1
power, there it must remain and be exercised.
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
(Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, 559 SCRA 160 (2008))
The power of taxation is essentially a legislative
function. The power to tax includes the authority to:
(1) determine the
(a) nature (kind);
(b) object (purpose);
(c) extent (amount of rate);
(d) coverage (subjects and objects);
(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 2
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))
3
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; 4and 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 5items 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
6 gains
subject the income to only 5% individual capital
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
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) 7
The rule is that a special and local statute applicable to
a particular case is not repealed by a later statute which
is general in its terms, provisions and application even
if the terms of the general act are broad enough to
include the cases in the special law unless there is
manifest intent to repeal or alter the special law. (THE
PROVINCE OF MISAMIS ORIENTAL, represented by its
PROVINCIAL TREASURER v. CAGAYAN ELECTRIC
POWER AND LIGHT COMPANY, INC.,
G.R. No. L-45355, January 12, 1990)
This Court recognized the removal of the blanket
exclusion of government instrumentalities from local
taxation as one of the most significant provisions of the
1991 LGC. Specifically, we stressed that Section 193 of
the LGC, an express and general repeal of all statutes
granting exemptions from local taxes, withdrew the
sweeping tax privileges previously enjoyed by the NPC
under its Charter. (BATANGAS POWER CORPORATION
v. BATANGAS CITY and NATIONAL POWER
CORPORATION, G.R. No. 152675, April 28, 2004)
Erroneous application and enforcement of the law by
public officers do not preclude subsequent correct
application of the statute, and the government is never
estopped by the mistake or error on the part of its
agents. (PHILIPPINE BASKETBALL ASSOCIATION v.
COURT OF APPEALS, 337 SCRA 358)
6. Compensation and set-off
Taxes cannot be the subject of set-off or compensation
for the following reasons: (1) taxes are of distinct kind,
essence and nature, and these impositions cannot be
classed in the same category as ordinary obligations;
(2) the applicable laws and principles governing each
are peculiar, not necessarily common to each; and (3)
public policy is better subscribed if the integrity and
independence of taxes are maintained. (REPUBLIC v.
MAMBULAO LUMBER COMPANY, 4 SCRA 622 (1962))
Taxes cannot be subject to compensation for the
simple reason that the Government and the taxpayers
are not creditors and debtors of each other, debts are
due to the Government in its corporate capacity, while
taxes are due to the Government in its sovereign
capacity. (SOUTH AFRICAN AIRWAYS v.
COMMISSIONER OF INTERNAL REVENUE, 612 SCRA
665 (2010))
However, if the obligation to pay taxes and the
taxpayers claim against the government are both
overdue, demandable, as well as fully liquidated,
compensation takes place by operation of law and both
obligations are extinguished to their concurrent
amounts. (DOMINGO v. GARLITOS, 8 SCRA 443
(1963))
7. Compromise
8. Tax amnesty
a) Definition
A tax amnesty is a general pardon or the intentional
overlooking by the State of its authority to impose
penalties on persons otherwise guilty of violating a tax
law. It partakes of an absolute waiver by the
government of its right to collect what is due it and to
give tax evaders who wish to relent a chance to start
with a clean slate. (ASIA INTERNATIONAL
AUCTIONEERS, INC. v. COMMISSIONER OF INTERNAL
REVENUE G.R. No. 179115 September 26, 2012)
A tax amnesty, much like a tax exemption, is never
favored or presumed in law. The grant of a tax
amnesty, similar to a tax exemption, must be construed
strictly against the taxpayer and liberally in favor of the
taxing authority. (ASIA INTERNATIONAL
AUCTIONEERS, INC. v. COMMISSIONER OF INTERNAL
REVENUE G.R. No. 179115 September 26, 2012)
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 and8 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)
9
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
10
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)
11
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
12 egos
delineated conditions, the President or the alter
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)
(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 payments for fares were
also made here in Philippine currency; thus, the situs
of the source of payments is the Philippines.
(Commissioner of Internal Revenue v. British Overseas
Airways Corporation (BOAC) as cited in
COMMISSIONER OF INTERNAL REVENUE v. JULIANE
BAIER-NICKEL, G.R. No. 153793, August 29, 2006)
For the source of income to be considered as coming
from the Philippines, it is sufficient that the income is
derived from activities within this country regardless of
the absence of flight operations within Philippine
territory. Indeed, the sale of tickets is the very lifeblood
of the airline business, the generation of sales being
the paramount objective. (COMMISSIONER OF
INTERNAL REVENUE v. JAPAN AIR LINES, INC., G.R. No.
60714, March 6, 1991)
(2) From sources without the Philippines
(3) Income partly within and partly without the
Philippines
(c) Situs of property taxes
(1) Taxes on real property
(2) Taxes on personal property
(d) Situs of excise tax
Since it partakes of the nature of an excise tax, the
situs of taxation is the place where the privilege is
exercised, in this case in the City of Iriga, where
CASURECO III has its principal office and from where it
operates, regardless of the place where its services or
products are delivered. (CITY OF IRIGA v. CAMARINES
SUR III ELECTRIC COOPERATIVE, INC., G.R. 13No.
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
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 affecting taxation
(i) Prohibition against imprisonment for non-
payment of poll tax
(ii) Uniformity and equality of taxation
Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has
the authority to make reasonable and14natural
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 tariff rates
It is Congress which authorizes the President to impose
tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts. Thus, the
authority cannot come from the Finance Department,
the National Economic Development Authority, or the
World Trade Organization, no matter how insistent or
persistent these bodies may be. (SOUTHERN CROSS
CEMENT CORPORATION v. CEMENT MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540,
August 3, 2005)
The authorization granted to the President must be
embodied in a law. Hence, the justification cannot be
supplied simply by inherent executive powers.
(SOUTHERN CROSS CEMENT CORPORATION v.
CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, G.R. No. 158540, August 3, 2005)
The authorization to the President can be exercised
only within the specified limits set in the law and is
further subject to limitations and restrictions which
Congress may impose. Consequently, if Congress
specifies that the tariff rates should not exceed a given
amount, the President cannot impose a tariff rate that
exceeds such amount. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540,
August 3, 2005)
Assuming there is a conflict between the specific
limitation in Section 28 (2), Article VI of the Constitution
and the general executive power of control and
supervision, the former prevails in the specific instance
of safeguard measures such as tariffs and imposts, and
would thus serve to qualify the general grant to the
President of the power to exercise control and
supervision over his/her subalterns. (SOUTHERN
CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES,
G.R. No. 158540, August 3, 2005)
(iv) Prohibition against taxation of religious,
charitable entities, and educational entities
The word "charitable" is not restricted to relief of the
poor or sick. The test whether an enterprise is
charitable or not is whether it exists to carry out a
purpose recoganized in law as charitable or whether it
is maintained for gain, profit, or private advantage.
(LUNG CENTER OF THE PHILIPPINES v.QUEZON CITY,
G.R. No. 144104, June 29, 2004)
Even as we find that the petitioner is a charitable
institution, we hold that those portions of its real
property that are leased to private entities are not
exempt from real property taxes as these are not
actually, directly and exclusively used for charitable
purposes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital
used for its patients, whether paying or non-paying, are
exempt from real property taxes. (LUNG CENTER
OF THE PHILIPPINES v.QUEZON CITY, G.R. No. 144104,
June 29, 2004)
To be a charitable institution, however, an organization
must meet the substantive test of charity in Lung
Center. Charity is essentially a gift to an indefinite
number of persons which 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
15
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, tariff bills
An "item" in a revenue bill does not refer to an entire
section imposing a particular kind of tax, but rather to
the subject of the tax and the tax rate; thus, in the
portion of a revenue bill which actually imposes a tax,
a section identifies the tax and enumerates the persons
liable therefor with the corresponding tax rate. To
construe the word "item" as referring to the whole
section would tie the President's hand in choosing
either to approve the whole section at the expense of
also approving a provision therein which he deems
unacceptable or veto the entire section at the expense
of foregoing the collection of the kind of tax altogether.
(COMMISSIONER OF INTERNAL REVENUE v. HON.
COURT OF TAX APPEALS, G.R. No. L-47421, May 14,
1990)
(ix) Non-impairment of jurisdiction of the
Supreme Court
(x) Grant of power to the local government
units to create its own sources of revenue
For a long time, the country's highly centralized
government structure has bred a culture of
dependence among local government leaders upon the
national leadership. The only way to shatter this culture
of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient
powers to generate their own sources for the purpose.
(NATIONAL POWER CORPORATION v. CITY OF
CABANATUAN G.R. No. 149110 April 9, 2003)
Republic Act No. 7716, otherwise known as the
"Expanded VAT Law," did not remove or abolish the
payment of local franchise tax; it merely replaced the
national franchise tax that was previously paid by
telecommunications franchise holders and in its stead
VAT. The imposition of local franchise tax is not
inconsistent with the advent of the VAT, which renders
functus officio the franchise tax paid to the national
government for VAT inures to the benefit of the
national government, while a local franchise tax is a
revenue of the local government unit. (SMART
COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R.
No. 155491, July 21, 2009)
(xi) Flexible tariff clause
(xii) Exemption from real property taxes
For real property taxes, the incidental generation of
income is permissible because the test of exemption is
the use of the property and this test requires that the
institution use the property in a certain way, i.e. for a
charitable purpose. Thus, the Court held that the Lung
Center of the Philippines did not lose its charitable
character when it used a portion of its lot for
commercial purposes since the effect of failing to meet
the use requirement is simply to remove from the tax
exemption that portion of the property not devoted to
charity. (COMMISSIONER OF 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), Article16
VI of the
Constitution: Section 30(E) of the NIRC defines the
corporation or association that is exempt from income
tax while Section 28(3), Article VI of the Constitution
does not define a charitable institution, but requires
that the institution "actually, directly and exclusively"
use the property for a charitable purpose.
(COMMISSIONER OF INTERNAL REVENUE v. ST.
LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)
To be exempt from real property taxes, Section 28(3),
Article VI of the Constitution requires that a charitable
institution use the property "actually, directly and
exclusively" for charitable purposes. To be exempt from
income taxes, Section 30(E) of the NIRC requires that
a charitable institution must be "organized and
operated exclusively" for charitable purposes.
(COMMISSIONER OF INTERNAL REVENUE v. ST.
LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)
(xiii) No appropriation or use of public money for
religious purposes
b) Provisions indirectly affecting taxation
(i) Due process
In Sison, Jr. v. Ancheta, et al., we held that the due
process clause may properly be invoked to invalidate,
in appropriate cases, a revenue measure when it
amounts to a confiscation of property. But in the same
case, we also explained that we will not strike down a
revenue measure as unconstitutional (for being
violative of the due process clause) on the mere
allegation of arbitrariness by the taxpayer. (Chamber of
Real Estate and Builders Association, Inc. v. Romulo,
614 SCRA 605 (2010))
The support for the poor is generally recognized as a
public duty and has long been an accepted exercise of
police power in the promotion of the common good but,
in the instant case, the declarations do not distinguish
between wealthy coconut farmers and the
impoverished ones. Consequently, such declarations
are void since they appropriate public funds for private
purpose and, therefore, violate the citizens right to
substantive due process. (PAMBANSANG KOALISYON
NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA
NIYUGAN
v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April
10, 2012)
(ii) Equal protection
The real estate industry is, by itself, a class and can be
validly treated differently from other business
enterprises. What distinguishes the real estate business
from other manufacturing enterprises, for purposes of
the imposition of the CWT, is not their production
processes but the prices of their goods sold and the
number of transactions involved. (Chamber of Real
Estate and Builders Association, Inc. v. Romulo, 614
SCRA 605 (2010))
PAGCOR cannot find support in the equal protection
clause of the Constitution, as the legislative records of
the Bicameral Conference Meeting dated October 27,
1997, of the Committee on 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
17 that to
given free to those who cannot afford to pay so
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 non-impairment clause of the
Constitution can rightly be invoked, are those agreed
to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully
entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its
cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not
be revoked without impairing the obligations of
contracts. but these contractual tax exemptions are not
to be confused with tax exemptions granted under
franchisesthe latter partakes the nature of a grant
which is beyond the purview of the non-impairment
clause of the Constitution. (PHILIPPINE AMUSEMENT
AND GAMING CORPORATION (PAGCOR) v. THE
BUREAU OF INTERNAL REVENUE G.R. No. 172087 March
15, 2011)
Even though such taxation may affect particular
contracts, as it may increase the debt of one person
and lessen the security of another, or may impose
additional burdens upon one class and release the
burdens of another, still the tax must be paid unless
prohibited by the Constitution, nor can it be said that it
impairs the obligation of any existing contract in its true
legal sense." Indeed not only existing laws but also "the
reservation of the essential attributes of sovereignty, is
read into contracts as a postulate of the legal order."
