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COVERAGE
LAW ON TAXATION
2015 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:

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Philippine Association of Law
Schools

(1) determine the


(a) nature (kind);
(b) object (purpose);
(c) extent (amount of rate);

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Philippine Association of Law
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(d) coverage (subjects and objects);


(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))

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)

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)
Since the main purpose of Ordinance No. 18 is to regulate certain construction
activities of the identified special projects, which includes cell sites or
telecommunications towers, the fees imposed in Ordinance No. 18 are primarily
regulatory in nature, and not primarily revenue- raising. While the fees may
contribute to the revenues of the Municipality, this effect is merely incidental. Thus,
the fees imposed in Ordinance No. 18 are not taxes. SMART COMMUNICATIONS
INC., vs. MUNICIPALITY OF MALVAR, BATANGAS, G.R. No. 204429,
February 18, 2014, J. Carpio
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 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 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)
For Double taxation to take place, 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 the taxes must be of the
same kind or character. Because Section 21 of the Revenue Code of Manila imposed
the tax on a person who sold goods and services in the course of trade or business
based on a certain percentage of his gross sales or receipts in the preceding
calendar year, while Section 15 and Section 17 likewise imposed the tax on a
person

who sold goods and services in the course of trade or business but only identified
such person with particularity, namely, the wholesaler, distributor or dealer (Section
15), and the retailer (Section 17), all the taxes being imposed on the privilege of
doing business in the City of Manila in order to make the taxpayers contribute to the
citys revenues were imposed on the same subject matter and for the same
purpose. NURSERY CARE CORPORATION; SHOEMART, INC.; STAR APPLIANCE
CENTER, INC.; H&B, INC.; SUPPLIES STATION, INC.; and HARDWARE WORKSHOP,
INC. vs. ANTHONY ACEVEDO, in his capacity as THE TREASURER OF MANILA; and
THE CITY OF MANILA, G.R. No. 180651, July 30, 2014, J. Bersamin
Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a
partially prepared tobacco. The removal of the stem or midrib from the leaf tobacco
makes the resulting stemmed leaf tobacco a prepared or partially prepared tobacco.
Since the Tax Code contained no definition of partially prepared tobacco, then the
term should be construed in its general, ordinary, and comprehensive sense.
However, importation of stemmed leaf tobacco is not included in the exemption
under Section 137. The transaction contemplated in Section 137 does not include
importation of stemmed leaf tobacco for the reason that the law uses the word
sold to describe the transaction of transferring the raw materials from one
manufacturer to another. Finally, excise taxes are essentially taxes on property
because they are levied on certain specified goods or articles manufactured or
produced in the Philippines for domestic sale or consumption or for any other
disposition, and on goods imported. In this case, there is no double taxation in the
prohibited sense despite the fact that they are paying the specific tax on the raw
material and on the finished product in which the raw material was a part, because
the specific tax is imposed by explicit provisions of the Tax Code on two different
articles or products: (1) on the stemmed leaf tobacco; and (2) on cigar or cigarette.
LA SUERTE CIGAR & CIGARETTE FACTORY vs. COURT OF APPEALS AND
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 125346, G.R. Nos. 136328-29,
G.R. No. 144942, G.R. No. 148605, G.R. No. 158197,
G.R. No. 165499, November 11, 2014, J. Leonen
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 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)

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)
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%

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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)

(iii) Contractual

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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

1
2
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)

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-of
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)
The claim of a taxpayer under a tax amnesty shall be allowed when the liability
involves the deficiency in payment of income tax. However, it must be disallowed
when the taxpayer is assessed on his capacity as a withholding tax agent because
the person who earned the taxable income was another person other than the
withholding agent. LG ELECTRONICS PHILIPPINES, INC. vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 165451, December 03, 2014, J.
Leonen

Neither the law nor the implementing rules state that a court ruling that has not
attained finality would preclude the availment of the benefits of the Tax Amnesty
Law. While tax amnesty,

similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority, it is also a well-settled doctrine that the
rule-making power of administrative agencies cannot be extended to amend or
expand statutory requirements or to embrace matters not originally encompassed
by the law. Administrative regulations should always be in accord with the
provisions of the statute they seek to carry into effect, and any resulting
inconsistency shall be resolved in favor of the basic law. CS GARMENT, INC., vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 182399, March 12, 2014, CJ.
Sereno
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 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 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)
A tax credit or refund is strictly construed against the taxpayer. Strict compliance
with the mandatory and jurisdictional conditions prescribed by law to claim such tax
refund or credit is essential and necessary for such claim to prosper. Noncompliance
with the mandatory periods, nonobservance of the prescriptive periods, and
nonadherence to exhaustion of administrative remedies bar a taxpayers claim for
tax refund or credit, whether or not the CIR questions the numerical correctness of
the claim of the taxpayer. SILICON PHILIPPINES, INC., (formerly INTEL PHILIPPINES
MANUFACTURING INC.), vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 184360 & 184361/COMMISSIONER OF INTERNAL REVENUE vs. SILICON
PHILIPPINES, INC., (formerly INTEL PHILIPPINES MANUFACTURING, INC.) G.R. No.
184384, February 19, 2014, J. Villarama, Jr.
(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 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)

It is of course axiomatic that a rule or regulation must bear upon, and be consistent
with, the provisions of the enabling statute if such rule or regulation is to be valid. In
case of conflict between a statute and an administrative order, the former must
prevail. To be valid, an administrative rule or regulation must conform, not
contradict, the provisions of the enabling

law. An implementing rule or regulation cannot modify, expand, or subtract from the
law it is intended to implement. Any rule that is not consistent with the statute itself
is null and void. To recapitulate, RR 7-95, insofar as it restricts the definition of
"goods" as basis of transitional input tax credit under Section 105 is a nullity. FORT
BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG
and PATEROS, BUREAU OF INTERNAL REVENUE, G.R. No. 175707,
November 19, 2014, J. Leonardo-De Castro
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
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, 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 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)

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(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 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

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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

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1

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)
It should be noted that a DST is in the nature of an excise tax because it is imposed
upon the privilege, opportunity or facility offered at exchanges for the transaction of
the business. DST is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, or transfer of an obligation, right or
property incident thereto. DST is thus imposed on the exercise of these privileges
through the execution of specific instruments, independently of the legal status of
the transactions giving rise thereto. Notably, R.A. No. 9243, entitled An Act
Rationalizing the Provisions of the Documentary Stamp Tax of the National Internal
Revenue Code of 1997 was enacted and took effect on April 27, 2004, which
exempts the transfer of real property of a corporation, which is a party to the
merger or consolidation, to another corporation, which is also a party to the merger
or consolidation, from the payment of DST.
COMMISSIONER
OF
INTERNAL
REVENUE vs. PILIPINAS SHELL PETROLEUM
CORPORATION, G.R. No. 192398, September 29, 2014, J. Villarama, Jr.
(1) Estate tax
(2) Donors tax
(e) Situs of business tax
(1) Sale of real property
(2) Sale of personal property

2
2
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)
(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 afecting 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. (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 tarif 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 nonpaying, 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 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)
(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, tarif 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 tarif 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 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 afecting 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 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. (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 nonimpairment 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
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. Tarif
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

3
0

HONORABLE COMMISSION ON AUDIT, G.R. No. 92585, May 8, 1992)


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

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to mean simply that "direct taxes are to be preferred [and] as much as possible,
indirect taxes should be minimized." (ARTURO

3
1

M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF


INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
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

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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 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 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
Joint venture and consortium

(iii)
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
(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
(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 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-of
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
(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)
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)
(a) Winnings, prizes, and awards, including
those in sports competition
(6) Under special laws
(a) Personal Equity and Retirement Account
(b) 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 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

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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 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

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4
1
(3) Treatments of
surcharges/interests/fines for
delinquency
(4) Treatment of special assessment
(5) Tax credit vis--vis deduction
(d) Losses
(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.

