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TAXATION
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Taxation of non-paying patients of non-profit hospitals
Commissioner of Internal Revenue v. St. Lukes (GR No. 195909)
St. Lukes accepts both paying and non-paying patients.
- With respect to its non-paying patients, St. Lukes is exempted from income tax pursuant to
Sec. 30 (E) and (G) of the NIRC for being a non-stock corporation or organization operated
exclusively for charitable or social welfare purposes.
- Accepting paying patients does not destroy the exemption of St. Lukes under Sec. 30 of the
NIRC. Instead, the last paragraph of Sec. 30 of the NIRC provides that St. Lukes activities
conducted for profit, regardless of the disposition of such income, shall be subject to tax imposed
under this Code.
Franchises are not subject to taxes
Digitel Telecommunications v. City of Batangas (GR No. 156040)
The franchise of the taxpayer contained the following: The grantee shall be liable to pay the
same taxes on its real estate, buildings, and personal property exclusive of this franchise as other
persons or corporations are now or hereafter may be required by law to pay.
-

exclusive of this franchise is meant to exclude the legislative franchise from the
properties subject to taxes under the first sentence. In effect, petitioners franchise, which is
a personal property, is not subject to the taxes imposed on properties under the first sentence
of Section 5.

Failure to appeal to the Secretary of Justice within the statutory period of 30 days from the
effectivity of an ordinance is fatal to ones cause.
CEPALCO v. City of Cagayan de Oro (GR No. 191761)
Failure to appeal to the Secretary of Justice within the statutory period of 30 days from
the effectivity of an ordinance is fatal ones cause.
A city may exceed by not more than 50% the tax rates allowed to provinces and
municipalities. Following this:
A city may impose a franchise tax of up to 0.0075 (or 0.75%) of a business gross annual
receipts.

A city may impose a business tax of up to 0.03 (or 3%) of a business gross sales or
receipts

BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
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Only the person legally liable to pay tax can file judicial claim for refund.
CIR vs San Roque Power Corporation (GR No. 187845)
1. Only the person legally liable to pay the tax can file the judicial claim for refund. The person
to whom the tax is passed on as part of the purchase price has no personality to file the judicial
claim under Section 229.
2. 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.
BUT, a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in good
faith relied on the BIR regulation or ruling prior to its reversal.

CONSTITUTIONAL LIMITATIONS ON THE POWER TO TAX

The Constitution provides for certain restrictions on the power of taxation, among them:
1)
2)
3)
4)

uniformity; (Art. VI, 28[1])

progressive system of taxation; (Art. VI, 28[1])
non-imprisonment for non-payment of poll tax; (Art. III, 20)
appropriation, revenue and tariff bills must originate exclusively in the House of
Representatives; (Art. III, 24)
5) presidential power to fix tariff rates; (Art. VIII, 28[2])
6) exemption from property tax of properties of religious, educational, charitable
institutions; (Art. VI, 28[3])
7) tax exemptions granted to non-stock, non-profit educational institutions; (Art. XIV,
4[3])
8) no public money or property used for a particular sect, priest, religious minister, etc.;
(Art. VI, 29[2])
9) grant of tax exemptions (state can impose tax as well as grant exemption); (Art. VI
28[4])
10) grant of power of taxation to local government units; (Art. X, 5)
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BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
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11) money collected for a special purpose shall be considered a special fund; (Art. VI,
29[3])
12) exclusive appellate jurisdiction of the Supreme Court over judgments of lower courts
involving the legality of taxes, imports, assessment, fees,penalty. (Art. VIII, 2; Art. VIII,
5)
REVENUE REGULATION NO. 3-2012
Provides new thresholds and rules for VAT applicability to sellers and lessors of property.
EFFECTIVE January 1, 2012
Transaction

VAT exempt if:

Sale of Residential lot

Valued at 1,919,500 or below

Sale of House and Lot

Valued at 3,199,200 or below

Lease or residential unit

Monthly rent is 12,800 or below

Sale or lease of goods or properties or

performance of services

Gross receipts is 1,919,500 or below

Revenue Memorandum Circular 35-2011

The Improperly Accumulated Taxable Income is thereby multiplied by 10% to arrive at the
Improperly Accumulated Earnings Tax.
The amount that may be retained, taking into consideration the accumulated earnings within the
reasonable needs of the business as determined under Section 3 of the said RR, shall be 100%
of the paid up capital or the amount contributed to the corporation representing the par value of
the stock , hence, any excess capital over and above the par shall be excluded.