(ARTURO M. TOLENTINO v. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)
J. Stages of taxation
1. Levy
Levy is an exercise of the power to tax, which is
exclusively legislative in nature and character. Clearly,
taxes are not levied by the executive branch of
government. (NPC v. Albay, 186 SCRA 198 (1990))
2. Assessment and collection
3. Payment
4. Refund
K. Definition, nature, and characteristics of taxes
Taxes are enforced proportional contributions from
persons and property, levied by the State by virtue of
its sovereignty for the support of the government and
for all its public needs. (PAMBANSANG KOALISYON NG
MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA
NIYUGAN
v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April
10, 2012)
L. Requisites of a valid tax
M. Tax as distinguished from other forms of
exactions
1. Tariff
2. Toll
A tax is imposed under the taxing power of the
government principally for the purpose of raising
revenues to fund public expenditures; toll fees, on the
other hand, are collected by private tollway operators
as reimbursement for the costs and expenses incurred
in the construction, maintenance and operation of the
tollways. Taxes may be imposed only by the
government under its sovereign authority, toll fees may
be demanded by either the government or private
individuals or entities, as an attribute of ownership.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL
18 v. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19,
2011)
Fees paid by the public to tollway operators for use of
the tollways, are not taxes in any sense.
Parenthetically, VAT on tollway operations cannot be
deemed a tax on tax due to the nature of VAT as an
indirect tax. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL v. THE SECRETARY OF FINANCE, G.R. No.
193007, July 19, 2011)
3. License fee
To be considered a license fee, the imposition must
relate to an occupation or activity that so engages the
public interest in health, morals, safety and
development as to require regulation for the protection
and promotion of such public interest; the imposition
must also bear a reasonable relation to the probable
expenses of regulation, taking into account not only the
costs of direct regulation but also its incidental
consequences as well. Accordingly, a charge of a fixed
sum which bears no relation at all to the cost of
inspection and regulation may be held to be a tax
rather than an exercise of police power. (PROGRESSIVE
DEVELOPMENT CORP. v. QUEZON CITY, G.R. No. L-
36081, April 24, 1989)
If the purpose is primarily revenue, or if revenue is at
least, one of the real and substantial purposes, then the
exaction is properly called a tax. (LAND
TRANSPORTATION OFFICE v. CITY OF BUTUAN, G.R.
No. 131512, January 20, 2000)
4. Special assessment
5. Debt
Taxes cannot be the subject of compensation because
the government and taxpayer are not mutually
creditors and debtors of each other and a claim for
taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off. (CALTEX
PHILIPPINES, INC. v. THE HONORABLE
COMMISSION ON AUDIT, G.R. No. 92585, May 8,
1992)
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 19
done or performed within the jurisdiction of said The seller remains directly and legally liable for
authority. (COMMISSIONER OF INTERNAL REVENUE v. payment of the VAT, but the buyer bears its burden
MARUBENI CORPORATION, G.R. No. since the amount of VAT paid by the former is added
137377, December 18, 2001) to the selling price. Once shifted, the VAT ceases to be
a tax and simply becomes part of the cost that the
A franchise tax is a tax on the privilege of transacting buyer must pay in order to purchase the good, property
business in the state and exercising corporate or service. (RENATO V. DIAZ and AURORA MA. F.
franchises granted by the state. It is not levied on the TIMBOL
corporation simply for existing as a corporation, upon v. THE SECRETARY OF FINANCE, G.R. No. 193007, July
its property or its income, but on its exercise of the 19, 2011)
rights or privileges granted to it by the government.
(CITY OF IRIGA v. CAMARINES SUR III ELECTRIC 3. As to tax rates
COOPERATIVE, INC., G.R. No. 192945, September 5, a) Specific
2012)
b) Ad valorem
c) Mixed
2. As to burden or incidence
4. As to purposes
a) Direct
b) Indirect a) General or fiscal
b) Special, regulatory, or sumptuary
In context, direct taxes are those that are exacted from 5. As to scope or authority to impose
the very person who, it is intended or desired, should a) National internal revenue taxes
pay them; they are impositions for which a taxpayer is b) Local real property tax, municipal tax
directly liable on the transaction or business he is 6. As to graduation
engaged in. On the other hand, indirect taxes are those a) Progressive
that are demanded, in the first instance, from, or are b) Regressive
paid by, one person in the expectation and intention
that he can shift the burden to someone else. c) Proportionate
(COMMISSIONER OF INTERNAL REVENUE VS
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INCOME TAXATION
G.R. No. 140230, December 15, 2005)
A. Income taxation
Indirect taxes, like VAT and excise tax, are different 1. Income tax systems
from withholding taxes: To distinguish, in indirect a) Global tax system
taxes, the incidence of taxation falls on one person but Global treatment is a system where the
the burden thereof can be shifted or passed on to tax treatment views indifferently the
another person, such as when the tax is imposed upon tax base and generally treats in
goods before reaching the consumer who ultimately common all categories of taxable
pays for it. On the other hand, in case of withholding income of the taxpayer. (TAN v. DEL
taxes, the incidence and burden of taxation fall on the ROSARIO, JR. 237 SCRA 324)
same entity, the statutory taxpayer. The burden of b) Schedular tax system
taxation is not shifted to the withholding agent who Schedular approach is a system
merely collects, by withholding, the tax due from employed where the income tax
income payments to entities arising from certain treatment varies and made to depend
transactions and remits the same to the government. on the kind or category of taxable
(ASIA INTERNATIONAL AUCTIONEERS, INC. v. income of the taxpayer. (TAN v. DEL
COMMISSIONER OF INTERNAL REVENUE G.R. No. ROSARIO, JR. 237 SCRA 324)
179115 September 26, 2012) c) Semi-schedular or semi-global
tax system
The Constitution does not really prohibit the imposition 2. Features of the Philippine income tax
of indirect taxes which, like the VAT, are regressive
law
since what it simply provides is that Congress shall
"evolve a progressive system of taxation." The a) Direct tax
constitutional provision has been interpreted to mean b) Progressive
simply that "direct taxes are to be preferred [and] as c) Comprehensive
much as possible, indirect taxes should be minimized." d) Semi-schedular or semi-global
(ARTURo M. TOLENTINO v. THE SECRETARY OF tax system
FINANCE and THE COMMISSIONER OF INTERNAL 3. Criteria in imposing Philippine income
REVENUE, G.R. No. 115455, October 30, 1995) tax
 a) Citizenship principle paid, contending that since20 it had a
b) Residence principle Philippine branch, it is a resident
c) Source principle foreign corporation liable to pay only
10% intercorporate final tax on
dividends received from a domestic
A non-resident German citizen, president corporation (and not to the branch
of a domestic corporation, filed a claim for profit remittance tax) following the
refund with the BIR, contending that her principal-agent theory. Marubeni
sales commission income is not taxable in Japan is considered a non-resident
the Philippines because the same was a foreign corporation as to the
compensation for her services rendered in dividends because when the foreign
Germany and therefore considered as corporation transacts business in the
income from sources outside the Philippines independently of its
Philippines. While it is the rule that source branch, the principal-agent
of income relates to the property, activity relationship is set aside. (Marubeni
or service that produced the income, the Corp. vs. Commissioner of Internal
documents presented by respondent did Revenue, et al., G.R. No. 76573,
not constitute substantial evidence that it September 14, 1989)
was in Germany where she performed the
income-producing service and thus the tax
refund should be denied. (Commissioner of BOAC is a resident foreign corporation
because it maintained a general sales
Internal Revenue vs. Juliane Baier-Nickel,
agent in the Philippines. There is no
G.R. No. 153793, August 29, 2006)
specific criterion as to what constitutes
doing or engaging in or "transacting
4. Types of Philippine income tax business. The term implies a continuity of
5. Taxable period commercial dealings and arrangements,
and contemplates, to that extent, the
a) Calendar period
performance of acts or works or the
b) Fiscal period
exercise of some of the functions normally
c) Short period incident to, and in progressive prosecution
6. Kinds of taxpayers of commercial gain or for the purpose and
a) Individual taxpayers object of the business organization. In
(i) Citizens order that a foreign corporation may be
(a) Resident citizens regarded as doing business within a State,
(b) Non-resident there must be continuity of conduct and
citizens intention to establish a continuous
(ii) Aliens business, such as the appointment of a
(a) Resident aliens local agent, and not one of a temporary
(b) Non-resident aliens character. (CIR vs BOAC, G.R. No. L-65773-
(1) Engaged in 74 April 30, 1987)
trade or (a) Resident foreign corporations
business (b) Non-resident foreign
(2) Not engaged corporations
in trade or (iii) Joint venture and
consortium
business
c) Partnerships
(iii) Special class of individual
Pursuant to reinsurance treaties, a
employees
number of local insurance firms formed
(a) Minimum wage
themselves into a pool in order to
earner facilitate the handling of business
(b) Corporations contracted with a nonresident foreign
(i) Domestic reinsurance company. The insurance pool
corporations is deemed a partnership or association
(ii) Foreign taxable as a corporation under the NIRC
corporations because Section 24 (on tax on
Marubeni Japan claimed a refund for excess taxes it had corporations) [now Sec. 27 of the 1997
NIRC] covered these unregistered
 partnerships and even associations or joint such a manner that the taxpayer must recognize 21income
accounts, which had no legal personalities or expense? The accrual of income and expense is
apart from their individual members; permitted when the all-events test has been met. This
moreover, the insurance pool, though test requires: (1) fixing of a right to income or liability to
unregistered, satisfies the requisites of a pay; and (2) the availability of the reasonable accurate
partnership: (1) mutual contribution to a determination of such income or liability. (CIR vs Isabela
common stock, and (2) joint interest in the Cultural Corp., GR 172231, February 12, 2007)
profits. (Afisco Insurance Corp., et al. vs.
Court of Appeals, et al., G.R. No. 112675, (a) Installment payment vis--vis deferred
January 25, 1999) payment vis-- vis percentage completion (in
long-term contracts)
The original purpose of the co-owners of b) Tests in determining whether income is
the two lots was to divide the lots for earned for tax purposes
residential purposes. If later on they found (i) Realization test
it not feasible to build their residences on (ii) Claim of right doctrine or doctrine of
the lots because of the high cost of ownership, command, or control
construction, then they had no choice but (iii) Economic benefit test, doctrine of
to resell the same to dissolve the co- proprietary interest
ownership. The division of the profit was (iv) Severance test
merely incidental to the dissolution of the (v) All events test
co-ownership which was in the nature of 2. Gross income
things a temporary state. The sharing of a) Definition
gross returns does not of itself establish a b) Concept of income from whatever source
partnership, whether or not the persons derived
sharing them have a joint or common right c) Gross income vis--vis net income vis--
or interest in any property (Obillos Jr. vs vis taxable income
CIR, G.R. No. L- 68118, October 29, 1985) d) Classification of income as to source
d) General professional partnerships (i) Gross income and taxable income from
e) Estates and trusts sources within the Philippines
f) Co-ownerships (ii) Gross income and taxable income from
7. Income taxation sources without the Philippines
a) Definition (iii) Income partly within or partly without the
Philippines
b) Nature
e) Sources of income subject to tax
c) General principles (i) Compensation income
8. Income (ii) Fringe benefits
a) Definition (a) Special treatment of fringe benefits
b) Nature (b) Definition
c) When income is taxable (c) Taxable and non-taxable fringe benefits
(i) Existence of income
(ii)Realization of income
(a) Tests of realization (iii) Professional income
(b) Actual vis--vis (iv) Income from business
constructive receipt (v) Income from dealings in property
(iii) Recognition of income (a) Types of properties
(1) Ordinary assets
(iv) Methods of accounting
(2) Capital assets
(a) Cash method vis--
The proceeds from the inherited land of petitioners,
vis accrual method
which they subdivided into small lots and in the process
The accrual method relies upon the taxpayers right to
converted into a residential subdivision and given the
receive amounts or its obligation to pay them, in
name Don Mariano Subdivision, is taxable as ordinary
opposition to actual receipt or payment, which
income. Property initially classified as a capital asset may
characterizes the cash method of accounting. Amounts
thereafter be treated as an ordinary asset if a
of income accrue where the right to receive them
combination of the factors indubitably tend to show that
become fixed, where there is created an enforceable
the activity was in furtherance of or in the course of the
liability. Similarly, liabilities are accrued when fixed and
taxpayer's trade or business; thus, a sale of inherited
determinable in amount, without regard to
real property usually gives capital gain or loss even
indeterminacy merely of time of payment. For a
though the property has to be subdivided or improved
taxpayer using the accrual method, the determinative
or both to make it salable--however, if the inherited
question is, when do the facts present themselves in
property is substantially improved or very actively sold other types of insurance 22
or both it may be treated as held primarily for sale to (iii) Prizes and awards
customers in the ordinary course of the heir's business. (iv) Pensions, retirement benefit, or
(Tomas Calasanz, et al. vs. Commissioner of Internal separation pay
Revenue, et al., G.R. No. L- 26284, October 9, 1986) (v) Income from any source whatever
(a) Forgiveness of indebtedness
(a) Types of gains from dealings in property (b) Recovery of accounts
(1) Ordinary income vis--vis capital gain previously written-off when
(2) Actual gain vis--vis presumed gain taxable/when not taxable
(3) Long term capital gain vis--vis short-term (c) Receipt of tax refunds or credit
capital gain (d) Income from any source whatever
(4) Net capital gain, net capital loss (e) Source rules in determining income from
(5) Computation of the amount of gain or loss within and without
(6) Income tax treatment of capital loss (1) Interests
(a) Capital loss limitation rule (applicable to (2) Dividends
both corporations and individuals) (3) Services
(b) Net loss carry-over rule (applicable only to (4) Rentals
individuals) (5) Royalties
(7) Dealings in real property (6) Sale of real property
situated in the Philippines (7) Sale of personal property
(8) Dealings in shares of stock of (8) Shares of stock of domestic corporation
Philippine corporations (f) Situs of income taxation (see page 2 under
(a) Shares listed and traded in the stock inherent limitations, territorial)
exchange (g) Exclusions from gross income
(b) Shares not listed and traded in the stock (1) Rationale for the exclusions
exchange
(9) Sale of principal residence (1) Taxpayers who may avail of the exclusions
(ii) Passive investment income (2) Exclusions distinguished from deductions
(a) Interest income and tax credit
(b) Dividend income (3) Under the Constitution
(1) Cash dividend (a) Income derived by the government or its
(2) Stock dividend political subdivisions from the exercise of any
Stock dividends, strictly speaking, represent capital and essential governmental function
do not constitute income to (4) Under the Tax Code
its recipient. So that the mere issuance thereof (a) Proceeds of life insurance policies
is not yet subject to income tax as they are nothing but (b) Return of premium paid
an enrichment through increase in value (c) Amounts received under life
of capital investment. However, the insurance, endowment or annuity
redemption or cancellation of stock dividends, depending contracts
on the time and manner it was made, is essentially (d) Value of property acquired by gift,
equivalent to a distribution of taxable dividends, making bequest, devise or descent
the proceeds thereof taxable income to the extent it (e) Amount received through accident or
represents profits. The exception was designed to health insurance
prevent the issuance and cancellation or redemption of
(f) Income exempt under tax treaty
stock dividends, which is fundamentally not taxable,
Retirement benefits, pensions, gratuities, etc.