4
Court of Appeals, et al., G.R. No. 118794, May 2
8,
1996)
(1) Requisites for deductibility
(2) Efect 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
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
resident foreign corporations
(c) Partnerships

non-

(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
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
(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 diferential, 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)

Capital gains is a tax on passive income, it is the


seller, not the buyer, who generally would shoulder
the tax. As a general rule, therefore, any of the
parties to a transaction shall be liable for the full
amount of the documentary stamp tax due, unless
they agree among themselves on who shall be
liable for the same. Capital gains tax due on the
sale of real property is a liability for the account of
the seller. It has been held that since capital gains
is a tax on passive income, it is the seller, not the
buyer, who generally would shoulder the tax. Also,
there is no agreement as to the party liable for the
documentary stamp tax due on the sale of the land
to be expropriated. But while DPWH rejects any
liability for the same, this Court must take note of
petitioners Citizens Charter, which functions as a
guide for the procedure to be taken by the DPWH
in acquiring real property through expropriation
under RA 8974. The Citizens Charter, issued by
DPWH itself on December 4, 2013, explicitly
provides that the documentary stamp tax, transfer
tax, and registration fee due on the transfer of the
title of land in the name of the Republic shall be
shouldered by the implementing agency of the
DPWH, while the capital gains tax shall be paid by
the affected property owner. REPUBLIC OF THE
PHILIPPINES, REPRESENTED BY THE DEPARTMENT
OF PUBLIC WORKS AND HIGHWAYS vs. ARLENE
R. SORIANO, G.R. No. 211666, February 25,
2015, J.
Peralta
HSBC issued SWIFT messages to its clients
containing instructions about their accounts. HSBC
paid DST on the said messages. However, later on,
HSBC filed for tax refund for the DST it paid. CIR
denied their claim. On review with the Supreme
Court, it held that an electronic message containing
instructions to debit their respective local or foreign
currency accounts in the Philippines and pay a
certain named recipient also residing in the
Philippines is not transaction contemplated under
Section 181 of the Tax Code. They are also not bills
of exchange due to their non-negotiability. Hence,
they are not subject to DST. THE HONGKONG AND
SHANGHAI BANKING CORPORATION LIMITEDPHILIPPINE BRANCHES vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 166018
& 167728, June 4, 2014, J. Leonardo-De Castro

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
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
th
since it will apply only beginning on the 4 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
(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)
Ofshore banking units
(iii)
Branch profits remittances
(iv)
Regional or area headquarters and regional operating
headquarters of multinational companies
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. L22492, 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 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)

Should there have been a simultaneous sale to 20 or more


lenders/investors, the Poverty Eradication and Alleviation Certificates
or the PEACe Bonds are deemed

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deposit substitutes within the meaning of Sec. 22(Y) of the 1997 NIRC
and RCBC Capital would have been obliged to pay the 20% FWT on the
interest or discount from the PEACe Bonds. Further, the obligation to
withhold the 20% final tax on the corresponding interest from the
PEACe Bonds would likewise be required of any lender/investor had the
latter turned around and sold said PEACe Bonds, whether in whole or
part, simultaneously to 20 or more lenders or investors.
The Court notes, however, that under Section 242 of the 1997 NIRC,
interest income received by individuals from longterm deposits or
investments with a holding period of not less than five (5) years is
exempt from the final tax.
Thus, should the PEACe Bonds be found to be within the coverage of
deposit substitutes, the proper procedure was for the Bureau of
Treasury to pay the face value of the PEACe Bonds to the bondholders
and for the BIR to collect the unpaid FWT directly from RCBC Capital, or
any lender or investor if such be the case, as the withholding agents.
BANCO DE ORO, et al. vs. REPUBLIC OF THE PHILIPPINES, et
al., G.R. No. 198756, January 13, 2015, J. Leonen
f) Creditable withholding tax
While perhaps it may be necessary to prove that the taxpayer did not
use the claimed creditable withholding tax to pay for his/its tax
liabilities, there is no basis in law or jurisprudence to say that BIR Form
No. 2307 is the only evidence that may be adduced to prove such nonuse. PHILIPPINE NATIONAL BANK vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 206019, March 18, 2015, J.
Velasco Jr.
(i) Expanded withholding tax
(ii)
Withholding tax on compensation
g) Timing of withholding
B. Estate tax
1. Basic principles
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;

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1

(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)
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

5
2
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 dateof-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
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 FAUSTINOCORONA, 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. 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)
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-oncost 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
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 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 efectively 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)
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
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 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)

6
0
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 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

6
0

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.

6
1
(COMMISSIONER
OF INTERNAL
(PHILIPPINES), G.R.
No. 153866, February 11, 2005)

REVENUE

vs.

SEAGATE

TECHNOLOGY

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 VATregistered 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 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

6
2
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 zerorated 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)
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.

(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)
The Atlas doctrine, which held that claims for refund or credit of input
VAT must comply with the two-year prescriptive period under Sec. 229, should
be effective only from its promulgation on June 8, 2007 until its abandonment
on [September 12, 2008] in Mirant. The Atlas doctrine was limited to the
reckoning of the two-year prescriptive period from the date of payment of the
output VAT. The Mirant ruling, which abandoned the Atlas doctrine, adopted
the verba legis rule, thus applying Sec. 112(A) in computing the two-year
prescriptive period in claiming refund or credit of input VAT. Since July 23,
2008 falls within the window of effectivity of Atlas, CBKs administrative claim
for the second quarter of 2006 was filed on time considering that it filed the
original VAT return for the second quarter on July 25, 2006. CBK POWER
COMPANY LIMITED vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 202066 (consolidated),
September 30, 2014, J. Leonen
The 2-year period under Section 229 does not apply to appeals before
the CTA in relation to claims for a refund or tax credit for unutilized creditable
input VAT. Section 229 pertains to the recovery of taxes erroneously, illegally,
or excessively collected. San Roque stressed that 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. It is,
therefore, Section 112 which applies specifically with regard to claiming a
refund or tax credit for unutilized creditable input VAT. VISAYAS GEOTHERMAL

POWER COMPANY vs.


197525, June 4,
2014, J. Mendoza

COMMISSIONER OF INTERNAL REVENUE, G.R. No.

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 10 December 2003 and 5 October 2010, when BIR Ruling No. DA489-03 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)
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)
While petitioner filed its administrative and judicial claims during the period of
applicability of BIR Ruling No. DA-489-03, it cannot claim the benefit of the
exception period as it did not file its judicial claim prematurely, but did so long after
the lapse of the 30-day period following the expiration of the 120-day period. Again,
BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means
non-exhaustion of the 120-day period for the Commissioner to act on an
administrative claim, but not its late filing.
For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional
period, petitioner lost its right to claim a refund or credit of its alleged excess input
VAT. CBK POWER COMPANY LIMITED vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. Nos.198729-30 January 15, 2014, CJ. SERENO
TPI filed its third and fourth quarterly VAT returns for 2001 on October 25, 2001 and
January 25, 2002, respectively. It then filed an administrative claim for refund of its
unutilized input VAT for the third and fourth quarters of 2001 on September 30,
2003. Thus, the CIR had 120 days or until January 28, 2004, after the submission of
TPIs administrative claim and complete documents in support of its application,
within which to decide on its claim. Then, it is only after the expiration of the 120-

day period, if there is inaction on the part of the CIR, where TPI may elevate its
claim with the CTA within 30 days. Clearly, therefore, TPIs refund claim of unutilized
input VAT for the third quarter of 2001 was denied for being prematurely filed with
the CTA, while its refund claim of unutilized input VAT for the fourth quarter of 2001
may be entertained since it falls within the exception provided in the Courts most
recent rulings. COMMISSIONER

