of general jurisdiction should
likewise bind the CTA, and it cannot depart therefrom. (Santos v. People, et al, G. R. No.
173176, August 26, 2008)

c) Petition for review on certiorari to the Supreme Court

BOC committed procedural missteps and the decision of the CTA division has become
final. The Supreme Court is without jurisdiction to review decisions rendered by a division of the
CTA but the decision of the CTA en banc. Under Sec. 9 of RA 9282, a party affected by the
ruling or decision of a division of the CTA may file an MR within 15 days. Sec. 11 of RA 9282
provides that if the MR is denied, a petition for review is filed with the CTA en banc. From an
adverse ruling or decision from the CTA en banc, the appeal by way of petition for review on
certiorari under Rule 45 is filed with the Supreme Court. Thus the Supreme Court has no
jurisdiction to review the decision of a division of the CTA. (Com. of Customs v. Gelmart
Industries, 579 SCRA 272)


3. Criminal cases
a) Institution and prosecution of criminal actions

Any subsequent satisfaction of the tax liability, by payment or prescription, will not
operate to extinguish criminal liability, since the duty to pay the tax is imposed by statute
independent of any attempt on the part of the taxpayer to evade payment. The failure of the
government, therefore, to enforce by appropriate civil remedies the collection of the taxes, does
not detract from its right criminally to prosecute violations of the Code. (People v. Tierra, G.R.
Nos. L-17177-80, December 28, 1964)

(i) Institution of civil action in criminal action

Section 222 of the NIRC specifically states that in cases where a false or fraudulent
return is submitted or in cases of failure to file a return such as this case, proceedings in court
may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly
mandates that the civil and criminal aspects of the case may be pursued
simultaneously. (Commr. v. Pascor Realty & Development Corp., G.R. No. 128315, June 29,
1999)

Since the civil liability is not deemed included in the criminal action, acquittal of the
taxpayer in the criminal proceeding does not necessarily entail exoneration from his liability to
pay the taxes. The acquittal in a criminal case cannot operate to discharge defendant from the
duty of paying the taxes which the law requires to be paid, since that duty is imposed by
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statute prior to and independently of any attempts by the taxpayer to evade
payment. (Republic v. Patanao, G.R. No. L-22356, July 21, 1967)

With regard to the tax proper, the state correctly points out in its brief that the acquittal
in the criminal case could not operate to discharge petitioner from the duty to pay the tax, since
that duty is imposed by statue prior to and independently of any attempts on the part of the
taxpayer to evade payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil liability derived from crime that
would be wiped out by the judicial declaration that the criminal acts charged did not
exist. (Castro v. Collector of Internal Revenue, G.R. No. L-12174, April 26, 1962)

b) Appeal and period to appeal
(i) Solicitor General as counsel for the people and government officials sued
in their official capacity
c) Petition for review on certiorari to the Supreme Court

C. Taxpayers suit impugning the validity of tax measures or acts of taxing authorities
1. Taxpayers suit, defined

It is hornbook principle that a taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that public money is being deflected to any improper
purpose, or that there is wastage of public funds through the enforcement of an invalid or
unconstitutional law. For a taxpayer's suit to prosper, two requisites must be met namely, (1)
public funds derived from taxation are disbursed by a political subdivision or instrumentality and
in doing so, a law is violated or some irregularity is committed; and (2) the petitioner is directly
affected by the alleged act. (LBP v. Cacayuran, G.R. No. 191667, April 17, 2013)

What is a taxpayers suit? In the case of a taxpayer, he is allowed to sue where there is
a claim that public funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds through the enforcement of an
invalid or unconstitutional law. Before he can invoke the power of judicial review, however, he
must specifically prove that he has sufficient interest in preventing the illegal expenditure of
money raised by taxation and that he would sustain a direct injury as a result of the
enforcement of the questioned statute or contract. It is not sufficient that he has merely a
general interest common to all members of the public. At all events, courts are vested with
discretion as to whether or not a taxpayer's suit should be entertained. This Court opts to grant
standing to most of the petitioners, given their allegation that any impending transmittal to the
Senate of the Articles of Impeachment and the ensuing trial of the Chief Justice will necessarily
involve the expenditure of public funds. (Francisco, Jr. vs. Nagmamalasakit na mga
Manananggol ng mga Manggagawang Pilipino, 415 SCRA 44)


2. Distinguished from citizens suit

Taxpayers have been allowed to sue where there is a claim that public funds are illegally
disbursed or that public money is being deflected to any improper purpose, or that public funds
are wasted through the enforcement of an invalid or unconstitutional law. On the other hand,
as citizens, petitioners have must fulfill the standing requirement given that the issues they
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have raised may be classified as matters "of transcendental importance, of overreaching
significance to society, or of paramount public interest." (Belgica v. Ochoa, G.R. No. 208566,
208493, 209251, L-20768, November 19, 2013)