from being made use of as a device for the actual
distribution of cash dividends, which is taxable. (CIR vs
Respondent terminated petitioners services due to her
CA, G.R. No. 108576 January 20, 1999)
illness, rendering her incapable of continuing to work,
(1) Property dividend
and gave her retirement benefits but withheld the tax
(2) Liquidating dividend
due thereon. The retirements benefits are taxable
(b) Royalty income
because the petitioner was only 41 yrs old at the time of
(c) Rental income
retirement and had rendered only 8 years of service; for
(1) Lease of personal property
these benefits to be exempt from tax, the following
(2) Lease of real property
requisites must concur: (1) a reasonable private benefit
(3) Tax treatment of
plan is maintained by the employer; (2) the retiring
(a) Leasehold improvements by lessee
official or employee has been in the service of the same
(b) VAT added to rental/paid by the lessee
employer for at least ten (10) years; (3) the retiring
(c) Advance rental/long term lease
official or employee is not less than fifty
(ii) Annuities, proceeds from life insurance or
(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 23
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)
Paid and incurred during taxable year
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 (d) Losses 24
project) or the amount of P99,977.91 is not a deductible (1) Requisites for deductibility
ordinary and necessary expense because it does not (2) Other types of losses
pass the test of reasonable compensation. If (a) Capital losses
(b) Securities becoming worthless Securities
independently, a one-time P100,000.00-fee to plan and
becoming worthless resulting from China Banks equity
lay down the rules for supervision of a subdivision
investment in the First CBC Capital (Asia) Ltd., a
project were to be paid to an experienced realtor such Hongkong subsidiary, is capital loss and
as Hoskins, its fairness and deductibility by the taxpayer not an ordinary loss. An equity investment is
could be conceded; however, the fee paid to Hoskins a capital, not ordinary, asset of the investor the sale or
continued every year since 1955 up to 1963 and for as exchange of which results in either a capital gain or a
long as its contract with the subdivision owner subsisted, capital loss; shares of stock would be ordinary assets
regardless of whether services were actually rendered by only to a dealer in securities or a person engaged in the
Hoskins. (C. M. Hoskins & Co., Inc. vs. Commissioner of purchase and sale of, or an active trader (for his own
Internal Revenue, G.R. No. L-24059, November 28, account) in, securities. (China Banking Corp. vs. Court of
Appeals, et al., G.R. No. 125508, July 19, 2000)
1969)
(c) Losses on wash sales of stocks or securities
(1) Travelling/transportation expenses
(d) Wagering losses
(2) Cost of materials
(e) Net Operating Loss Carry-Over (NOLCO)
(3) Rentals and/or other payments for use or
(e) Bad debts
possession of property
In claiming deductions for bad debts, the only
(4) Repairs and maintenance
evidentiary support given by PRC was the explanation
(5) Expenses under lease agreements
posited by its accountant, whose allegations were not
(6) Expenses for professionals
supported by any documentary evidence. One of the
(7) Entertainment/Representation expenses
requisites to qualify as bad debt is that the debt must
(8) Political campaign expenses
be actually ascertained to be worthless and uncollectible
(9) Training expenses
during the taxable year, and the taxpayer must prove
(b) Interest
that he exerted diligent efforts to collect the debts by (1)
(1) Requisites for deductibility
sending of statement of accounts;
(2) Non-deductible interest expense
(2) sending of collection letters; (3) giving the
(3) Interest subject to special rules
account to a lawyer for collection; and (4) filing a
(a) Interest paid in advance
collection case in court. (Philippine Refining Company vs.
(b) Interest periodically amortized
Court of Appeals, et al., G.R. No. 118794, May 8, 1996)
(c) Interest expense incurred to acquire
(1) Requisites for deductibility
property for use in trade/business/profession
(2) Effect of recovery of bad debts
(d) Reduction of interest expense/interest
arbitrage
(f) Depreciation
(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
Depreciation is the gradual diminution in the useful
an exaction designed to curb the excessive demands
value of tangible property resulting from wear and tear
upon our international reserve. Margin fees are also not
and normal obsolescense. The term is also applied to
ordinary and necessary business expenses because they
amortization of the value of intangible assets, the use of
are not expenses in connection with the production or
which in the trade or business is definitely limited in
earning of petitioner's incomes in the Philippines; they
duration. Depreciation commences with the acquisition
were expenses incurred in the disposition of said
of the property and its owner is not bound to see his
incomes. (Esso Standard Eastern, Inc. vs. Commissioner
property gradually waste, without making provision out
of Internal Revenue, G.R. Nos. 28508-9, July 7, 1989)
of earnings for its replacement. (Basilan Estates, Inc. vs.
(1) Requisites for deductibility
Commissioner of Internal Revenue, et al., G.R. No. L-
(2) Non-deductible taxes
22492, September 5, 1967)

Both depletion and depreciation are predicated on the

same basic promise of avoiding a tax on capital. The
(3) Treatments of surcharges/interests/fines for
allowance for depletion is based on the theory that the
delinquency
extraction of minerals gradually exhausts the capital
(4) Treatment of special assessment
investment in the mineral deposit. The purpose of the
(5) Tax credit vis--vis deduction
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 improvements (capital expenditures) 25
the concept of the exhaustion of a natural resource (d) Amount expended in restoring
whereas depreciation is based upon the concept of the property (major repairs)
exhaustion of the property, not otherwise a natural (e) Premiums paid on life insurance policy covering
resource, used in a trade or business or held for the life or any other officer or employee financially
production of income. Thus, depletion and depreciation interested
are made applicable to different types of assets. And a (f) Interest expense, bad debts, and losses from
taxpayer may not deduct that which the Code allows as sales of property between related parties
of another. (Consolidated Mines, Inc. vs. Court of Tax (g) Losses from sales or exchange or property
Appeals, et al., G.R. Nos. L- 18843 & 18844, August 29, (h) Non-deductible interest
1974) (i) Nondeductible taxes
(j) Non-deductible losses
(1) Requisites for deductibility (k) Losses from wash sales of stock or securities
(2) Methods of computing (7) Exempt corporations
depreciation allowance (a) Propriety educational institutions and hospitals
(a) Straight-line method (b) Government-owned or controlled corporations
(b) Declining-balance method (c) Others
(c) Sum-of-the-years-digit method
(g) Charitable and other contributions 10. Taxation of resident citizens, non-resident
(1) Requisites for deductibility citizens, and resident aliens
(2) Amount that may be deducted a) General rule that resident citizens are taxable on
(h) Contributions to pension trusts income from all sources within and without the
(1) Requisites for deductibility Philippines
(i) Non-resident citizens
(i) Deductions under special laws b) Taxation on compensation income
(4) Optional standard deduction (i) Inclusions
(a) Individuals, except non-resident aliens (a) Monetary compensation
(b) Corporations, except non-resident foreign (1) Regular salary/wage
corporations (2) Separation pay/retirement benefit not
(c) Partnerships otherwise exempt

(5) Personal and additional exemption (R.A. No. (3) Bonuses, 13th month pay, and other benefits
9504, Minimum Wage Earner Law) not exempt
The increased personal and additional exemptions under (4) Directors fees
the NIRC cannot be availed of by the petitioner for (b) Non-monetary compensation
purposes of computing his income tax liability for the (1) Fringe benefit not subject to tax
taxable year 1997. Since the NIRC took effect on (ii) Exclusions
January 1, 1998, the increased amounts of personal and (a) Fringe benefit subject to tax
additional exemptions under Section 35, can only be (b) De minimis benefits
allowed as deductions from the individual taxpayers (c) 13th month pay and other benefits, and
gross or net income, as the case maybe, for the taxable payments specifically
year 1998 to be filed in 1999; the NIRC made no excluded from taxable compensation income
reference that the personal and additional exemptions (iii) Deductions
shall apply on income earned before January 1, 1998, (a) Personal exemptions and additional exemptions
and it is a rule that tax laws are to be applied (b) Health and hospitalization insurance
prospectively unless its retroactive application is (c) Taxation of compensation income of a minimum
expressly provided. (Carmelino F. Pansacola vs. CIR, wage earner
G.R. No. 159991, November 16, 2006) (1) Definition of statutory minimum wage
(a) Basic personal exemptions (2) Definition of minimum wage earner
(b) Additional exemptions for taxpayer with (3) Income also subject to tax exemption: holiday
dependents pay, overtime pay, night-shift differential, and hazard
(c) Status-at-the-end-of-the-year rule pay
(d) Exemptions claimed by non-resident aliens c) Taxation of business income/income from
(6) Items not deductible practice of profession
(a) General rules d) Taxation of passive income
(b) Personal, living or family expenses (i) Passive income subject to final tax
(c) Amount paid for new buildings or for permanent (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 an26 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 LIMITED-PHILIPPINE
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
since it will apply only beginning on the 4th 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. (i) Interest from deposits and yield, or any27other
monetary benefit from deposit substitutes, trust funds
The intent of Congress relative to the MCIT is to grant a and similar arrangements and royalties
4 year suspension of tax payment to newly formed (ii) Income derived under the expanded foreign
corporations. Corporations still starting have to stabilize currency deposit system
their venture in order to obtain stronghold in the (iii) Capital gains from sale of shares of stock not
industry. It is not a surprise when many corporations traded in the stock
reported losses in their initial years of operations. exchange
(Manila Banking Corp. v. CIR, 499 SCRA 782) (iv) Inter-corporate dividends
Exclude:
(b) Carry forward of excess minimum tax (i) International carrier
(c) Relief from the MCIT under certain conditions (ii) Offshore banking units
(d) Corporations exempt from the MCIT (iii) Branch profits remittances
(e) Applicability of the MCIT where a corporation is (iv) Regional or area headquarters and regional
governed both under the regular tax system and a operating headquarters of multinational companies
special income tax system 15. Taxation of non-resident foreign corporations
b) Allowable deductions a) General rule
(i) Itemized deductions b) Tax on certain income
(ii) Optional standard deduction (i) Interest on foreign loans
c) Taxation of passive income (ii) Inter-corporate dividends
(i) Passive income subject to tax (iii) Capital gains from sale of shares of stock not
(a) Interest from deposits and yield, or any other traded in the stock exchange
monetary benefit from deposit substitutes and from trust Exclude:
funds and similar arrangements and royalties (i) Non-resident cinematographic film-owner, lessor
(b) Capital gains from the sale of shares of stock or distributor
not traded in the stock exchange (ii) Non-resident owner or lessor of vessels
(c) Income derived under the expanded foreign chartered by Philippine nationals
currency deposit system (iii) Non-resident owner or lessor of aircraft
(d) Inter-corporate dividends machineries and other equipment
(e) Capital gains realized from the sale, exchange, 16. Improperly accumulated earnings of
or disposition of lands and/or buildings corporations
(ii) Passive income not subject to tax Petitioner cannot avoid paying surtax on improperly
d) Taxation of capital gains accumulated earnings because the purchase of the
(i) Income from sale of shares of stock U.S.A. Treasury bonds were in no way related to
(ii) Income from the sale of real property situated in petitioners business of importing and selling wines
the Philippines liquors. The immediacy test determines the
(iii) Income from the sale, exchange, or other reasonable needs of the business in order to justify an
disposition of other capital assets accumulation of earningsthat is, if the corporation did
e) Tax on proprietary educational institutions and not prove an immediate need for the accumulation of
hospitals the earnings and profits, the accumulation was not for
St. Lukes is a proprietary non-stock and non-profit the reasonable needs of the business, and the penalty
hospital catering to non- paying patients but also derives tax would apply; investment of the earnings and profits
profit from paying patients. It is subject to the of the corporation in stock or securities of an unrelated
preferential tax rate of 10% for its profit-generating business usually indicates an accumulation beyond the
activities under sec. 27(B) of NIRC; it cannot be exempt reasonable needs of the business (Manila Wine
from income tax under sec. 30(E) and (G) because it is Merchants, Inc. vs. Commissioner of Internal Revenue,
not organized and operated exclusively for charitable G.R. No. L-26145, February 20, 1984)
purposes, which is a requirement under the
aforementioned provision. (CIR vs. St. Luke's Medical BIR assessed petitioner for surtax on improperly
Center, Inc., G.R. Nos. 195909 & 195960, September accumulated profits, which petitioner contested. In order
26, 2012) to determine whether profits are accumulated for the
f) Tax on government-owned or controlled reasonable needs of the business, it must be shown
corporations, agencies or instrumentalities that: (1) the controlling intention of the taxpayer is
14. Taxation of resident foreign corporations manifest at the time of accumulation, not intentions
a) General rule declared subsequently, which are mere afterthoughts;
b) With respect to their income from sources within and (2) the accumulated profits must be used within a
the Philippines reasonable time after the close of the taxable year.