OF INTERNAL REVENUE vs. TOLEDO POWER, INC, G.R. No. 183880 January 20,
2014, J. PERALTA
What is important, as far as the present cases are concerned, is that 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. TEAM
SUAL CORPORATION (formerly MIRANT SUAL CORPORATION,
G.R. No. 194105 February 5, 2014, J. REYES
A claim for tax refund or credit, like a claim for tax refund exemption, is construed
strictly against the taxpayer. One of the conditions for a judicial claim of refund or
credit under the VAT System is compliance with the 120+30 day mandatory and
jurisdictional periods. Thus, strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR
Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi
doctrine was adopted, which again reinstated the 120+30 day periods as
mandatory and jurisdictional. MIRAMAR FISH COMPANY, INC., vs. COMMISSIONER
OF INTERNAL REVENUE,
G.R. No. 185432, June 4, 2014, J. Perez
The taxpayer can file the 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. Mindanao II filed its
administrative claim for refund or credit for the second, third, and fourth quarters of
2004 on 6 October 2005. The CIR, therefore, had a period of 120 days, or until 3
February 2006, to act on the claim. The CIR, however, failed to do so. Mindanao II
then could treat the inaction as a denial and appeal it to the CTA within 30 days
from 3 February 2006, or until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days
after the lapse of the 30-day period on 5 March 2006. The judicial claim was
therefore filed late. The CTA therefore lost jurisdiction over Mindanao Ils claims for
refund or credit. COMMISSIONER OF INTERNAL REVENUE vs. MINDANAO II
GEOTHERMAL PARTNERSHIP G.R. No. 1914498 January 15, 2014, CJ. SERENO
As a general rule, compliance with the 120-day period stated in Section 112(D) of
NIRC is mandatory. However, a VAT-registered taxpayer claiming refund for input
VAT may not wait for the lapse of the 120-day period when the claim is filed
between December 10, 2003 (the time of promulgation of BIR Ruling No. DA-48903) to October 6, 2010 (the time of promulgation of the Aichi case). TAGANITO

MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.


197591, June 18, 2014, J. Perlas-Bernabe
When a taxpayer seeking refund or tax credit under VAT files a judicial claim beyond
the 30-day period provided by the law, the same shall be dismissed for lack of
jurisdiction. A taxpayer seeking refund or tax credit under VAT must strictly follow
the 120+30 rule to be entitled thereof, otherwise, the claim shall be barred. In the
present case, the respondent filed its administrative claim on May 30, 2003. The
petitioner CIR therefore had only until September

27, 2003 to decide the claim, and following the petitioners inaction, the respondent
had until October 27, 2003, the last day of the 30-day period to file its judicial claim.
However, the respondent filed its judicial claim with the CTA only on March 31, 2004
or 155 days late. Clearly, the respondent's judicial claim has prescribed and the CTA
did not acquire jurisdiction over the claim. COMMISSIONER OF INTERNAL REVENUE
vs. MINDANAO II GEOTHERMAL PARTNERSHIP, G.R. No. 189440, June 18, 2014, J.
Villarama, Jr.
Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or
credit at anytime within the two-year prescriptive period. If he files his claim on the
last day of the two-year prescriptive period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day,
the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and (C).
SAN ROQUE POWER CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 205543,
June 30, 2014, J. Leonardo-De Castro
CE Luzon filed an action for refund of the VAT. The court ruled that while both claims
for refund were filed within the two (2)-year prescriptive period, CE Luzon failed to
comply with the 120- day period as it filed its judicial claim in C.T.A. Case No. 6792
four (4) days after the filing of the administrative claim, while in C.T.A. Case No.
6837, the judicial claim was filed a day after the filing of the administrative claim.
Proceeding from the aforementioned jurisprudence, only
C.T.A. Case No. 6792 should be dismissed on the ground of lack of jurisdiction for
being prematurely filed. In contrast, CE Luzon filed its administrative and judicial
claims for refund in
C.T.A. Case No. 6837 during the period, i.e., from December 10, 2003 to October 6,
2010, when BIR Ruling No. DA-489-03 was in place. As such, the aforementioned
rule on equitable estoppel operates in its favor, thereby shielding it from any
supposed jurisdictional defect which would have attended the filing of its judicial
claim before the expiration of the 120-day period. COMMISSIONER OF INTERNAL
REVENUE vs. CE LUZON GEOTHERMAL POWER COMPANY, INC.,
G.R. No. 190198, September 17, 2014, J. Perlas- Bernabe
Its petition for review having been denied by the CTA for being prematurely filed,
petitioner filed the instant petition arguing that since it filed its judicial claim after
the issuance of BIR Ruling No. DA-489-03, but before the adoption of the Aichi
doctrine, it can invoke the said BIR Ruling. The SC ruled that the jurisdiction of the
CTA over decisions or inaction of the CIR is only appellate in nature and, thus,
necessarily requires the prior filing of an administrative case before the CIR under
Section 112. A petition filed prior to the lapse of the 120-day period prescribed
under said Section would be premature for violating the doctrine on the exhaustion
of administrative remedies. There is, however, an exception to the mandatory and
jurisdictional nature of the 120+30 day period. The Court in San Roque noted that
BIR Ruling No. DA-489- 03, dated December 10, 2003, expressly stated that the
"taxpayer-claimant need not wait for the lapse of the 120-day period before it could

seek judicial relief with the CTA by way of Petition for Review." Hence, taxpayers can
rely on BIR Ruling No. DA-489-03 from the time of its issuance on December 10,
2003 up to its reversal by this Court in Aichi on October 6, 2010, where it was held
that the 120+30 day period was mandatory and jurisdictional. TAGANITO MINING
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 201195,
November 26, 2014, J. Mendoza

Section 112(D) of the 1997 Tax Code states the time requirements for filing a
judicial claim for the refund or tax credit of input VAT. The legal provision speaks of
two periods: the period of 120 days, which serves as a waiting period to give time
for the CIR to act on the administrative claim for a refund or credit; and the period
of 30 days, which refers to the period for filing a judicial claim with the CTA. It is the
30-day period that is at issue in this case. ROHM APOLLO SEMICONDUCTOR
PHILIPPINES vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 168950,
January 14, 2015, CJ Sereno
Cargill filed two claims for refund. However, the court ruled that the rule must
therefore be that during the period December 10, 2003 (when BIR Ruling No. DA489-03 was issued) to October 6, 2010 (when the Aichi case was
promulgated),taxpayers-claimants need not observe the 120- day period before it
could file a judicial claim for refund of excess input VAT before the CTA. Before and
after the aforementioned period (i.e., December 10, 2003 to October 6, 2010), the
observance of the 120-day period is mandatory and jurisdictional to the filing of
such claim. CARGILL PHILIPPINES, INC vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 203774,
March 11, 2015, J. Perlas- Bernabe
Section 112 (D) (now renumbered as Section 112[C]) of RA 8424, which is
explicit on the mandatory and jurisdictional nature of the 120+30-day period, was
already effective on January 1, 1998. That being said, and notwithstanding the fact
that respondent's administrative claim had been timely filed, the Court is
nonetheless constrained to deny the averred tax refund or credit, as its judicial
claim therefore was filed beyond the 120+30-day period, and, hence - as earlier
stated - deemed to be filed out of time. As the records would show, the CIR had 120
days from the filing of the administrative claim on July 21, 1999, or until November
18, 1999, to decide on respondent's application. Since the CIR did not act at
all, respondent had until December 18, 1999, the last day of the 30-day period, to
file its judicial claim. Respondent filed its petition for review with the CTA only on
January 9, 2001 and, thus, was one (1) year and 22 days late . COMMISSIONER OF
INTERNAL REVENUE vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR
MINDANAO, INC., G.R. No. 190021,
October 22, 2014, J. Perlas-Bernabe
Aichi filed an application for tax credit/refund with the BIR on March 29, 2005. On 31
March 2005, respondent filed judicial claim before the CTA. BIR contends that Aichi
failed to observe the 120-day reglementary period provided by NIRC for the CIR to
act on the claim. In this issue the Supreme court ruled that the Court agree with
petitioner that the judicial claim was prematurely filed on 31 March 2005, since
respondent failed to observe the mandatory 120day waiting period to give the CIR
an opportunity to act on the administrative claim. However, the Court ruled in San
Roque that BIR Ruling No. DA-489-03 allowed the premature filing of a judicial claim,
which means non-exhaustion of the 120-day period for the Commissioner to act on
an administrative claim. 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. Therefore, respondent's filing of the judicial claim barely two days
after the administrative claim is acceptable, as it fell within the period during which
the Court recognized the validity of BIR Ruling No. DA-489-03. COMMISSIONER OF