What is a citizens suit? When suing as a citizen, the interest of the petitioner assailing
the constitutionality of a statute must be direct and personal. He must be able to show, not only
that the law or any government act is invalid, but also that he sustained or is in imminent
danger of sustaining some direct injury as a result of its enforcement, and not merely that he
suffers thereby in some indefinite way. It must appear that the person complaining has been or
is about to be denied some right or privilege to which he is lawfully entitled or that he is about
to be subjected to some burdens or penalties by reason of the statute or act complained of. In
fine, when the proceeding involves the assertion of a public right, the mere fact that he is a
citizen satisfies the requirement of personal interest. (Francisco, Jr. vs. Nagmamalasakit na mga
Manananggol ng mga Manggagawang Pilipino, 415 SCRA 44)


3. Requisites for challenging the constitutionality of a tax measure or act of taxing
authority
a) Concept of locus standi as applied in taxation
Legal standing or locus standi has been defined as a personal and substantial
interest in the case such that the party has sustained or will sustain direct injury
as a result of the governmental as that is being challenged. The gist of the
question of standing is whether a party alleges such personal stake in the
outcome of the controversy as to assure the concrete adverseness which
sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions.
To invest him with locus standi, the plaintiff has to adequately show that he is
entitled to judicial protection and has a sufficient interest in the vindication of the
asserted public right. In case of taxpayers suits, the party suing as a taxpayer
must prove that he has sufficient interest in preventing the illegal expenditure of
money raised by taxation. (Public Interest Center vs. Roxas, 513 SCRA 457)

Locus standi, however, is merely a matter of procedure and it has been
recognized that in some cases, suits are not brought by parties who have been
personally injured by the operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually sue in the public interest.
Consequently, the Court, in a catena of cases, has invariably adopted a liberal
stance on locus standi, including those cases involving taxpayers. The prevailing
doctrine in taxpayers suits is to allow taxpayers to question contracts entered
into by the national government or government-owned or controlled corporations
allegedly in contravention of law. A taxpayer is allowed to sue where there is a
claim that public funds are illegally disbursed, or that money is being deflected to
any improper purpose, or that there is wastage of public funds through the
enforcement of an invalid or unconstitutional law. Significantly, a taxpayer need
not be a party to the contract to challenge its validity. (Abaya vs. Ebdane, Jr. 515
SCRA 720)


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b) Doctrine of transcendental importance
What is transcendental importance? There being no doctrinal definition of
transcendental importance, the following instructive determinants are instructive:
(1) the character of the funds or other assets involved in the case, (2) the
presence of a clear case of disregard of a constitutional or statutory prohibition
by the public respondent agency or instrumentality of the government, and the
(3) the lack of any other party with a more direct and specific interest in raising
the questions being raised. The Court has adopted a liberal attitude on locus
standi where the petitioner is able to craft an issue of transcendental significance
to the people, as when the issues raised are of paramount importance to the
public. (Francisco, Jr. vs. Nagmamalasakit na mga Manananggol ng mga
Manggagawang Pilipino, 415 SCRA 44)

Only a person who stands to be benefited or injured by the judgment in the suit
or entitled to the avails of the suit can file a complaint or petition. Respondents
claim that petitioner is not a proper party-in-interest as he was unable to show
that he has sustained or is in immediate or imminent danger of sustaining some
direct and personal injury as a result of the execution and enforcement of the
assailed contracts or agreements. Moreover, they assert that not all government
contracts can justify a taxpayers suit especially when no public funds were
utilized in contravention of the Constitution or a law. We explicated in Chavez v.
PCGG, 299 SCRA 744 (1998), that in cases where issues of transcendental public
importance are presented, there is no necessity to show that petitioner has
experienced or is in actual danger of suffering direct and personal injury as the
requisite injury is assumed. We find our ruling in Chavez v. PEA, 384 SCRA 152
(2002), as conclusive authority on locus standi in the case at bar since the issues
raised in this petition are averred to be in breach of the fair diffusion of the
countrys natural resources and the constitutional right of a citizen to information
which have been declared to be matters of transcendental public importance.
Moreover, the pleadings especially those of respondents readily reveal that public
funds have been indirectly utilized in the Project by means of Smokey Mountain
Project Participation Certificates (SMPPCs) bought by some government
agencies. Hence, petitioner, as a taxpayer, is a proper party to the instant
petition before the court. (Chavez vs. NHA, 530 SCRA 235)

c) Ripeness for judicial determination


PREPARED BY:

UNIVERSITY OF SAN CARLOS

PLAZA, ATHENA
PLAZA, LADY LOVE
JACILDO, JECCA