c) Minimum Corporate Income Tax (Cyanamid Philippines, Inc. vs. Court of Appeals, et al.,
d) Tax on certain income G.R. No. 108067, January 20, 2000)
Previous accumulations should be considered in
determining unreasonable accumulations for the year
concerned. In determining whether accumulations of
earnings or profits in a particular year are within the
reasonable needs of a corporation, it is necessary to
take into account prior accumulations, since
accumulations prior to the year involved may have been
sufficient to cover the business needs and additional
accumulations during the year involved would not
reasonably be necessary. (Basilan Estates, Inc. vs.
Commissioner of Internal Revenue, et al., G.R. No. L-
22492, September 5, 1967)
17. Exemption from tax on corporations
YMCA, a non-stock non-profit corporation with charitable
objectives, claimed exemption from payment of income
tax by invoking the NIRC and the Constitution. While the
income received by the organizations enumerated in
Section 26 of the NIRC is, as a rule, exempted from the
payment of tax in respect to income received by them
as such, the exemption does not apply to income
derived from any of their 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
28 which
Citytrust and Asianbank are domestic corporations
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
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
non-use. 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;
(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
29 or to
donation, to transfer property in fraud of creditors,
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
essentially confirm the general principle that post-death
developments are not material in determining the
amount of the deduction. (RAFAEL ARSENIO
S. DIZON vs. COURT OF TAX APPEALS, G.R. No.
140944, April 30, 2008)
We express our agreement with the date-of-death
valuation rule. There is no law, nor do we discern any
legislative intent in our tax laws, which disregards the
date-of-death valuation principle and particularly
provides that post-death developments must be
considered in determining the net value of the estate. It
bears emphasis that tax burdens are not to be imposed,
nor presumed to be imposed, beyond what the statute
expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.
(RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)
Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is
generally construed to mean debts or demands of a
pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability
contracted by the deceased before his death. Therefore,
the claims existing at the time of death are significant
to, and should be made the basis of, the determination
of allowable deductions. (RAFAEL ARSENIO S. DIZON vs.
COURT OF TAX APPEALS, G.R. No. 140944, April 30,
2008)
Administration expenses, as an allowable deduction from
the gross estate of the decedent for purposes of arriving
at the value of the net estate, have been construed by
the federal and state courts of the United States to
include all expenses "essential to the collection of the
assets, payment of debts or the distribution of the
property to the persons entitled to it." In other words,
the expenses must be essential to the proper settlement
of the estate and expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not
deductible. (COMMISSIONER OF INTERNAL REVENUE
vs. COURT OF APPEALS, G.R. No. 123206, March 22,
2000)
Thus, in Lorenzo v. Posadas, the Court construed the
phrase "judicial expenses of the testamentary or
intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate
when it appeared that such trustee was appointed for
the purpose of managing the decedent's real estate for
the benefit of the testamentary heir. In another case,
the Court disallowed the premiums paid on the bond
filed by the administrator as an expense of
administration since the giving of a bond is in the nature
of a qualification for the office, and not necessary in the
settlement of the estate. Neither may attorney's fees
incident to litigation incurred by the heirs in asserting
their respective rights be claimed as a deduction from
the 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) 30
In the case at bar, when the spouses Vitug opened
savings account, they merely put what rightfully
belonged to them in a money-making venture. They did
not dispose of it in favor of the other, which would have
arguably been sanctionable as a prohibited donation.
(ROMARICO
G. VITUG vs. THE HONORABLE COURT OF APPEALS and
ROWENA FAUSTINO-CORONA, G.R. No. 82027, March
29, 1990)
The granting clause shows that Diego donated the
properties out of love and affection for the donee which
is a mark of a donation inter vivos; second, the
reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the
properties; third, the donor reserved sufficient
properties for his maintenance in accordance with his
standing in society, indicating that the donor intended to
part with the six parcels of land; lastly, the donee
accepted the donation. (SPS. AGRIPINO GESTOPA and
ISABEL SILARIO GESTOPA vs. COURT OF APPEALS, G.R.
No. 111904, October 5, 2000)
In the case of Alejandro vs. Geraldez, 78 SCRA 245
(1977), we said that an acceptance clause is a mark that
the donation is inter vivos. Acceptance is a requirement
for donations inter vivos. 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 31course
of trade or business of the seller, NDC that is, the sale is
not subject to VAT pursuant to Section 99 [now Sec.
105] of the Tax Code, no matter how the said sale may
hew to those transactions deemed sale as defined under
Section 100 [now Sec. 106]. (COMMISSIONER OF
INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R.
No. 146984. July 28, 2006)
Thus, there must be a sale, barter or exchange of goods
or properties before any VAT may be levied. Certainly,
there was no such sale, barter or exchange in the
subsidy given by SIS to Sony; it was but a dole out by
SIS and not in payment for goods or properties sold,
bartered or exchanged by Sony. (COMMISSIONER OF
INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R.
No. 178697, November 17, 2010)
Goods or properties must be used directly or indirectly in
the production or sale of taxable goods and services.
(Kepco Philipppines Corp. v. CIR, G.R. No. 179356,
December 14, 2009)
it is immaterial whether the primary purpose of a
corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-
on-cost basis only, without realizing profit, for purposes
of determining liability for VAT on services rendered. As
long as the entity provides service for a fee,
remuneration or consideration, then the service
rendered is subject to VAT. (COMMISSIONER OF
INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No.
125355, March 30, 2000)
3. Impact of tax
Under Section 105 of the Tax Code, VAT is imposed on
any person who, in the course of trade or business,
sells or renders services for a fee. In other words, the
seller of services, who in this case is the tollway
operator, is the person liable for VAT. The latter merely
shifts the burden of VAT to the tollway user as part of
the toll fees. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No.
193007, July 19, 2011)
4. Incidence of tax
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
32 are
services from the Philippines to a foreign country
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
effectively zero-rated sales of goods or properties
Zero-rated transactions generally refer to the export sale
of goods and supply of services. The tax rate is set at
zero and when applied to the tax base, such rate
obviously results in no tax chargeable against the
purchaser. The seller of such transactions charges no
output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R.
No. 153866, February 11, 2005)
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
33
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 LGC34 of 1991
precisely because the VAT law was intended to replace
the percentage tax on certain services. (CIR v. SM Prime
Holdings, Inc. and First Asia Realty Development Corp.,
G.R. No. 183505, February 26, 2010)
a) Requisites for taxability
14. Zero-rated sale of services
15. VAT exempt transactions
An exempt transaction involves goods or services which,
by their nature, are specifically listed in and expressly
exempted from the VAT under the Tax Code, without
regard to the tax status VAT-exempt or not of the
party to the transaction. Indeed, such transaction is not
subject to the VAT, but the seller is not allowed any tax
refund of or credit for any input taxes paid.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R.
No. 153866, February 11, 2005)
An exempt party, on the other hand, is a person or
entity granted VAT exemption under the Tax Code, a
special law or an international agreement to which the
Philippines is a signatory, and by virtue of which its
taxable transactions become exempt from the VAT. Such
party is also not subject to the VAT, but may be allowed
a tax refund of or credit for input taxes paid, depending
on its registration as a VAT or non-VAT taxpayer.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)
a) VAT exempt transactions, in general
By extending the exemption to entities or individuals
dealing with PAGCOR, the legislature clearly granted
exemption also from indirect taxes. It must be noted
that the indirect tax of VAT, as in the instant case, can
be shifted or passed to the buyer, transferee, or lessee
of the goods, properties, or services subject to VAT.
Thus, by extending the tax exemption to entities or
individuals dealing with PAGCOR in casino operations, it
is exempting PAGCOR from being liable to indirect taxes.
(PHILIPPINE AMUSEMENT AND GAMING CORPORATION
(PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE,
G.R. No. 172087, March 15, 2011)
The rationale for the exemption from indirect taxes
provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR
in casino operations are best elucidated from the 1987
case of Commissioner of Internal Revenue v. John
Gotamco & Sons, Inc., where the absolute tax
exemption of the World Health Organization (WHO)
upon an international agreement was upheld. We held in
said case that the exemption of contractee WHO should
be implemented to mean that the entity or person
exempt is the contractor itself who constructed the
building owned by contractee WHO, and such does not
violate the rule that tax exemptions are personal
because the manifest intention of the agreement is to
exempt the contractor so that no contractor's tax may
be shifted to the contractee WHO. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR)
vs. THE BUREAU OF INTERNAL REVENUE, G.R. No.
172087, March 15, 2011)
Pawnshops- considered as non-bank financial
intermediary is exempted from VAT but liable to
percentage tax. (Tambunting Pawnshop, Inc. v. CIR,
G.R. No. 179085, January 21, 2010)
b) Exempt transaction, enumerated
16. Input tax and output tax, defined
Under the present method that relies on invoices, an
entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its
purchases, inputs and imports.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R.
No. 153866, February 11, 2005)
If at the end of a taxable quarter the output taxes
charged by a seller are equal to the input taxes passed
on by the suppliers, no payment is required. It is when
the output taxes exceed the input taxes that the excess
has to be paid. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
17. Sources of input tax
a) Purchase or importation of goods
b) Purchase of real properties for which a VAT has
actually been paid
c) Purchase of services in which VAT has actually
been paid
d) Transactions deemed sale
e) Presumptive input
f) Transitional input
Prior payment of taxes is not necessary before a
taxpayer could avail of the 8% transitional input tax
credit: first, it was never mentioned in Section 105 of
the old NIRC [now Sec. 111] that prior payment of taxes
is a requirement; second, since the law (Section 105 of
the NIRC) does not provide for prior payment of taxes,
to require it now would be tantamount to judicial
legislation which, to state the obvious, is not allowed;
third, a transitional input tax credit is not a tax refund
per se but a tax credit; fourth, if the intent of the law
were to limit the input tax to cases where actual VAT
was paid, it could have simply said that the tax base
shall be the actual value-added tax paid; and fifth, this
Court had already declared that prior payment of taxes
is not required in order to avail of a tax credit. (FORT
BONIFACIO DEVELOPMENT CORPORATION vs.35
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
Section 112 of the Tax Code does not prohibit cash
refund or tax credit of transitional input tax in the case
of zero-rated or effectively zero-rated VAT registered
taxpayers, who do not have any output VAT. The phrase
"except transitional input tax" in Section 112 of the Tax
Code was inserted to distinguish creditable input tax
from transitional input tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 173425,
January 22, 2013)
It is apparent that the transitional input tax credit
operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods,
materials and supplies. During that period of transition
from non-VAT to VAT status, the transitional input tax
credit serves to alleviate the impact of the VAT on the
taxpayer. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
18. Persons who can avail of input tax credit
In a VAT-exempt transaction, the seller is not allowed to
charge VAT to his customer. Since no output tax is
shifted by the seller, there is no output tax against
which the related input taxes may be credited. Neither
can he credit this input tax against the VAT due on other
sales. In this case, he is treated as the end user
who will shoulder the cost of the input VAT.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN
ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)
Unlike the input taxes related to exempt sales, input
taxes related to zero-rated sales may be credited against
output taxes on other sales and in case it is not fully
utilized, the excess may be carried over to the
succeeding quarter or quarters and there is no
prescription period for the carry-over. The law gives the
taxpayer another option for the recovery of used input
taxes: application for refund or tax credit certificate.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN
ROQUE POWER CORPORATION, G.R. No. 187485,
February 12, 2013)
19. Determination of output/input tax; VAT payable;
excess input tax credits
a) Determination of output tax
b) Determination of input tax creditable
c) Allocation of input tax on mixed transactions
d) Determination of the output tax and VAT
payable and computation of VAT payable or excess tax
credits
20. Substantiation of input tax credits
21. Refund or tax credit of excess input tax
If, however, the input taxes exceed the output taxes,
the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or from
the acquisition of capital goods, any excess over the
output taxes shall instead be refunded to the taxpayer
or credited against other internal revenue taxes.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
While a tax liability is essential to the availment or use of
any tax credit, prior tax payments are not. On the
contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is
needed. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
As regards Section 110, while the law only provides for a
tax credit, a taxpayer who erroneously or excessively
pays his output tax is still entitled to recover the
payments he made either as a tax credit or a tax refund.