INTERNAL REVENUE vs. AICHI FORGING COMPANY OF ASIA, INC., G.R. No.
183421, October 22, 2014, CJ Sereno

7
0
As a general rule, a taxpayer-claimant needs to wait for the expiration of the one
hundred twenty (120)-day period before it may be considered as "inaction" on the
part of the Commissioner of Internal Revenue (CIR). Thereafter, the taxpayerclaimant is given only a limited period of thirty (30) days from said expiration to file
its corresponding judicial claim with the CTA. However, with the exception of claims
made during the effectivity of BIR Ruling No. DA-489-03 (from 10 December 2003 to
5 October 2010), AT&T Communications has indeed properly and timely filed its
judicial claim covering the Second, Third, and Fourth Quarters of taxable year 2003,
within the bounds of the law and existing jurisprudence. AT&T COMMUNICATIONS
SERVICES PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 185969, November 19, 2014, J. Perez
CBK Power filed its judicial claim for refund/credit just 20 days after it filed its
administrative claim. CTA En Banc dismissed the case for lack of jurisdiction as it
failed to observe the mandatory and jurisdictional 120-day period provided under
Section 112 (D) of the National Internal Revenue Code. The Court found that the CTA
En Banc was incorrect. The Court recognized an exception in which the existing BIR
Ruling applicable to this case in which it held that taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief. CBK POWER
COMPANY LIMITED vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 198928, December 03, 2014, J. Perlas-Bernabe
A VAT-registered taxpayer need not wait for the lapse of the 120-day period to file a
judicial claim for unutilized VAT inputs before the CTA when the claim was filed on
December 10, 2003 up to October 6, 2010. If the claim is filed within those dates,
the same shall not be considered prematurely filed. In this case, records disclose
that petitioner filed its administrative and judicial claims for refund/credit of its input
VAT in CTA Case No. 8082 on December 28, 2009 and March 30, 2010, respectively,
or during the period when BIR Ruling No. DA-489-03 was in place, i.e., from
December 10, 2003 to October 6, 2010. As such, it need not wait for the expiration
of the 120-day period before filing its judicial claim before the CTA, and hence, is
deemed timely filed. In view of the foregoing, both the CTA Division and the CTA En
Banc erred in dismissing outright petitioners claim on the ground of prematurity.
MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 204745,
December 08, 2014, J. Perlas-Bernabe
In Reconciling the pronouncements in the Aichi and San Roque cases, the rule must
therefore be that during the period December 10, 2003 (when BIR Ruling No. DA489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated),
taxpayers-claimants need not observe the 120-day period before it could file a
judicial claim for refund of excess input VAT before the CTA. Before and after the
aforementioned period (i.e., December 10, 2003 to October 6, 2010), the
observance of the 120-day period is mandatory and jurisdictional to the filing of
such claim. PANAY POWER CORPORATION (Formerly Avon River Power Holdings
Corp.) vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 203351, January
21, 2015, J. PerlasBernabe

7
The CIR has 120 days from the date of submission of complete documents 0
in
support of the administrative claim within which to decide whether to grant a refund
or issue a tax credit certificate. In case of failure on the part of the CIR to act on the
application within the 120-day period prescribed by law, the taxpayer has only has
30 days after the expiration of the 120-day period to appeal the unacted claim with
the CTA. Since petitioners judicial claim was filed

7
1
before the CTA only way beyond the mandatory 120+30 days to seek judicial
recourse, such non-compliance with the mandatory period of 30 days is fatal to its
refund claim on the ground of prescription. Consequently, the CTA has no
jurisdiction over its judicial appeal considering that its Petition for Review was filed
out of time. Consequently, the claim for refund must be denied. NIPPON EXPRESS
(PHILIPPINES) CORP. vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 185666, February 04, 2015, J. Perez
For failure of Silicon to comply with the provisions of Section 112(C) of the NIRC, its
judicial claims for tax refund or credit should have been dismissed by the CTA for
lack of jurisdiction. The Court stresses that the 120/30-day prescriptive periods are
mandatory and jurisdictional, and are not mere technical requirements. SILICON
PHILIPPINES, INC. (FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.) vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173241, March 25, 2015, J. Leonardo-De Castro
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 noncompliance 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

7
2
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)
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)
This Court has consistently held as fatal the failure to print the word zero-rated on
the VAT invoices or official receipts in claims for a refund or credit of input VAT on
zero-rated sales, even if the claims were made prior to the effectivity of R.A. 9337.
As to the sufficiency of a Northern Mindanaos company invoice to prove the sales of
services to NPC, the Court finds that this claim is without sufficient legal basis. A
VAT invoice is the sellers best proof of the sale of goods or services to the buyer,
while a VAT receipt is the buyers best evidence of the payment of goods or services
received from the seller. The requirement of imprinting the word zero-rated
proceeds from the rule-making authority granted to the Secretary of Finance by the
NIRC for the efficient enforcement of the same Tax Code and its amendments. A
VAT-registered person whose sales are zero-rated or effectively zero-rated, Section
112(A) specifically provides for a two-year prescriptive period after the close of the
taxable quarter when the sales were made within which such taxpayer may apply
for the issuance of a tax credit certificate or refund of creditable input tax.
NORTHERN MINDANAO POWER CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 185115, February 18, 2015, CJ. Sereno
The failure to indicate the words zero-rated on the invoices and receipts issued by
a taxpayer would result in the denial of the claim for refund or tax credit. The Court
has consistently ruled on the denial of a claim for refund or tax credit whenever the
word zero-rated has been omitted on the invoices or sale receipts of the taxpayerclaimant. Furthermore, the CTA is a highly specialized court dedicated exclusively to
the study and consideration of revenue-related problems, in which it has necessarily
developed an expertise. Hence, its factual findings, when supported by substantial
evidence, will not be disturbed on appeal. EASTERN TELECOMMUNICATIONS
PHILIPPINES, INC., vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 183531, March 25, 2015, J. Reyes
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 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
68
taxpayer in the course of business. 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
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 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)
It is clear that the assailed deficiency tax assessment for the EWT in
1994 disregarded the provisions of Section 228 of the [NIRC], as
amended, as well as Section 3.1.4 of the Revenue Regulations No.
12-99 by not providing the legal and factual bases of the
assessment. Hence, the formal letter of demand and the notice of
assessment issued relative thereto are void.
The statute of limitations on assessment and collection of national
internal taxes was shortened from five (5) years to three (3) years
by virtue of Batas Pambansa Blg. 700. Thus, [Petitioner CIR] has
three (3) years from the date of actual filing of the tax return to
assess a national internal revenue tax or to commence court
proceedings for the collection thereof without an assessment.
However, when it validly issues an assessment within the three
(3) year period, it has another three (3) years within which to collect
the tax due by distraint, levy, or court proceeding.
COMMISSIONER OF INTERNAL REVENUE vs. UNITED
SALVAGE AND TOWAGE (PHILS.), INC., G.R. No. 197515,
July 2, 2014, J. Peralta
The assessment of the tax is deemed made and the three-year
period for collection of the assessed tax begins to run on the date
the assessment notice had been released, mailed or sent by the
BIR to the taxpayer. Thus, failure of the BIR to file a warrant of
distraint or serve a levy on taxpayer's properties nor file collection
case within the three-year period is fatal. Also, the attempt of the
BIR to collect the tax through its Answer with a demand for the
taxpayer to pay the assessed DST in the CTA is not deemed
compliance with the Tax Code. CHINA BANKING CORPORATION
vs. COMMISSIONER
OF
INTERNAL
REVENUE,
G.R.
No. 172509,
February 04, 2015, C.J. Sereno
In 1993, the BIR issued against respondent assessment notice for
deficiency income tax for 1989. A waiver of the defense of
prescription was executed but it was not signed by the
Commissioner or any of his authorized representatives and did not
state the date of acceptance. The Court held that the
Commissioners right to collect has prescribed. The period to assess
and collect deficiency taxes may be extended only upon a written
agreement between the Commissioner and the taxpayer prior to
the expiration of the three-year prescribed period. The BIR cannot
claim the benefits of extending the period when it was the BIRs
inaction which is the proximate cause of the defects of the waiver.