PROCEDURAL STEPS IN PROTESTING AN ASSESSMENT

BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
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1) Issuance of a pre-assessment notice by the BIR informing the taxpayer that taxes ought to
be assessed against him, except under the circumstances enumerated in paragraphs [a] to
[e] of Section 228. The taxpayer is given fifteen (15) days from receipt of the preassessment notice, extendible for not more than ten (10) days, within which to respond to
the pre-assessment notice.
2) If the taxpayer fails to respond, or despite the response, the BIR still opines that the
taxpayer ought to be assessed for deficiency taxes, the BIR will issue the assessment
notice.
3) The taxpayer may file an administrative protest against the assessment within thirty (30)
days from receipt of the assessment. Within sixty (60) days from filing the protest, all the
relevant documents should be submitted; otherwise, the assessment shall become final
and unappealable.
4) From the receipt of the adverse decision of the Commissioner, or from the lapse of the
one hundred eighty (180) days from the submission of the documents, the taxpayer may
appeal to the Court of Tax Appeals within thirty (30) days; otherwise, the decision or the
assessment shall become final
What may be the subject of a judicial review is the decision of the Commissioner on the protest
against assessment, not the assessment itself. If taxpayer appeals from assessment of CIR
without previously contesting the same, the appeal is premature and CTA has no jurisdiction to
entertain said appeal. (CIR v. Villa 22 SCRA 3)
Assessment notice and the demand letter should state the facts and the law on which they are
based; otherwise they are deemed void. A void assessment renders any subsequent proceedings
invalid and any order emanating from it could never attain finality. (CIR v. Reyes, 480 SCRA
382,390-391)
Presumption of correctness in case of taxpayer's failure to protest the assessments - 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
hissuperior officers will not be disturbed. All presumptions are in favor of the correctness of tax
assessments. (CIR v. BPI, 521 SCRA 373, 386)
4

BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
TIPS 2013
An amended assessment would no longer be proper before the Court of Tax Appeals, not being
the "disputed assessment" appealed from. (Commissioner v. Guerrero, 19 SCRA 205)
PROTEST IN CUSTOMS CASES
Decisions of the Collector of Customs in favor of the importer/owner of the goods are
automatically reviewable by the Commissioner of Customs. If still favorable to the
owner/importer, they're automatically reviewed by the Secretary of Finance. If neither the
commissioner nor the secretary makes a decision within 30 days from receipt of the case records,
the collector's decision becomes final and executory.
The ruling of the Collector of Customs becomes final and executory (except in the fixing of fines
in seizure cases) in any of the following instances:
1.) No protest is filed at the time of payment or within 15 days after payment
2.) The decision of the Collector of Customs wasn't appealed to the Commissioner of Customs
within 15 days after notification of the decision
3.) If there was no appeal to the CTA within 30 days from receipt of the commissioner's decision
Seizure and Forefeiture
1.) If after the hearing following the seizure of the articles in question the collector of customs
gives an unfavorable decision, appeal to the commissioner of customs within 15 days from the
receipt of the decision.
2.) If the commissioner gives an unfavorable decision, you have 30 days from the date you
received the decision to go on review with the CTA in division.
If the collector of customs rules against the government, either of the following will happen:
1.) If the amount in question is less than Php5,000,000.00 the case goes on automatic review by
the commissioner. If the commissioner doesn't act or rules against the government, the case is
automatically reviewed by the Secretary of Finance.
2.) If the amount is more than Php5,000,000.00 the case is automatically reviewed by the
secretary. He has 30 days to decide. If the secretary doesn't act, the decision becomes final. The
same goes for a favorable decision. If unfavorable, the importer must go to the CTA. Follow the
same steps as before, in this case.
5

BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
TIPS 2013
Forfeiture proceedings are in rem and directed against the res. Lack of knowledge by the owner
doesn't necessarily make the vessel immune from forfeiture; but forfeiture of a private carrier
that is used to smuggle articles requires knowledge of the owner/agent of the unlawful act (so if
the owner didn't know, his vessel can't be forfeited.) There is prima facie presumption that a
vessel or aircraft has been used for smuggling in the following circumstances:
1.) The conveyance was used for smuggling at least twice before
2.) The owner isn't in the business for which the conveyance was used
3.) The owner isn't in a financial position to own the conveyance (CC vs. CTA, 138 SCRA 581)
Redemption of seized articles aren't allowed in the following instances:
1.) When there is actual fraud (not merely constructive)
2.) The importation is absolutely prohibited
3.) The release is contrary to law (Transglobe vs CA, GRNo. 126634)
Confiscated goods can be redeemed if the taxes, fees and charges are paid; they're not prohibited
and/or there is no bad faith.
Liquidation of import entries become final and conclusive within 1 year from the final settlement
of duties and delivery of the imported articles if there is no fraud or protest. Tentative
liquidations aren't covered by this limitation.
From the date of seizure of the goods, the Bureau of Customs acquires jurisdiction over the
goods for the purposes of the enforcement of the tariff and customs laws, to the exclusion of the
regular courts. The RTC has no jurisdiction to issue an order to release the goods.
(Commissioner of Customs v. Navarro)
DEDUCTIONS FROM GROSS ESTATE
Family home (even unmarried person may have a family home) subject to the following
conditions:
a. only one (1) family home;
b. certification issued by the Barangay Captain that the decedent is a resident of and own
that family home in that particular locality;
c. deduction is not more than P1M; excess shall be subject to tax
d. the FMV must be included in the gross estate of the decedent.
6

BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
TIPS 2013
If the FMV of the family home is P5M, this should be included in the gross estate of the
decedent. But when you claim deductions, you can only claim up to P1M.
VANISHING DEDUCTION
- is an allowable deduction against the exclusive property of the decedent
- may be claimed as deduction under the following conditions:
a. Death of a decedent which must take place within FIVE YEARS from the death of the
prior incident or before gift was given.
There seems to be double taxation. That is why, the purpose of vanishing deduction is to mitigate
the harshness of double taxation. So, B may be entitled to that vanishing deduction which may
reduce his estate tax.
The condition set by law is that B must have died within the 5-year period. If B died 6 years after
the death of A, B can no longer claim such vanishing deductions.
b. Identity of Property located in the Phils.
So, there must be evidence to that effect that this is the same property which forms part of the
gross estate of A.
c. Inclusion of the tax property in the gross estate of the prior decedent.
d. Previous taxation
The estate of A which included the property subject of vanishing deduction had been taxed;
meaning, that estate tax had been paid by prior estate.
e. No previous vanishing deductions.
Question:
So, if B died and the property is transmitted to C, his heir, that property is also considered as
exclusive property of C because it was acquired through inheritance.
Can C claim vanishing deductions?
Answer:
NO, because this had already been claimed by B. You can only claim vanishing deduction once.
It is impossible that B acquired the property not through inheritance but through donation.
Donors tax had already been paid. This is an exclusive property of B because under the law,
7

BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
TIPS 2013
property acquired during the marriage by gratuitous title is an exclusive property and forms part
of his gross estate.
Can we apply this vanishing deduction?
YES. Here, B must have died within the 5-year period from the date of donation.
RULE IF DONEE IS STRANGER
Donors tax payable 30% of net gift
STRANGER one who is not a brother, sister (whole or half-blood), spouse, ancestor, lineal
descendant or relative by CONSANGUINITY in the COLLATERAL LINE within the 4th degree.
TAX SPARING CREDIT (28.B (5) b) NIRC
Purpose: To attract investors in the Philippines
Situation: Non resident FC received dividend, cash or property dividend from domestic
corporation. That dividend received from DC is subject to 15% FINAL WITHOLDING TAX.
This 15% may be imposed on this dividend received from DC if the foreign govt. of the NRFC
allows a tax credit at least 15%. It should be creditedfrom the taxes deemed paid by this NRFC
in the Phils.
So, if the foreign govt. does not allow a tax credit of at least 19%, the tax there is not 15% but
30%. Thus, the tax spared or saved is 15% because normally the tax is 30%. So, 35% less 15%
equals 15%, that is the tax saved and that represents the tax credit allowed by the foreign govt.
Question: Must the foreign govt. actually grant a tax credit or is it enough that the foreign govt.
allow such tax credit?
Answer: There is no statutory provision that requires actual grant. Neither is there a Revenue
Regulation requiring actual grant. It is clear that the provision of the law says allows. So, it is
enough to prove that the foreign corp. allows a tax credit. It is not incumbent upon the foreign
corp. to prove the amount actually granted.
MINIMUM CORPORATE INCOME TAX
On Corporations
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BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
TIPS 2013
MCIT of 2% of gross income at the end of the taxable year is imposed on corporations,
beginning on the fourth taxable year immediately following the year in which such corporation
commenced its business operations, when the minimum income tax is greater than the regular
corporate income tax.
Carry forward of excess minimum tax.
Any excess of the minimum corporate income tax over the regular corporate income tax
shall be carried forward and credited against the normal income tax for the three (3) immediately
succeeding taxable years.
Relief from the Minimum Corporate Income Tax Under Certain Conditions
The Secretary of Finance is hereby authorized to suspend the imposition of minimum
corporate income tax on any corporation which suffers losses on account of prolonged labor
dispute, or because of force majeure, or because of legitimate business reverses.
GROSS PHILIPPINE BILLINGS UPDATED (R.A. 10378) effective July 2012
For purposes of International Air Carrier, GROSS PHIL. BILLINGS refer to the amount of gross
revenue derived from carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight irrespective of the place of sale or issue, and
the place of payment of the ticket or passage document.
Gross Phil. billings for purposes of International Shipping means gross revenue whether from
passenger, cargo or mail originating from the Phils. up to final destination, regardless of the place
of sale or payments of the passage or freight documents.
WASH SALE
This has been described as 61 days sale The seller here is not a dealer in securities.
It is described as 61 days sale because here, 30 days before the sale, the seller acquired
substantially identical securities OR 30 days before the sale, he acquired identical or
substantially the same stocks or securities. Sale may also include exchange or option to sell
securities.
Example: Today is June 10, Now, here is A who is not a dealer in securities or stocks. He sells
securities.
Can that be classified as wash sale?
9

BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL

The Sigma Rho Fraternity

TAXATION
TIPS 2013
You must find out whether 30 days before June 10, he purchased identical securities. Or he may
not have purchased identical securities within that 30 day period before the sale but it is possible
that within 30 days after June 10, he may have purchased identical securities.
The tax treatment here is, the gain is taxable, meaning that is classified as Capital Gain because
the seller is not engaged in such business. If there is a loss, since it is classified as Capital
Transaction, that is considered Capital Loss.
The capital gain is taxable but the capital loss incurred from wash sale transaction is not
deductible.
Short Sale a transaction wherein a person sells securities which he does not own yet. The
seller here is a mere speculator; he is selling securities which he is yet to acquire, provided
however, that he has ownership of the securities at the time of delivery he has the right to
transfer ownership.

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BAR OPS HEAD:

BEJEMINO 11
TAXATION HEAD:
ABDON 12
TAXATION DEPUTY:
DUMAYAS 12

MAKO
REINIER
DARYL