In this case, since petitioner still has available
transitional input tax credit, it filed a claim for refund to
recover the output VAT it erroneously or excessively
paid for the 1st quarter of 1997. Thus, there is no
reason for denying its claim for tax refund/credit. (FORT
BONIFACIO DEVELOPMENT CORPORATION vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
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
36the
legally due. Thus, the taxpayer who legally paid
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 37 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. COMMISSIONER
OF INTERNAL REVENUE, G.R. No. 197525, June 4,
2014, J. Mendoza
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. DA-489-03
was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during
the time when BIR Ruling No. DA-489- 03 was in force.
(San Roque) (COMMISSIONER OF INTERNAL REVENUE
vs. MINDANAO II GEOTHERMAL PARTNERSHIP, G.R.
No. 191498, January 15, 2014)
It is indisputable that compliance with the 120-day
waiting period is mandatory and jurisdictional. Failure to
comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the
petition premature and thus without a cause of action,
with the effect that the CTA does not acquire jurisdiction
over the taxpayers petition. (MINDANAO II
GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
Stated otherwise, the two-year prescriptive period does
not refer to the filing of the judicial claim with the CTA
but to the filing of the administrative claim with the
Commissioner. As held in Aichi, the "phrase within two
years x x x apply for the issuance of a tax credit or
refund refers to applications for refund/credit with the
CIR and not to appeals made to the CTA." (MINDANAO
II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
San Roque's failure to comply with the 120-day
mandatory period renders its petition for review with the
CTA void as Article 5 of the Civil Code provides, "Acts
executed against provisions of mandatory or prohibitory
laws shall be void, except when the law itself authorizes
their validity." San Roque's void petition for review
cannot be legitimized by the CTA or this Court because
Article 5 of the Civil Code states that such void petition
cannot be legitimized "except when the law itself
authorizes [its] validity," and there is no law authorizing
the petition's validity. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R.
No. 187485, February 12, 2013)
Sec. 112(A) clearly provides in no uncertain terms that
unutilized input VAT payments not otherwise used for
any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the close of
the taxable quarter when the relevant sales were made
pertaining to the input VAT regardless of whether said
tax was paid or not. The reckoning frame would always
be the end of the quarter when the pertinent sales or
transaction was made, regardless when the input VAT
was paid. (COMMISSIONER OF INTERNAL REVENUE vs.
MIRANT PAGBILAO CORPORATION, G.R. No. 172129.
September 12, 2008)
This prescriptive period has no relation to the date of
payment of the "excess" input VAT since the "excess"
input VAT may have been paid for more than two years
but this does not bar the filing of a judicial claim for
"excess" VAT under Section 112 (A), which has a
different reckoning period from Section 229. Moreover,
the person claiming the refund or credit of the input VAT
is not the person who legally paid the input VAT.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN
ROQUE POWER CORPORATION, G.R. No. 187485,
February 12, 2013)
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, 38
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-
489-03) 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 the39
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. DA-
489-03 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 40 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
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 taxpayer-claimant 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. DA-
489-03 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. Perlas-Bernabe
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. 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 before the CTA only
way beyond the mandatory 120+30 days to seek 41 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 non-compliance
with the substantiation requirements provided by law.
(BONIFACIO WATER CORPORATION (formerly
BONIFACIO VIVENDI WATER CORPORATION) vs. THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
175142, July 22, 2013)

Taxpayers claiming for a refund or tax credit certificate
must comply with the strict and mandatory invoicing and
accounting requirements provided under the 1997 NIRC,
as amended, and its implementing rules and regulations.
Thus, the change of petitioner's name to "Bonifacio GDE
Water Corporation," being unauthorized and without
approval of the SEC, and the issuance of official receipts
under that name which were presented to support
petitioner's claim for tax refund, cannot be used to allow
the grant of tax refund or issuance of a tax credit
certificate in petitioner's favor. (BONIFACIO WATER
CORPORATION (formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 175142, July 22, 2013)
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.42
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
taxpayer-claimant. 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
taxpayer in the course of business.68 In this era of
developing information-storage technology, there is no
valid reason to immunize companies with computer-
based, record-keeping capabilities from BIR scrutiny.
The standard is not the form of the record but where it
might shed light on the accuracy of the taxpayers
return. However, the best evidence obtainable under
Section 16 of the 1977 NIRC [now Sec. 6, 1997 NIRC],
as amended, does not include mere photocopies of
records/documents. The petitioner, in making a
preliminary and final tax deficiency assessment against a
taxpayer, cannot anchor the said assessment on mere
machine copies of records/documents. Mere photocopies
of the Consumption Entries have no probative weight if
offered as proof of the contents thereof. (CIR vs Hantex
Trading Co., GR no. 136975, March 31, 2005)
(c) Inventory method for income determination
(d) Jeopardy assessment
(e) Tax delinquency and tax deficiency
(ii) Power of the Commissioner to make
assessments and prescribe additional requirements for
tax administration and enforcement
(a) Power of the Commissioner to
obtain information, and to
summon/examine, and take testimony of persons
For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment,
our tax law provides a statute of limitations in the
collection of taxes. Thus, the law on prescription, being
a remedial measure, should be liberally construed in
order to afford such protection. As a corollary, the
exceptions to the law on prescription should perforce be
strictly construed. Sec. 15 of the NIRC, on the other
hand, provides that "[w]hen a report required by law as
a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time
fixed by law or regulation, or when there is reason to
believe that any such report is false, incomplete, or
erroneous, the Commissioner of Internal Revenue shall
assess the proper tax on the best evidence obtainable."
Clearly, Section 15 does not provide an exception to the
statute of limitations on the issuance of an assessment,
by allowing the initial assessment to be made on the
basis of the best evidence available. Having made its
43
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 44
(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
information due to mistake, carelessness or ignorance.
13 It is possible that real property may be sold for less
than adequate consideration for a bona fide business
purpose; in such event, the sale remains an "arm's
length" transaction. In the present case, the private
respondent was compelled to sell the property even at a
price less than its market value, because it would have
lost all ownership rights over it upon the expiration of
the parity amendment. (CIR vs BF Goodrich Phils., Inc.,
GR no. 104171, February 24, 1999)
Fraud cannot be presumed but must be proven. As a
corollary thereto, we can also state that fraudulent
intent could not be deduced from mistakes however
frequent they may be, especially if such mistakes
emanate from erroneous entries or erroneous
classification of items in accounting methods utilized for
determination of tax liabilities. The lower court's
conclusion regarding the existence of fraudulent intent
to evade payment of taxes was based merely on a
presumption and not on evidence establishing a willful
filing of false and fraudulent returns so as to warrant the
imposition of the fraud penalty. The fraud contemplated
by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to 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)
45 that
Petitioner questions the decision of the CTA holding
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

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)
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
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, 48046SCRA
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
(3) Forms of protest
This Court had consistently ruled in a number of cases
that a request for reconsideration or reinvestigation by
the taxpayer, without a valid waiver of the prescriptive
periods for the assessment and collection of tax, as
required by the Tax Code and implementing rules, will
not suspend the running thereof. (BPI vs CIR, GR
139736, October 17, 2005)

It bears to emphasize that under Section 224 of the Tax
Code of 1977, as amended, the running of the
prescriptive period for collection of taxes can only be
suspended by a request for reinvestigation, not a
request for reconsideration. Undoubtedly, a
reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time
than a reconsideration of a tax assessment, which will
be limited to the evidence already at hand; this justifies
why the former can suspend the running of the statute
of limitations on collection of the assessed tax, while the
latter can not. (BPI vs CIR, GR 139736, October 17,
2005)
(4) Content and validity of protest
(b) Submission of documents within 60 days from
filing of protest Petitioner cannot insist on the
submission of proof of DST payment because such
document does not exist as respondent claims that it is
not liable to pay, and has not paid, the DST on the
deposit on subscription. The term relevant supporting
documents should be understood as those documents
necessary to support the legal basis in disputing a tax
assessment as determined by the taxpayer. The BIR can
only inform the taxpayer to submit additional
documents. The BIR cannot demand what type of
supporting documents should be submitted. Otherwise,
a taxpayer will be at the mercy of the BIR, which may
require the production of documents that a taxpayer
cannot submit. (CIR vs First Express Pawnshop
Company, GR 172045-46, June 16, 2009)
(c) Effect of failure to protest
The rule is that for the Court of Tax Appeals to acquire
jurisdiction, an assessment must first be disputed by the
taxpayer and ruled upon by the Commissioner of
Internal Revenue to warrant a decision from which a
petition for review may be taken to the Court of Tax
Appeals. Where an adverse ruling has been rendered by
the Commissioner of Internal Revenue with reference to
a disputed assessment or a claim for refund or credit,
the taxpayer may appeal the same within thirty (30)
days after receipt thereof. A request for reconsideration
must be made within thirty (30) days from the
taxpayers receipt of the tax deficiency assessment,
otherwise, the decision becomes final, unappealable and
therefore, demandable. A tax assessment that has
become final, executory and enforceable for failure of
the taxpayer to assail the same as provided in Section
228 can no longer be contested. (Oceanic Network
Wireless Inc., GR 148380, December 9, 2005)
(d) Period provided for the protest to be acted upon
(vii) Rendition of decision by Commissioner
(a) Denial of protest
Records show that petitioner disputed the PAN47 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) Effect of failure to appeal
b) Collection
(i) Requisites
(ii) Prescriptive periods
The BIR has three years, counted from the date of
actual filing of the return or from the last date
prescribed by law for the filing of such return, whichever
comes later, to assess a national internal revenue tax or
to begin a court proceeding for the collection thereof
without an assessment. In case of a false or fraudulent
return with intent to evade tax or the failure to48
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) 49
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
50
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
167274-75, 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. 51
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 erroneously-paid tax/illegally assessed
collected
(e) Tax refund vis--vis tax credit
Formally, a tax refund requires a physical return of the
sum erroneously paid by the taxpayer, while a tax credit
involves the application of the reimbursable amount
against any sum that may be due and collectible from
the taxpayer. On the practical side, the taxpayer to
whom the tax is refunded would have the option, among
others, to invest for profit the returned sum, an option
not proximately available if the taxpayer chooses instead
to receive a tax credit. (CIR vs Philippine Phosphate
Fertilizer Corporation, G.R. No. 144440, September 1,
2004)
(f) Essential requisites for claim of refund
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 INTERNAL REVENUE vs. TEAM
(PHILS.) ENERGY CORPORATION (FORMERLY MIRANT
PHILS ENERGY CORPORATION), G.R. No. 188016,
January 14,
2015, J. Bersamin
(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 52
(vii) Other consideration affecting 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
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.