COMMISSIONER OF INTERNAL REVENUE vs. THE STANLEY


WORKS SALES (PHILS.), INCORPORATED, G.R. No. 187589,
December 03, 2014, CJ. Sereno
(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

13

information due to mistake, carelessness or ignorance.


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 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)
Section 203 of the NIRC sets the three-year prescriptive period
to assess. However the exceptions are provided under Section
222 of the NIRC of 1997. In the case at bar, it was petitioners
substantial under declaration of withholding taxes in the amount
of P2,690,850.91 which constituted the falsity in the subject
returns giving respondent the benefit of the period under
Section 222 of the NIRC of 1997 to assess the correct amount of
tax at any time within ten (10) years after the discovery of the
falsity, fraud or omission. SAMAR-I ELECTRIC COOPERATIVE
VS. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193100.
December 10, 2014, J. VILLARAMA JR.
(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)
Petitioner questions the decision of the CTA holding that its right to
assess respondent of its tax deficiencies for the taxable year 1999
has already prescribed for its failure to send the Formal Assessment
Notice to respondents new address despite respondents failure to
give petitioner a formal written notice of its change of address. The
SC ruled that despite the absence of a formal written notice of
respondent's change of address, the fact remains that petitioner
became aware of respondent's new address as shown by the
documents replete in its records. As a consequence, the running of
the three-year period to assess respondent was not suspended and
has already prescribed. COMMISSIONER OF INTERNAL REVENUE
vs. BASF COATING + INKS PHILS., INC., G.R. No. 198677,
November 26, 2014,
J. Peralta
There is a distinction between a request for reconsideration and a
request for reinvestigation. 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 reinvestigation
can suspend the running of the statute of limitations on collection
of the assessed tax, while the reconsideration cannot. Hence, the
period for BIR to collect the deficiency DST already prescribed as
the protest letter of BPI was a request for reconsideration, which did
not suspend the running of the prescriptive period to collect. BANK
OF THE PHILIPPINE ISLANDS vs. COMMISSIONER OF INTERNAL
REVENUE,
G.R. No. 181836, July 9, 2014, J. CARPIO
(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 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)
The CIR categorically admitted that it failed to formally offer the
Preliminary Assessment Notices as evidence. Worse, it advanced no
justifiable reason for such fatal omission. Instead, it merely alleged that
the existence and due execution of the Preliminary Assessment Notices
were duly tackled by CIRs witnesses. Such is not sufficient to seek
exception from the general rule requiring a formal offer of evidence,
since no evidence of positive identification of such Preliminary
Assessment Notices by petitioners witnesses was presented.
COMMISSIONER OF INTERNAL REVENUE vs. UNITED SALVAGE AND
TOWAGE (PHILS.), INC., G.R. No. 197515, July 2, 2014, J. Peralta

(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

8
0
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)
The notice requirement under Section 228 of the NIRC is substantially
complied with whenever the taxpayer had been fully informed in
writing of the factual and legal bases of the deficiency taxes
assessment, which enabled the latter to file an effective protest.
SAMAR-I ELECTRIC COOPERATIVE vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 193100, December 10, 2014, J. Villarama, Jr.
The tax assessments by tax examiners are presumed correct and made
in good faith. The taxpayer has the duty to prove otherwise. Therefore
the agreements were considered as deposits subject to DST.
COMMISSIONER OF INTERNAL REVENUE VS, TRADERS ROYAL BANK,
G.R. No. 167134. March 18, 2015, J. LEONARDO-DE CASTRO
(i) Disputed assessment
(j) Administrative decision on a disputed assessment
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

8
0
(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)

8
1
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) Efect 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 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)

(vii)

(d) Period provided for the protest to be acted upon


Rendition of decision by Commissioner

8
2
(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)
Under Section 112(C) of the NIRC, in case of failure on the
part of the CIR to act on the application, the taxpayer
affected may, within 30 days after the expiration of the
120-day period, appeal the unacted claim with the CTA. If
the Commissioner fails to decide within a specific period
required by law, such inaction shall be deemed a denial
of the application for tax refund or credit. In this case,
when TSC filed its administrative claim on 21 December
2005, the CIR had a period of 120 days, or until 20 April
2006, to act on the claim. However, the CIR failed to act
on TSCs claim within this 120-day period. Thus, TSC filed
its petition for review with the CTA on 24 April 2006 or
within 30 days after the expiration of the 120-day period.
Hence, the judicial claim was not prematurely filed.

COMMISSIONER OF INTERNAL REVENUE vs. TEAM SUAL


CORPORATION, G.R. No. 205055, July 18, 2014,
J. Carpio

(a) Filing of criminal action against taxpayer


Spouses Manly were charged with tax evasion due to their
under declaration of income in their ITR. The investigation
of the revenue officers shows that the under declaration
exceeded 30% of the declared income of the spouses. The
Spouses Manly opposed the said complaint due to the
lack of deficiency tax assessment. In this case, the Court
ruled that tax evasion is deemed complete when the
violator has knowingly and willfully filed a fraudulent
return with intent to evade and defeat a part or all of the
tax. Corollarily, an assessment of the tax deficiency is not
required in a criminal prosecution for tax evasion.
However, in Commissioner of Internal Revenue v. Court of
Appeals, it was clarified that although a deficiency
assessment is not necessary, the fact that a tax is due
must first be proved before one can be prosecuted for tax
evasion.
BUREAU OF INTERNAL REVENUE, as
represented by the COMMISSIONER OF INTERNAL
REVENUE vs. COURT OF APPEALS, SPOUSES ANTONIO
VILLAN MANLY, and RUBY ONG MANLY, G.R. No. 197590,
November 24, 2014, J. Del
Castillo
(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) Efect 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)
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
(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 )

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 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)
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
The certificate of creditable tax withheld at source is the
competent proof to establish the fact that taxes are withheld. It
is not necessary for the person who executed and prepared the
certificate of creditable tax withheld at source to be presented
and to testify personally to prove the authenticity of the
certificates. In Banco Filipino Savings and Mortgage Bank v.
Court of Appeals, this court declared that a certificate is
complete in the relevant details that would aid the courts in the
evaluation of any claim for refund of excess creditable
withholding taxes. In fine, the document which may be accepted
as evidence of the third condition, that is, the fact of
withholding, must emanate from the payor itself, and not merely
from the payee, and must indicate the name of the payor, the
income payment basis of the tax withheld, the amount of the tax
withheld and the nature of the tax paid. COMMISSIONER OF

INTERNAL REVENUE vs. PHILIPPINE NATIONAL BANK, G.R. No.


180290 September
29, 2014, J. Leonen
(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 16727475, July 21, 2008)
Tax refunds are based on the general premise that taxes have
either been erroneously or excessively paid. Though the Tax
Code recognizes the right of taxpayers to request the return of
such excess/erroneous payments from the government, they
must do so within a prescribed period. Further, "a taxpayer must
prove not only his entitlement to a refund, but also his
compliance with the procedural due process as non- observance
of the prescriptive periods within which to file the administrative
and the judicial claims would result in the denial of his claim." In
the case at bar, MERALCO had ample opportunity to verify on
the tax-exempt status of NORD/LB for purposes of claiming tax
refund. Nevertheless, it only filed its claim for tax refund ten (10)
months from the issuance of the aforesaid Ruling.
COMMISSIONER OF INTERNAL REVENUE
vs.
MANILA
ELECTRIC COMPANY (MERALCO), G.R. No.
181459, June 9, 2014, J. Peralta
Those who claim for refund must not only prove its entitlement
to the excess credits, but likewise must prove that no carry-over
has been made in cases where refund is sought. However,
proving that no carry-over has been made does not absolutely
require the presentation of the quarterly ITRs. With Winebrenner
& Inigo Insurance Brokers, Inc. having complied with the
requirements for refund, and without the CIR showing contrary
evidence other than its bare assertion of the absence of the
quarterly ITRs, copies of which are easily verifiable by its very
own records, the burden of proof of establishing the propriety of
the claim for refund has been sufficiently discharged. Hence, the
grant of refund is proper. WINEBRENNER
&
IIGO
INSURANCE
BROKERS,
INC.
vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 206526, January
28, 2015, J. Mendoza
(d) Nature of
collected

erroneously-paid

tax/illegally

assessed

(e) Tax refund vis--vis tax credit

9
0
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
There are three essential conditions for the grant of a claim for
refund of creditable withholding income tax, to wit: (1) the claim
is filed with the Commissioner of Internal Revenue within the
two-year period from the date of payment of the tax; (2) it is
shown on the return of the recipient that the income payment
received was declared as part of the gross income; and (3) the
fact of withholding is established by a copy of a statement duly
issued by the payor to the payee showing the amount paid and
the amount of the tax withheld therefrom. COMMISSIONER OF
INTERNAL REVENUE vs. TEAM [PHILIPPINES] OPERATIONS
CORPORATION
[formerly
MIRANT
(PHILS)
OPERATIONS CORPORATION], G.R. No. 179260, April 2, 2014,
J. Perez
The requirements for entitlement of a corporate taxpayer for a
refund or the issuance of tax credit certificate involving excess
withholding taxes are as follows: 1) That the claim for refund
was filed within the two-year reglementary period pursuant to
Sec. 229 of the NIRC; 2) When it is shown on the ITR that the
income payment received is being declared part of the
taxpayers gross income; and 3) When the fact of withholding is
established by a copy of the withholding tax statement, duly
issued by the payor to the payee, showing the amount paid and
income tax withheld from that amount.
Relevant to the instant case is requirements numbers 2 and 3,
which were duly proved by TPEC, as found by the courts a quo.
With regard to the second requirement, it is fundamental that
the findings of fact by the CTA in Division are not to be
disturbed without any showing of grave abuse of discretion
considering that the members of the Division are in the best
position to analyze the documents presented by the parties.
Consequently, the Court adopts the findings of the CTA in
Division, which the CTA En Banc concurred with. REPUBLIC OF
THE PHILIPPINES, REPRESENTED BY THE COMMISSIONER OF

9
0
INTERNAL REVENUE vs. TEAM (PHILS.) ENERGY CORPORATION
(FORMERLY MIRANT PHILS ENERGY CORPORATION), G.R. No.
188016, January 14,
2015, J. Bersamin

9
1
(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 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)
Pilipinas Shell, 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, the latter having been
granted exemption from the payment of said excise tax under
Sec. 135 (a) of the NIRC. COMMISSIONER OF INTERNAL
REVENUE vs. PILIPINAS SHELL PETROLEUM CORPORATION,
G.R. No. 188497, February 19, 2014, J. Villarama Jr.

(vi) Prescriptive period for recovery of tax erroneously or


illegally collected
(vii) Other consideration afecting tax refunds
The issues raised before the Panel of Voluntary Arbitrators are: (1)
whether the cash conversion of the gasoline allowance shall be subject to
fringe benefit tax or the graduated income tax rate on compensation; and (2)
whether the company wrongfully withheld income tax on the converted gas
allowance.
The Voluntary Arbitrator has no competence to rule on the taxability of
the gas allowance and on the propriety of the withholding of tax. These
issues are clearly tax matters, and do not involve labor disputes. To be exact,
they involve tax issues within a labor relations setting as they pertain to
questions of law on the application of Section

9
2
33 (A) of the NIRC. They do not require the application of the Labor Code or
the interpretation of the MOA and/or company personnel policies.
Furthermore, the company and the union cannot agree or compromise on the
taxability of the gas allowance. Taxation is the States inherent power; its
imposition cannot be subject to the will of the parties.

If the union disputes the withholding of tax and desires a refund of the
withheld tax, it should have filed an administrative claim for refund with the
CIR. Paragraph 2, Section 4 of the NIRC expressly vests the CIR original
jurisdiction over refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other tax matters. HONDA CARS
PHILIPPINES, INC. vs. HONDA CARS TECHNICAL SPECIALIST AND
SUPERVISORS UNION, G.R. No. 204142. November 19, 2014, J. BRION
Under the first option, any tax on income that is paid in excess of the
amount due the government may be refunded, provided that a taxpayer properly
applies for the refund. On the other hand, the second option works by applying
the refundable amount against the tax liabilities of the petitioner in the succeeding
taxable years. Hence, instead of moving for the issuance of a writ of execution
relative to the aforesaid decision, petitioner should have merely requested for the
approval of the City of Manila in implementing the tax refund or tax credit,
whichever is appropriate. In other words, no writ was necessary to cause the
execution thereof, since the implementation of the tax refund will effectively be a
return of funds by the City of Manila in favor of petitioner while a tax credit will
merely serve as a deduction of petitioners tax liabilities in the future. COCACOLA BOTTLERS PHILIPPINES, INC. vs. CITY OF MANILA, ET AL.,
G.R. No. 197561, April 7, 2014, J. Peralta
An opportunity must be given the internal revenue branch of the
government to investigate and confirm the veracity of the claims of the taxpayer.
The absolute freedom that petitioner seeks to automatically credit tax payments
against tax liabilities for a succeeding taxable year, can easily give rise to
confusion and abuse, depriving the government of authority and control over the
manner by which the taxpayers credit and offset their tax liabilities, not to
mention the resultant loss of revenue to the government under such a scheme.
COCA-COLA BOTTLERS PHILIPPINES, INC., vs. CITY OF MANILA; LIBERTY M.
TOLEDO, in her capacity as
Officer-in-Charge (OIC), Treasurer of the City of Manila; JOSEPH SANTIAGO, in
his capacity as OIC, Chief License Division of the City of Manila; REYNALDO
MONTALBO, in his capacity as City Auditor of the City of Manila, G.R. No.
197561, April 7, 2014, J. Peralta