COCA-COLA 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 offenses and penalties
a) Civil penalties
It is mandatory to collect penalty and interest at the
stated rate in case of delinquency. The intention of the
law is to discourage delay in the payment of taxes due
the Government and, in this sense, the penalty and
interest are not penal but compensatory for the
concomitant use of the funds by the taxpayer beyond
the date when he is supposed to have paid them to the
Government. If penalties could be condoned for flimsy
reasons, the law imposing penalties for delinquencies
would be rendered nugatory, and the maintenance of
the Government and its multifarious activities will be
adversely affected. (Philippine Refining Company vs. CA,
GR 118794, May 8, 1996)
The taxpayer should be liable only for tax proper and
should not be held liable for the surcharge and interest
when it appears that the assessment is highly
controversial. The Commissioner at the outset 53 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 54local
government unit will have its fair share of available
resources, (c) the resources of the national government
will not be unduly disturbed; and (d) local taxation will
be fair, uniform, and just.(Manila Electric Co. v. Province
of Laguna, G.R. No. 131359, May 05, 1999)
2. Nature and source of taxing power
Under the now prevailing Constitution, where there is
neither a grant nor prohibition by statute, the taxing
power of local governments must be deemed to exist
although Congress may provide statutory limitations and
guidelines in order to safeguard the viability and self-
sufficiency of local government units by directly granting
them general and broad tax powers. (City Government
of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No.
127708, March 25, 1999)
a) Grant of local taxing power under the local
government code
Local governments do not have the inherent power to
tax except to the extent that such power might be
delegated to them either by the basic law or by statute.
Presently, under Article X of the 1987 Constitution, a
general delegation of that power has been given in favor
of local government units. (Manila Electric Company vs
Province of Laguna, G.R. No. 131359, May 5, 1999)
b) Authority to prescribe penalties for tax violations
c) Authority to grant local tax exemptions
d) Withdrawal of exemptions
e) Authority to adjust local tax rates
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
55persons
incentives granted to or presently enjoyed by all
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) Professional tax
(vi) Amusement tax
Resorts, swimming pools, bath houses, hot springs, and
tourist spots are not among those places expressly
mentioned by Section 140 of the LGC as being subject to
amusement taxes. (Principle of Ejusdem Generis)
(Pelizloy Realty Corp. v. Province of Benguet, G.R. No.
183137, April 10, 2013)
In determining the meaning of the phrase "other places
of amusement," under Sec. 13 of the Local Tax Code,
one must refer to the prior enumeration of theaters,
cinematographs, concert halls and circuses with artistic
expression as their common characteristic. Professional
basketball games do not fall under the same category as
theaters, cinematographs, concert halls and circuses as
the latter basically belong to artistic forms of
entertainment while the 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
56
a prerequisite to the conduct of business.||| (Mobil
Philippines Inc. v. City Treasurer of Makati, G.R. No.
154092, July 14, 2005)
When a municipality or city has already imposed a
business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce,
pursuant to Section 143 (a) of the LGC, said municipality
or city may no longer subject the same manufacturers,
etc. to a business tax under Section 143 (h) of the same
Code. Section 143 (h) may be imposed only on
businesses that are subject to excise tax, VAT, or
percentage tax under the NIRC, and that are "not
otherwise specified in preceding paragraphs". (City of
Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No.
181845, August 04, 2009)
By its very nature a condominium corporation is not
engaged in business, and any profit that it derives is
merely incidental, hence it may not be subject to
business taxes. (Yamane , etc.
v. BA Lepanto Condominium Corporation, G. R. No.
154993, October 25, 2005)
(ii) Ceiling on business tax impossible on
municipalities within Metro Manila
(iii) Tax on retirement on business
(iv) Rules on payment of business tax
Tax should be computed based on gross receipts; the
right to receive income, and not the actual receipt,
determines when to include the amount in gross income.
The imposition of local business tax based on petitioners
gross revenue will inevitably result in the constitutionally
proscribed double taxation taxing of the same person
twice by the same jurisdiction for the same thing
inasmuch as petitioners revenue or income for a taxable
year will definitely include its gross receipts already
reported during the previous year and for which local
business tax has already been paid. (Ericsson Telecoms
vs. City of Pasig. G.R. NO. 176667, November 22, 2007)
(v) Fees and charges for regulation & licensing
A municipality is authorized to impose three kinds of
licenses: 1) license for regulation of useful occupations
or enterprises; 2) license for restriction or regulation of
non-useful occupations or enterprises; and 3) license for
revenue. The first two easily fall within the broad police
power granted under the general welfare clause; the
third class, however, is for revenue purposes. (Victorias
Milling Co., Inc. v. Municipality of Victorias, G.R. No. L-
21183, September 27, 1968)
(vi) Situs of tax collected
The power to levy an excise upon the performance of an
act or the engaging in an occupation does not depend
upon the domicile of the person subject to the excise,
nor upon the physical location of the property and in
connection with the act or occupation taxed, but
depends upon the place in which the act is performed or
occupation engaged in. (Allied Thread Co., Inc. v. City
Mayor of Manila, G.R. No. L-40296, November 21, 1984)
Under a city ordinance which imposes tax on sales of
goods in the city, the city can validly tax sales to
customers outside of the city as long as the orders were
booked and paid for, and the goods were delivered to
the carrier, in the city. The goods can be regarded as
sold in the city because delivery to the carrier is delivery
to the buyer.||| (Philippine Match Co., Ltd.
v. City of Cebu, G.R. No. L-30745, January 18, 1978)
d) Taxing powers of barangays
e) Common revenue raising powers
(i) Service fees and charges
(ii) Public utility charges
(iii) Toll fees or charges
f) Community tax
6. Common limitations on the taxing powers of
LGUs
The fundamental law did not intend the delegation to be
absolute and unconditional; the constitutional objective
obviously is to ensure that, while the local government
units are being strengthened and made more
autonomous, the legislature must still see to it that (a)
the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions; (b) each local
government unit will have its fair share of available
resources; (c) the resources of the national government
will not be unduly disturbed; and (d) local taxation will
be fair, uniform, and just. (Manila Electric Company vs
Province of Laguna, G.R. No. 131359, May 5, 1999)
While the power to tax by local governments may be
exercised by local legislative bodies, no longer merely be
virtue of a valid delegation as before, but pursuant to
direct authority conferred by Section 5, Article X of the
Constitution, the basic doctrine on local taxation remains
essentially the same, the power to tax is [still] primarily
vested in the Congress. (Quezon City, et al., v. ABS-
CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City,
et al. v. Bayan Telecommunications, Inc., G.R. No.
162015, March 6, 2006, 484 SCRA 169 in turn
referring to Mactan Cebu
International Airport Authority, v. Marcos, G.R. No.
120082, September 11, 1996, 261 SCRA 667, 680)
Section 133(e) of RA No. 7160 prohibits the imposition,
in the guise of wharfage, of fees
as well as all other taxes or charges in any form
whatsoever on goods or merchandise. It is therefore
irrelevant if the fees imposed are actually for police
surveillance on the goods, 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. 57
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 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 58
(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
59
binding on all persons interested, and for all purposes,
as though the same had been assessed in the name of
its actual owner.' (Heirs of Tajonera v. Court of Appeals,
G.R. No. L-26677, March 27, 1981)
c) Listing of real property in assessment rolls
d) Preparation of schedules of fair market value
(i) Authority of assessor to take evidence
(ii) Amendment of schedule of fair market value
e) Classes of real property
f) Actual use of property as basis of assessment
g) Assessment of real property
(i) Assessment levels
(ii) General revisions of assessments and property
classification
(iii) Date of effectivity of assessment or
reassessment
(iv) Assessment of property subject to back taxes
(v) Notification of new or revised assessment
h) Appraisal and assessment of machinery
5. Collection of real property tax
a) Date of accrual of real property tax and special
levies
b) Collection of tax
(i) Collecting authority
(ii) Duty of assessor to furnish local treasurer with
assessment rolls
(iii) Notice of time for collection of tax
c) Periods within which to collect real property tax
d) Special rules on payment
(i) Payment of real property tax in installments
(ii) Interests on unpaid real property tax
(iii) Condonation of real property tax
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) Local governments lien
(iii) Remedies in general
(iv) Resale of real estate taken for taxes, fees or
charges
(v) Further levy until full payment of amount due
6. Refund or credit of real property tax
a) Payment under protest
b) Repayment of excessive collections
7. Taxpayers remedies
a) Contesting an assessment of value of real
property
(i) Appeal to the Local Board of Assessment
Appeals
(ii) Appeal to the Central Board of Assessment
Appeals
(iii) Effect of payment of tax
b) Payment of real property tax under protest
(i) File protest with local treasurer 60
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) Appeal to the Central Board of Assessment
Appeals
(iv) Appeal to the CTA
(v) Appeal to the Supreme Court
IV. Tariff and Customs Code of 1978, as amended
A. Tariff and duties, defined
"Customs duties" is "the name given to taxes on the
importation and exportation of commodities, the tariff or
tax assessed upon merchandise imported from, or
exported to, a foreign country. (Nestle Philippines, Inc.
v. Court of Appeals, G.R. No. 134114, July 06, 2001)
B. General rule: all imported articles are subject to
duty.
1. Importation by the government taxable
C. Purpose for imposition
D. Flexible tariff clause
E. Requirements of importation
1. Beginning and ending of importation
Section 1202 of the Tariff and Customs Code provides
that importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with
intention to unload therein. It is clear from the provision
of the law that mere intent to unload is sufficient to
commence an importation and "intent," being a state of
mind, is rarely susceptible of direct proof, but must
ordinarily be inferred from the facts, and therefore can
only be proved by unguarded, expressions, conduct and
circumstances generally. (Feeder International Line,
Pte., Ltd. v. Court of Appeals, G.R. No. 94262, May 31,
1991)
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 61
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 62
detention. (Papa v. Mago, G.R. No. L-27360, February
Customs vs. CTA & Dichoco, L-33471, Jan. 31, 1972), 28, 1968)
and the legal effects of the importation of qualifiedly
prohibited articles are the same as those of absolutely Regional trial courts are devoid of any competence to
prohibited articles. (Auyong Hian v. CTA, G.R. No. L- pass upon the validity or regularity of seizure and
28782, September 12, 1974) forfeiture proceedings conducted by the BOC and to
enjoin or otherwise interfere with these proceedings.
3. Conditionally-free importation Regional trial courts are precluded from assuming
H. Classification of duties cognizance over such matters even through petitions for
1. Ordinary/regular duties certiorari, prohibition or mandamus. (Subic Bay
a) Ad valorem; methods of valuation Metropolitan Authority v. Rodriguez, G.R. No. 160270,
(i) Transaction value April 23, 2010)
(ii) Transaction value of identical goods
(iii) Transaction value of similar goods Even if the seizure by the Collector of Customs were
(iv) Deductive value illegal, which has yet to be proven, we have said that
(v) Computed value such act does not deprive the Bureau of Customs of
(vi) Fallback value jurisdiction thereon. The allegations of petitioners
b) Specific regarding the propriety of the seizure should properly be
2. Special duties ventilated before the Collector of Customs. (Jao v. Court
a) Dumping duties of Appeals, G.R. No. 104604, 111223, October 06, 1995)
b) Countervailing duties
c) Marking duties A forfeiture proceeding is in the nature of a proceeding
d) Retaliatory/discriminatory duties in rem, i.e., directed against the res or imported
e) Safeguard articles and entails a determination of the legality of
I. Remedies their importation. In this proceeding, it is in legal
1. Government contemplation the property itself which commits the
a) Administrative/extrajudicial violation and is treated as the offender, without
(i) Search, seizure, forfeiture, arrest reference whatsoever to the character or conduct of the
owner. (Transglobe International, Inc. v. Court of
It is quite clear that seizure and forfeiture proceedings Appeals, G.R. No. 126634, January 25, 1999)
under the tariff and customs laws are not criminal in
nature as they do not result in the conviction of the Settlement of the case by payment of the fine or
offender nor in the imposition of the penalty provided redemption of the forfeited property, prior to the filing of
for in section 3601 of the Code. As can be gleaned from the criminal action, does not extinguish the offender's
Section 2533 of the code, seizure proceedings, such as criminal liability under Section 3601 of the Tariff and
those instituted in this case, are purely civil and Customs Code. (People v. Desiderio, G.R. No. L-20805,
administrative in character, the main purpose of which is November 29, 1965)
to enforce the administrative fines or forfeiture
incident to unlawful importation of goods or their The requisites for the forfeiture of goods under Section
deliberate possession. (People v. Court of First Instance 2530(f), in relation to (1) (3-5), of the Tariff and
of Rizal, G.R. No. L-41686, November 17, 1980) Customs Code are: (a) the wrongful making by the
owner, importer, exporter or consignee of any
In administrative proceedings, such as those before the declaration or affidavit, or the wrongful making or
BOC, technical rules of procedure and evidence are not delivery by the same person of any invoice, letter or
strictly applied and administrative due process cannot be paper all touching on the importation or exportation
fully equated with due process in its strict judicial sense. of merchandise; (b) the falsity of such declaration,
The essence of due process is simply an opportunity to affidavit, invoice, letter or paper; and (c) an intention on
be heard or, as applied to administrative proceedings, the part of the importer/consignee to evade the
an opportunity to explain one's side or an opportunity to payment of the duties due. (Republic v. CTA, G.R. No.
seek reconsideration of the action or ruling complained 139050, October 02, 2001)
of. (El Greco Ship Manning and Management
Corporation v. Commissioner of Customs, G.R. No. Once probable cause has been shown for the institution
177188, December 04, 2008) of forfeiture proceedings, the burden of proof is upon
claimant to establish that he fell within the purview of
It is settled that the Bureau of Customs acquires the exception. The legal presumption in Section 5(j),
exclusive jurisdiction over imported goods for purposes Rule 131 of the Rules of Court and Article 541 of the
of enforcing the Customs laws, from the moment the Civil Code are of a general character and cannot prevail
goods are actually in possession and control of said over the specific provisions of the Tariff and Customs
Bureau even in the absence of any warrant of seizure or 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 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 non-exhaustion 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 63
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
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) days64 from
submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the
Court of Tax Appeals within (30) days from receipt of
the said decision, or from the lapse of the one hundred
eighty (180)-day period; otherwise the decision shall
become final, executory and demandable.||| (Rizal
Commercial Banking Corp. v. Commr., G.R. No. 168498,
June 16, 2006)
The period to appeal from a decision of the
Commissioner of Internal Revenue to the Court of Tax
Appeals under Republic Act No. 1125 is jurisdictional and
non-extendible and a taxpayer may not delay indefinitely
a tax assessment by reiterating his original defenses
over and over again, without substantial variation.