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 ofenses 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
(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 carry out, neither to supplant nor to modify, the law. ( CIR vs CA,
G.R. No. 108358, January 20, 1995)
CBK Power raised the lone issue of whether or not an ITAD ruling is required
before it can avail of the preferential tax rate. On the other hand, the
Commissioner claimed that CBK Power failed to exhaust administrative
remedies when it filed its petitions before the CTA First Division, and that said
petitions were not filed within the two-year prescriptive period for initiating
judicial claims for refund. The Court categorically held that the BIR should not
impose additional requirements that would negate the availment of the
reliefs provided for under international agreements, especially since said tax
treaties do not provide for any prerequisite at all for the availment of the
benefits under said agreements. Nowhere and in no wise does the law imply
that the Collector of Internal Revenue must act upon the claim, or that the
taxpayer shall not go to court before he is notified of the Collectors action.
CBK POWER COMPANY LIMITED vs. COMMISSIONER INTERNAL REVENUE,
G.R. Nos. 193383-84, January 14, 2015, J. Perlas-Bernabe
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)
c)
d)
e)

Authority to prescribe penalties for tax violations


Authority to grant local tax exemptions
Withdrawal of exemptions
Authority to adjust local tax rates

Setting the rate of the additional levy for the special education fund at less than 1%
is within the taxing power of local government units. It is consistent with the
guiding constitutional principle of local autonomy. It was well within the power of the
Sangguniang Panlalawigan of Palawan to enact an ordinance providing for additional
levy on real property tax for the special education fund at the rate of 0.5% rather
than at 1%. LUCENA D. DEMAALA vs. COMMISSION ON AUDIT, REPRESENTED BY
ITS CHAIRPERSON COMMISSIONER MA. GRACIA M. PULIDO
TAN, G.R. No. 199752, February 17, 2015, J. Leonen
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)

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).
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)
A corporation that has been ordered to pay franchise tax delinquency but which
facilities, including its nationwide franchise, had been transferred to the National
Transmission Corporation (TRANSCO) by operation of law during the time of the
alleged delinquency, cannot be ordered to pay as it is not the proper party subject
to the local franchise tax, the transferee being the one liable. NATIONAL POWER
CORPORATION vs. PROVINCIAL GOVERNMENT OF BATAAN, SANGGUNIANG
PANLALAWIGAN OF BATAAN, PASTOR B. VICHUACO (IN HIS OFFICIAL CAPACITY
AS PROVINCIAL TREASURER OF BATAAN) and THE REGISTER OF DEEDS OF THE
PROVINCE OF BATAAN, G.R. No. 180654, April 21, 2014, J. Abad
(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)
(vi)

Professional tax
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 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)
(iii)
(iv)

Ceiling on business tax impossible on municipalities within Metro


Manila
Tax on retirement on business
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 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

10
0
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, 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)
Petitioner filed the instant petition assailing the decision of the CTA finding
PAL exempt from payment of excise tax. Affirming the decision of the CTA the SC
ruled that PD 1590 has not been revoked by the NIRC of 1997, as amended. Or to be
more precise, the tax privilege of PAL provided in Sec. 13 of PD 1590 has not been
revoked by Sec. 131 of the NIRC of 1997, as amended by Sec. 6 of RA 9334. Such
being the case, PAL is indeed exempt from payment of excise tax. COMMISSIONER
OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS vs. PHILIPPINE
AIRLINES, INC., G.R. Nos. 212536-37, August 27, 2014, J. Velasco, Jr.
The Citys yearly imposition of the 25% surcharge, which was sustained by
the trial court and the Court of Appeals, resulted in an aggregate penalty that is
way higher than NAPOCORs basic tax liabilities. A surcharge regardless of how it is
computed is already a deterrent. While it is true that imposing a higher amount may
be a more effective deterrent, it cannot be done in violation of law and in such a
way as to make it confiscatory. NATIONAL CORPORATION POWER vs. CITY OF
CABANATUAN represented by its CITY MAYOR, HON. HONORATO PEREZ, G.R. No.
177332, October 01, 2014, J. Leonen
It is already well-settled that although the power to tax is inherent in the
State, the same is not true for the LGUs to whom the power must be delegated by
Congress and must be exercised within the guidelines and limitations that Congress
may provide. In the case at bar, the sanggunian of the municipality or city cannot
enact an ordinance imposing business tax on the gross receipts of transportation
contractors, persons engaged in the transportation of passengers or freight by hire,
and common carriers by air, land, or water, when said sanggunian was already
specifically prohibited from doing so. Any exception to the express prohibition under
Section 133(j) of the LGC should be just as specific and unambiguous. Section 21(B)
of the Manila Revenue Code, as amended, is null and void for being beyond the
power of the City of Manila and its public officials to enact, approve, and implement
under the LGC. City of Manila, Hon. Alfredo S. Lim, as Mayor of the City of Manila,
et al. vs. Hon. Angel Valera Colet, as Presiding Judge, Regional Trial Court of

10
1
Manila (Br. 43), et al., G.R. No. 120051, December 10, 2014, J. Leonardo-De
Castro
Being an instrumentality of the national government, the PEZA cannot be
taxed by local government units. Although a body corporate vested with some
corporate powers, the PEZA is

not a government-owned or controlled corporation taxable for real property taxes.


The PEZAs predecessor, the EPZA, was declared non-profit in character with all its
revenues devoted for its development, improvement, and maintenance. Consistent
with this non-profit character, the EPZA was explicitly declared exempt from real
property taxes under its charter. Even the PEZAs lands and buildings whose
beneficial use have been granted to other persons may not be taxed with real
property taxes. The PEZA may only lease its lands and buildings to PEZA-registered
economic zone enterprises and entities. These PEZA-registered enterprises and
entities, which operate within economic zones, are not subject to real property
taxes. CITY OF LAPU-LAPU vs. PHILIPPINE ECONOMIC ZONE AUTHORITY;
PROVINCE OF BATAAN, REPRESENTED BY GOVERNOR ENRIQUE T. GARCIA, JR.,
AND EMERLINDA S. TALENTO, IN HER CAPACITY AS PROVINCIAL TREASURER OF
BATAAN vs. PHILIPPINE ECONOMIC ZONE AUTHORITY, G.R. No. 184203, G.R. NO.
187583, November 26, 2014, J. Leonen
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


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)

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. L26677, 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)
(iii)

Interests on unpaid real property tax


Condonation of real property tax

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)
There could be no presumption of the regularity of any administrative action
which resulted in depriving a taxpayer of his property through a tax sale. This is an
exception to the rule that administrative proceedings are presumed to be regular.
This jurisprudential tenor clearly demonstrates that the burden to prove compliance
with the validity of the proceedings leading up to the tax delinquency sale is
incumbent upon the buyer or the winning bidder, which, in this case, is Agojo. This
is premised on the rule that a sale of land for tax delinquency is in derogation of
property and due process rights of the registered owner. In order to be valid, the
steps required by law must be strictly followed. Agojo must be reminded that the
requirements for a tax delinquency sale under the LGC are mandatory. Strict
adherence to the statutes governing tax sales is imperative not only for the
protection of the taxpayers, but also to allay any possible suspicion of collusion
between the buyer and the public officials called upon to enforce the laws.
CORPORATE STRATEGIES DEVELOPMENT CORP. and RAFAEL R.
PRIETO vs. NORMAN A. AGOJO, G.R. No. 208740, November 19, 2014, J. Mendoza
(ii)
(iii)
(iv)
(v)

Local governments lien


Remedies in general
Resale of real estate taken for taxes, fees or charges
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)
(iii)

Appeal to the Central Board of Assessment Appeals


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 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)
(iv)
(v)

Appeal to the Central Board of Assessment Appeals


Appeal to the CTA
Appeal to the Supreme Court

IV. Tarif 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)
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)
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)
(iii)
(iv)
(v)
(vi)