(Filipinas Investment & Finance Corp. v. Commr., G.R.
No. L-23501, May 16, 1967)
To allow a litigant to assume a different posture when
he comes before the court and challenge the position he
had accepted at the administrative level, would be to
sanction a procedure whereby the Court which is
supposed to review administrative determinations
would not review, but determine and decide for the first
time, a question not raised at the administrative forum.
Thus, it is well settled that under the same underlying
principle of prior exhaustion of administrative remedies,
on the judicial level, issues not raised in the lower court
cannot be raised for the first time on appeal. (Commr. v.
Wander Phils., Inc., G.R. No. 68375, April 15, 1988)
By withdrawing the appeal, petitioner is deemed to have
accepted the decision of the CTA. Petitioner cannot be
allowed to circumvent the denial of its request for a tax
credit by abandoning its appeal and filing a new claim.
(Central Luzon Drug Corp. v. Commr., G.R. No. 181371,
March 02, 2011)
Sec. 7 of RA 1125 provides that the CTA has exclusive
appellate jurisdiction to review by appeal decisions of
the CIR in cases involving disputed assessments.
Likewise Sec. 4 of the 1997 NIRC [RA 8424] provides
that the CIR has the power to decide disputed
assessments subject to the exclusive appellate
jurisdiction of the CTA. The latest law on the jurisdiction
of the CTA under Sec. 7 of RA 9282 provides that the
CTA exercises exclusive appellate jurisdiction to review
by appeal decisions of the CIR in cases involving
disputed assessments. Thus the CTAs jurisdiction is to
entertain an appeal only from a final decision or
assessment of the CIR or in cases where the CIR has
not acted within the period prescribed by the NIRC. So
when the CIR has not issued an assessment, then there
is nothing to protest or dispute. (Adamson vs. Court of
Appeals, 588 SCRA 27)
The period to appeal the decision or ruling of the RTC in
local tax cases to CTA via petition for review is governed
by Sec. 11 of RA 9282 and Sec. 3(a), Rule 8 of the
Revised Rules of CTA, which is 30 days from receipt of
decision or ruling. To appeal an adverse ruling of the
RTC to the CTA the taxpayer must file a petition for
review with the CTA within 30 days from receipt of the
adverse decision or ruling. An extension may be granted
for 15 days. With the several extensions asked the CTA
can dismiss the petition. Failure to comply with
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 internal-revenue tax, fee or charge, thereby
indicating the legislative policy to allow the Collector of
Internal Revenue much latitude in the speedy and
prompt collection of taxes. (Republic v. Lim Tian Teng
Sons & Co., Inc., G.R. No. L-21731, March 31, 1966)
65
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 CTA66 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
67 Code
assessment. Furthermore, Section 205 of the same
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. L-
22356, July 21, 1967)
With regard to the tax proper, the state correctly points
out in its brief that the acquittal in the criminal case
could not operate to discharge petitioner from the duty
to pay the tax, since that duty is imposed by statue prior
to and independently of any attempts on the part of the
taxpayer to evade payment. The obligation to pay the
tax is not a mere consequence of the felonious acts
charged in the information, nor is it a mere civil liability
derived from crime that would be wiped out by the
judicial declaration that the criminal acts charged
did not exist. (Castro v. Collector of Internal Revenue,
G.R. No. L-12174, April 26, 1962)
b) Appeal and period to appeal
(i) Solicitor General as counsel for the people and
government officials sued in their official capacity
c) Petition for review on certiorari to the Supreme
Court
C. Taxpayers suit impugning the validity of tax
measures or acts of taxing authorities
1. Taxpayers suit, defined
It is hornbook principle that a taxpayer is allowed to sue
where there is a claim that public funds are illegally
disbursed, or that public money is being deflected to any
improper purpose, or that there is wastage of public
funds through the enforcement of an invalid or
unconstitutional law. For a taxpayer's suit to prosper,
two requisites must be met namely, (1) public funds
derived from taxation are disbursed by a political
subdivision or instrumentality and in doing so, a law is
violated or some irregularity is committed; and (2) the
petitioner is directly affected by the alleged act. (LBP v.
Cacayuran, G.R. No. 191667, April 17, 2013)
What is a taxpayers suit? In the case of a taxpayer, he
is allowed to sue where there is a claim that public funds
are illegally disbursed, or that public money is being
deflected to any improper purpose, or that there is a
wastage of public funds through the enforcement of an
invalid or unconstitutional law. Before he can invoke the
power of judicial review, however, he must specifically
prove that he has sufficient interest in preventing the
illegal expenditure of money raised by taxation and that
he would sustain a direct injury as a result of the
enforcement of the questioned statute or contract. It is
not sufficient that he has merely a general interest
common to all members of the public. At all events,
courts are vested with discretion as to whether or not a
taxpayer's suit should be entertained. This Court opts to
grant standing to most of the petitioners, given their
allegation that any impending transmittal to the Senate
of the Articles of Impeachment and the ensuing trial of
the Chief Justice will necessarily involve the expenditure
of public funds. (Francisco, Jr. vs. Nagmamalasakit na
mga Manananggol ng mga Manggagawang Pilipino, 415
SCRA 44)
2. Distinguished from citizens suit
Taxpayers have been allowed to sue where there is a
claim that public funds are illegally disbursed or that
public money is being deflected to any improper
purpose, or that public funds are wasted through the
enforcement of an invalid or unconstitutional law. On the
other hand, as citizens, petitioners have must fulfill the
standing requirement given that the issues they 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 of68 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-in-interest as he was
unable to show that he has sustained or is in immediate
or imminent danger of sustaining some direct and
personal injury as a result of the execution and
enforcement of the assailed contracts or agreements.
Moreover, they assert that not all government contracts
can justify a taxpayers suit especially when no public
funds were utilized in contravention of the Constitution
or a law. We explicated in Chavez v. PCGG, 299 SCRA
744 (1998), that in cases where issues of transcendental
public importance are presented, there is no necessity to
show that petitioner has experienced or is in actual
danger of suffering direct and personal injury as the
requisite injury is assumed. We find our ruling in Chavez
v. PEA, 384 SCRA 152 (2002), as conclusive authority on
locus standi in the case at bar since the issues raised in
this petition are averred to be in breach of the fair
diffusion of the countrys natural resources and the
constitutional right of a citizen to information which have
been declared to be matters of transcendental public
importance. Moreover, the pleadings especially those of
respondents readily reveal that public funds have been
indirectly utilized in the Project by means of Smokey
Mountain Project Participation Certificates (SMPPCs)
bought by some government
agencies. Hence, petitioner, as a taxpayer, is a proper
party to the instant petition before the court. (Chavez
vs. NHA, 530 SCRA 235)
c) Ripeness for judicial determination
Margin fees paid by the petitioner to the Central Bank on
its profit remittances to its New York head office are not
allowable deductions as taxes because it is not a tax but
an exaction designed to curb the excessive demands
upon our international reserve. Margin fees are also not
ordinary and necessary business expenses because they
are not expenses in connection with the production or
earning of petitioner's incomes in the Philippines; they
were expenses incurred in the disposition of said
incomes. (Esso Standard Eastern, Inc. vs. Commissioner
of Internal Revenue, G.R. Nos. 28508-9, July 7, 1989)
(1) Requisites for deductibility
(2) Non-deductible taxes
(3) Treatments of surcharges/interests/fines for
delinquency
(4) Treatment of special assessment
(5) Tax credit vis--vis deduction
(b) Losses 69
(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)
(c) Bad debts
In claiming deductions for bad debts, the only
evidentiary support given by PRC was the explanation
posited by its accountant, whose allegations were not
supported by any documentary evidence. One of the
requisites to qualify as bad debt is that the debt must
be actually ascertained to be worthless and uncollectible
during the taxable year, and the taxpayer must prove
that he exerted diligent efforts to collect the debts by (1)
sending of statement of accounts;
(2) sending of collection letters; (3) giving the
account to a lawyer for collection; and (4) filing a
collection case in court. (Philippine Refining Company vs.