Transaction value of identical goods


Transaction value of similar goods
Deductive value
Computed value
Fallback value

b) Specific
2. Special duties
a) Dumping duties
b) Countervailing duties
c) Marking duties
d) Retaliatory/discriminatory duties
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 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)
NFSC is a Japan-based company who sells raw sugar. However, NFSC was
charged by violation of the Joint Order by the Commissioner Customs. The court
ruled that NFSC did not violate the order and such was in good faith. The Court ruled
that the onus probandi to establish the existence of fraud is lodged with the Bureau
of Customs which ordered the forfeiture of the imported goods. Fraud is never
presumed. It must be proved. Failure of proof of fraud is a bar to forfeiture. The
reason is that forfeitures are not favored in law and equity. The fraud contemplated
by law must be intentional fraud, consisting of deception willfully and deliberately
done or resorted to in order to induce another to give up some right. Absent fraud,
the Bureau of Customs cannot forfeit the shipment in its favor. THE COMMISSIONER
OF CUSTOMS & THE DISTRICT COLLECTOR OF CUSTOMS FOR THE PORT OF
ILOILO vs. NEW FRONTIER SUGAR CORPORATION, G.R. No. 163055, June 11,
2014, J. Perez
Agriex Co. foreign corporation alleges that the Bureau of Customs exclusive
original jurisdiction over actual and physical possession of foreign shipments and

thus RTC has no jurisdiction over such. The court ruled that it is well settled that the
Collector of Customs has exclusive jurisdiction over seizure and forfeiture
proceedings, and regular courts cannot interfere with his exercise thereof or stifle
or put it at naught. The Collector of Customs sitting

11
0
in seizure and forfeiture proceedings has exclusive jurisdiction to hear and
determine all questions touching on the seizure and forfeiture of dutiable goods.
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. AGRIEX CO., LTD, vs. HON. TITUS B. VILLANUEVA,
Commissioner, Bureau of Customs (now replaced by HON. ANTONIO M.
BERNARDO), and HON. BILLY C. BIBIT, Collector of Customs, Port of Subic (now
replaced by HON. EMELITO VILLARUZ), G.R. No. 158150, September 10, 2014, J.
Bersamin

b) Judicial
(i)
Rules on appeal including jurisdiction
The Commissioner of Customs posits that only when the ensuing
decision of the Collector and then the adverse decision of the
Commissioner of Customs would it be proper for Oilink to seek judicial
relief from the CTA. The Court ruled that the principle of nonexhaustion of administrative remedies was not an iron-clad rule
because there were instances in which the immediate resort to judicial
action was proper. As the records indicate, the Commissioner of
Customs already decided to deny the protest by Oilink and stressed
then that the demand to pay was final. In that instance, the exhaustion
of administrative remedies would have been an exercise in futility
because it was already the Commissioner of Customs demanding the
payment of the deficiency taxes and duties. COMMISSIONER OF
CUSTOMS vs. OILINK INTERNATIONAL CORPORATION, G.R. No.
161759, July 2,
2014, J. Bersamin
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

11
1

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)
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 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 nonextendible 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 requirements would also be a
ground to dismiss the petition. (City of Manila vs. Coca Cola Bottlers Phils., 595
SCRA 299)
The mandatory rule is that a judicial claim must be filed with the CTA within thirty
(30) days from the receipt of the Commissioners decision denying the
administrative claim or from the expiration of the 120day period without any action
from the Commissioner. Otherwise, said judicial claim shall be considered as filed
out of time. COMMISSIONER OF INTERNAL REVENUE, vs. SILICON PHILIPPINES,
INC. (FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.), G.R. No. 169778,
March 12, 2014, J. PEREZ
Philamlife sold its shares through a public bidding. However, the selling price was
below the book value of the shares. Hence, the BIR imposed donors tax on the price
difference. Philamlife appealed to the Secretary of Finance. Due to the adverse
ruling, Philamlife appealed with the CA. CA alleged that it does not have jurisdiction
for jurisdiction lies with the CTA. The Court ruled that, the CTA can now rule not only
on the propriety of an assessment or tax treatment of a certain transaction, but also
on the validity of the revenue regulation or revenue memorandum circular on which
the said assessment is based. THE PHILIPPINE AMERICAN LIFE AND GENERAL
INSURANCE COMPANY vs. SECRETARY OF FINANCE and COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 210987, November 24, 2014, J. Velasco Jr.
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 internalrevenue 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)
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)
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)
In this case, Duty Free Philippines claimed that it was exempted from the expanded
withholding tax under Revenue Regulation (R.R.) No. 6-94. The CTA Division ruled
that Duty Free was not a tax-exempt entity in the absence of an express grant of
tax exemption. Duty Free then directly appealed to the Supreme Court under Rule
45.
The Supreme Court said that Duty Frees direct appeal to this Court is fatal to its
claim. Under RA 9282 Section 18, A party adversely affected by a resolution of a
Division of the CTA on a motion for reconsideration or new trial, may file a petition
for review with the CTA en banc. Clearly, the Supreme Court is without jurisdiction
to review decisions rendered by a division of the CTA, exclusive appellate

jurisdiction over which is vested in the CTA en banc. DUTY FREE PHILIPPINES v
BUREAU OF INTERNAL REVENUE, represented by Hon. Anselmo G. Adriano,
Acting Regional Director, Revenue Region No. 8, Makati City, G.R No. 197228,
October 8, 2014. Sereno.

In fine, if a taxpayer is not satisfied with the decision of the CBAA or the RTC, as the
case may be, the taxpayer may file, within thirty (30) days from receipt of the
assailed decision, a petition for review with the CTA pursuant to Section 7(a) of R.A.
9282. In cases where the question involves the amount of the tax or the correctness
thereof, the appeal will be pursuant to Section 7(a)(5) of R.A. 9282. When the
appeal comes from a judicial remedy which questions the authority of the local
government to impose the tax, Section 7(a)(3) of R.A. 9282 applies. Thereafter, such
decision, ruling or resolution may be further reviewed by the CT A En Banc pursuant
to Section 2, Rule 4 of the Revised Rules of the CTA. NATIONAL POWER
CORPORATION vs. MUNICIPAL GOVERNMENT OF NAVOTAS, SANGGUNIANG
BAYAN OF
NAVOTAS AND MANUEL T. ENRIQUEZ, in his capacity as Municipal Treasurer of
Navotas, G.R. No. 192300, November 24, 2014, J. Peralta
In case of an illegal assessment where the assessment was issued without
authority, exhaustion of administrative remedies is not necessary and the taxpayer
may directly resort to judicial action. The taxpayer shall file a complaint for
injunction before the Regional Trial Court to enjoin the local government unit from
collecting real property taxes. The party unsatisfied with the decision of the
Regional Trial Court shall file an appeal, not a petition for certiorari, before the Court
of Tax Appeals, the complaint being a local tax case decided by the Regional Trial
Court. The appeal shall be filed within fifteen (15) days from notice of the trial
courts decision. In this case, the petition for injunction filed before the Regional Trial
Court of Pasay was a local tax case originally decided by the trial court in its original
jurisdiction. Since the PEZA assailed a judgment, not an interlocutory order, of the
Regional Trial Court, the PEZAs proper remedy was an appeal to the Court of Tax
Appeals. CITY OF LAPU-LAPU vs. PHILIPPINE ECONOMIC ZONE AUTHORITY;
PROVINCE OF BATAAN, REPRESENTED BY GOVERNOR ENRIQUE T. GARCIA, JR.,
AND EMERLINDA S. TALENTO, IN HER CAPACITY AS PROVINCIAL TREASURER OF
BATAAN vs. PHILIPPINE ECONOMIC ZONE AUTHORITY, G.R. No. 184203, G.R. NO.
187583, November 26,
2014, J. Leonen
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 statute prior to and independently of any
attempts by the taxpayer to evade payment. (Republic v. Patanao, G.R. No. L22356, 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 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)

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-ininterest 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

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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