Court of Appeals, et al., G.R. No. 118794, May 8, 1996)
(1) Requisites for deductibility
(2) Effect of recovery of bad debts
(d) 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 improvements (capital expenditures) 70
the concept of the exhaustion of a natural resource (d) Amount expended in restoring
whereas depreciation is based upon the concept of the property (major repairs)
exhaustion of the property, not otherwise a natural (e) Premiums paid on life insurance policy covering
resource, used in a trade or business or held for the life or any other officer or employee financially
production of income. Thus, depletion and depreciation interested
are made applicable to different types of assets. And a (f) Interest expense, bad debts, and losses from
taxpayer may not deduct that which the Code allows as sales of property between related parties
of another. (Consolidated Mines, Inc. vs. Court of Tax (g) Losses from sales or exchange or property
Appeals, et al., G.R. Nos. L- 18843 & 18844, August 29, (h) Non-deductible interest
1974) (i) Nondeductible taxes
(j) Non-deductible losses
(1) Requisites for deductibility (k) Losses from wash sales of stock or securities
(2) Methods of computing (5) Exempt corporations
depreciation allowance (a) Propriety educational institutions and hospitals
(a) Straight-line method (b) Government-owned or controlled corporations
(b) Declining-balance method (c) Others
(c) Sum-of-the-years-digit method
(e) Charitable and other contributions 10. Taxation of resident citizens, non-resident
(1) Requisites for deductibility citizens, and resident aliens
(2) Amount that may be deducted a) General rule that resident citizens are taxable on
(f) Contributions to pension trusts income from all sources within and without the
(1) Requisites for deductibility Philippines
(i) Non-resident citizens
(g) Deductions under special laws b) Taxation on compensation income
(2) Optional standard deduction (i) Inclusions
(a) Individuals, except non-resident aliens (a) Monetary compensation
(b) Corporations, except non-resident foreign (1) Regular salary/wage
corporations (2) Separation pay/retirement benefit not
(c) Partnerships otherwise exempt

(3) Personal and additional exemption (R.A. No. (3) Bonuses, 13th month pay, and other benefits
9504, Minimum Wage Earner Law) not exempt
The increased personal and additional exemptions under (4) Directors fees
the NIRC cannot be availed of by the petitioner for (b) Non-monetary compensation
purposes of computing his income tax liability for the (1) Fringe benefit not subject to tax
taxable year 1997. Since the NIRC took effect on (ii) Exclusions
January 1, 1998, the increased amounts of personal and (a) Fringe benefit subject to tax
additional exemptions under Section 35, can only be (b) De minimis benefits
allowed as deductions from the individual taxpayers (c) 13th month pay and other benefits, and
gross or net income, as the case maybe, for the taxable payments specifically
year 1998 to be filed in 1999; the NIRC made no excluded from taxable compensation income
reference that the personal and additional exemptions (iii) Deductions
shall apply on income earned before January 1, 1998, (a) Personal exemptions and additional exemptions
and it is a rule that tax laws are to be applied (b) Health and hospitalization insurance
prospectively unless its retroactive application is (c) Taxation of compensation income of a minimum
expressly provided. (Carmelino F. Pansacola vs. CIR, wage earner
G.R. No. 159991, November 16, 2006) (1) Definition of statutory minimum wage
(a) Basic personal exemptions (2) Definition of minimum wage earner
(b) Additional exemptions for taxpayer with (3) Income also subject to tax exemption: holiday
dependents pay, overtime pay, night-shift differential, and hazard
(c) Status-at-the-end-of-the-year rule pay
(d) Exemptions claimed by non-resident aliens c) Taxation of business income/income from
(4) Items not deductible practice of profession
(a) General rules d) Taxation of passive income
(b) Personal, living or family expenses (i) Passive income subject to final tax
(c) Amount paid for new buildings or for permanent (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
71 and
local or foreign currency accounts in the Philippines
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 LIMITED-PHILIPPINE
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
since it will apply only beginning on the 4th 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 monetary benefit from deposit substitutes, trust72funds
4 year suspension of tax payment to newly formed and similar arrangements and royalties
corporations. Corporations still starting have to stabilize (ii) Income derived under the expanded foreign
their venture in order to obtain stronghold in the currency deposit system
industry. It is not a surprise when many corporations (iii) Capital gains from sale of shares of stock not
reported losses in their initial years of operations. traded in the stock
(Manila Banking Corp. v. CIR, 499 SCRA 782) exchange
(iv) Inter-corporate dividends
(b) Carry forward of excess minimum tax Exclude:
(c) Relief from the MCIT under certain conditions
(d) Corporations exempt from the MCIT (i) International carrier
(e) Applicability of the MCIT where a corporation is (ii) Offshore banking units
governed both under the regular tax system and a (iii) Branch profits remittances
special income tax system (iv) Regional or area headquarters and regional
operating headquarters of multinational companies
b) Allowable deductions 15. Taxation of non-resident foreign corporations
(i) Itemized deductions a) General rule
(ii) Optional standard deduction b) Tax on certain income
c) Taxation of passive income (i) Interest on foreign loans
(i) Passive income subject to tax (ii) Inter-corporate dividends
(a) Interest from deposits and yield, or any other (iii) Capital gains from sale of shares of stock not
monetary benefit from deposit substitutes and from trust traded in the stock exchange
funds and similar arrangements and royalties Exclude:
(b) Capital gains from the sale of shares of stock (i) Non-resident cinematographic film-owner, lessor
not traded in the stock exchange or distributor
(c) Income derived under the expanded foreign (ii) Non-resident owner or lessor of vessels
currency deposit system chartered by Philippine nationals
(d) Inter-corporate dividends (iii) Non-resident owner or lessor of aircraft
(e) Capital gains realized from the sale, exchange, machineries and other equipment
or disposition of lands and/or buildings 16. Improperly accumulated earnings of
(ii) Passive income not subject to tax corporations
d) Taxation of capital gains Petitioner cannot avoid paying surtax on improperly
(i) Income from sale of shares of stock accumulated earnings because the purchase of the
(ii) Income from the sale of real property situated in U.S.A. Treasury bonds were in no way related to
the Philippines petitioners business of importing and selling wines
(iii) Income from the sale, exchange, or other liquors. The immediacy test determines the
disposition of other capital assets reasonable needs of the business in order to justify an
e) Tax on proprietary educational institutions and accumulation of earningsthat is, if the corporation did
hospitals not prove an immediate need for the accumulation of
St. Lukes is a proprietary non-stock and non-profit the earnings and profits, the accumulation was not for
hospital catering to non- paying patients but also derives the reasonable needs of the business, and the penalty
profit from paying patients. It is subject to the tax would apply; investment of the earnings and profits
preferential tax rate of 10% for its profit-generating of the corporation in stock or securities of an unrelated
activities under sec. 27(B) of NIRC; it cannot be exempt business usually indicates an accumulation beyond the
from income tax under sec. 30(E) and (G) because it is reasonable needs of the business (Manila Wine
not organized and operated exclusively for charitable Merchants, Inc. vs. Commissioner of Internal Revenue,
purposes, which is a requirement under the G.R. No. L-26145, February 20, 1984)
aforementioned provision. (CIR vs. St. Luke's Medical
Center, Inc., G.R. Nos. 195909 & 195960, September BIR assessed petitioner for surtax on improperly
26, 2012) accumulated profits, which petitioner contested. In order
f) Tax on government-owned or controlled to determine whether profits are accumulated for the
corporations, agencies or instrumentalities reasonable needs of the business, it must be shown
14. Taxation of resident foreign corporations that: (1) the controlling intention of the taxpayer is
a) General rule manifest at the time of accumulation, not intentions
b) With respect to their income from sources within declared subsequently, which are mere afterthoughts;
the Philippines and (2) the accumulated profits must be used within a
c) Minimum Corporate Income Tax reasonable time after the close of the taxable year.
d) Tax on certain income (Cyanamid Philippines, Inc. vs. Court of Appeals, et al.,
(i) Interest from deposits and yield, or any other G.R. No. 108067, January 20, 2000)
Previous accumulations should be considered in
determining unreasonable accumulations for the year
concerned. In determining whether accumulations of
earnings or profits in a particular year are within the
reasonable needs of a corporation, it is necessary to
take into account prior accumulations, since
accumulations prior to the year involved may have been
sufficient to cover the business needs and additional
accumulations during the year involved would not
reasonably be necessary. (Basilan Estates, Inc. vs.
Commissioner of Internal Revenue, et al., G.R. No. L-
22492, September 5, 1967)
17. Exemption from tax on corporations
YMCA, a non-stock non-profit corporation with charitable
objectives, claimed exemption from payment of income
tax by invoking the NIRC and the Constitution. While the
income received by the organizations enumerated in
Section 26 of the NIRC is, as a rule, exempted from the
payment of tax in respect to income received by them
as such, the exemption does not apply to income
derived from any of their 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
73 which
Citytrust and Asianbank are domestic corporations
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
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
non-use. 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;
(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 74
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
essentially confirm the general principle that post-death
developments are not material in determining the
amount of the deduction. (RAFAEL ARSENIO
S. DIZON vs. COURT OF TAX APPEALS, G.R. No.
140944, April 30, 2008)
We express our agreement with the date-of-death
valuation rule. There is no law, nor do we discern any
legislative intent in our tax laws, which disregards the
date-of-death valuation principle and particularly
provides that post-death developments must be
considered in determining the net value of the estate. It
bears emphasis that tax burdens are not to be imposed,
nor presumed to be imposed, beyond what the statute
expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.
(RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)
Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is
generally construed to mean debts or demands of a
pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability
contracted by the deceased before his death. Therefore,
the claims existing at the time of death are significant
to, and should be made the basis of, the determination
of allowable deductions. (RAFAEL ARSENIO S. DIZON vs.
COURT OF TAX APPEALS, G.R. No. 140944, April 30,
2008)
Administration expenses, as an allowable deduction from
the gross estate of the decedent for purposes of arriving
at the value of the net estate, have been construed by
the federal and state courts of the United States to
include all expenses "essential to the collection of the
assets, payment of debts or the distribution of the
property to the persons entitled to it." In other words,
the expenses must be essential to the proper settlement
of the estate and expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not
deductible. (COMMISSIONER OF INTERNAL REVENUE
vs. COURT OF APPEALS, G.R. No. 123206, March 22,
2000)
Thus, in Lorenzo v. Posadas, the Court construed the
phrase "judicial expenses of the testamentary or
intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate
when it appeared that such trustee was appointed for
the purpose of managing the decedent's real estate for
the benefit of the testamentary heir. In another case,
the Court disallowed the premiums paid on the bond
filed by the administrator as an expense of
administration since the giving of a bond is in the nature
of a qualification for the office, and not necessary in the
settlement of the estate. Neither may attorney's fees
incident to litigation incurred by the heirs in asserting
their respective rights be claimed as a deduction from
the 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
1. Exemption of certain acquisitions and
transmissions
2. Filing of notice of death
3. 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 75
is not a
donation between the spouses because it involved no
conveyance of a spouse's own properties to the other.
(ROMARICO G. VITUG vs. THE HONORABLE COURT OF
APPEALS and ROWENA FAUSTINO- CORONA, G.R. No.
82027, March 29, 1990)
In the case at bar, when the spouses Vitug opened
savings account, they merely put what rightfully
belonged to them in a money-making venture. They did
not dispose of it in favor of the other, which would
have arguably been sanctionable as a prohibited
donation. (ROMARICO
G. VITUG vs. THE HONORABLE COURT OF APPEALS and
ROWENA FAUSTINO-CORONA, G.R. No. 82027, March
29, 1990)
The granting clause shows that Diego donated the
properties out of love and affection for the donee which
is a mark of a donation inter vivos; second, the
reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the
properties; third, the donor reserved sufficient
properties for his maintenance in accordance with his
standing in society, indicating that the donor intended
to part with the six parcels of land; lastly, the donee
accepted the donation. (SPS. AGRIPINO GESTOPA and
ISABEL SILARIO GESTOPA vs. COURT OF APPEALS, G.R.
No. 111904, October 5, 2000)
In the case of Alejandro vs. Geraldez, 78 SCRA 245
(1977), we said that an acceptance clause is a mark
that the donation is inter vivos. Acceptance is a
requirement for donations inter vivos. 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 76
VAT is not a singular-minded tax on every transactional
level; its assessment bears direct relevance to the
taxpayer's role or link in the production chain. Hence,
as affirmed by Section 99 [now Sec. 105] of the Tax
Code and its subsequent incarnations, the tax is levied
only on the sale, barter or exchange of goods or
services by persons who engage in such activities, in
the course of trade or business. (COMMISSIONER OF
INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R.
No. 146984. July 28, 2006)
The Court rules that given the undisputed finding that
the transaction in question was not made in the course
of trade or business of the seller, NDC that is, the sale
is not subject to VAT pursuant to Section 99 [now Sec.
105] of the Tax Code, no matter how the said sale may
hew to those transactions deemed sale as defined
under Section 100 [now Sec. 106]. (COMMISSIONER
OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC.,
G.R. No. 146984. July 28, 2006)
Thus, there must be a sale, barter or exchange of
goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or exchange
in the subsidy given by SIS to Sony; it was but a dole
out by SIS and not in payment for goods or properties
sold, bartered or exchanged by Sony.
(COMMISSIONER OF INTERNAL REVENUE vs. SONY
PHILIPPINES, INC., G.R. No. 178697, November 17,
2010)
Goods or properties must be used directly or indirectly
in the production or sale of taxable goods and services.
(Kepco Philipppines Corp. v. CIR, G.R. No. 179356,
December 14, 2009)
it is immaterial whether the primary purpose of a
corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-
on-cost basis only, without realizing profit, for purposes
of determining liability for VAT on services rendered. As
long as the entity provides service for a fee,
remuneration or consideration, then the service
rendered is subject to VAT. (COMMISSIONER OF
INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No.
125355, March 30, 2000)
3. Impact of tax
Under Section 105 of the Tax Code, VAT is imposed on
any person who, in the course of trade or business,
sells or renders services for a fee. In other words, the
seller of services, who in this case is the tollway
operator, is the person liable for VAT. The latter merely
shifts the burden of VAT to the tollway user as part of
the toll fees. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No.
193007, July 19, 2011)
4. Incidence of tax
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) 77
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
effectively zero-rated sales of goods or
properties
Zero-rated transactions generally refer to the export
sale of goods and supply of services. The tax rate is set
at zero and when applied to the tax base, such rate
obviously results in no tax chargeable against the
purchaser. The seller of such transactions charges no
output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
(COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R.
No. 153866, February 11, 2005)
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.
78
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)
79
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)
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
Under the present method that relies on invoices, an
entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its
purchases, inputs and imports. (COMMISSIONER OF
INTERNAL REVENUE vs. SEAGATE TECHNOLOGY
(PHILIPPINES), G.R.
No. 153866, February 11, 2005)
If at the end of a taxable quarter the output taxes
charged by a seller are equal to the input taxes passed
on by the suppliers, no payment is required. It is when
the output taxes exceed the input taxes that the excess
has to be paid. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
17. Sources of input tax
a) Purchase or importation of goods
b) Purchase of real properties for which a VAT
has actually been paid
c) Purchase of services in which VAT has actually
been paid
d) Transactions deemed sale
e) Presumptive input
f) Transitional input 80
Prior payment of taxes is not necessary before a
taxpayer could avail of the 8% transitional input tax
credit: first, it was never mentioned in Section 105 of
the old NIRC [now Sec. 111] that prior payment of
taxes is a requirement; second, since the law (Section
105 of the NIRC) does not provide for prior payment of
taxes, to require it now would be tantamount to judicial
legislation which, to state the obvious, is not allowed;
third, a transitional input tax credit is not a tax refund
per se but a tax credit; fourth, if the intent of the law
were to limit the input tax to cases where actual VAT
was paid, it could have simply said that the tax base
shall be the actual value-added tax paid; and fifth, this
Court had already declared that prior payment of taxes
is not required in order to avail of a tax credit. (FORT
BONIFACIO DEVELOPMENT CORPORATION vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
Section 112 of the Tax Code does not prohibit cash
refund or tax credit of transitional input tax in the case
of zero-rated or effectively zero-rated VAT registered
taxpayers, who do not have any output VAT. The phrase
"except transitional input tax" in Section 112 of the Tax
Code was inserted to distinguish creditable input tax
from transitional input tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 173425,
January 22, 2013)
It is apparent that the transitional input tax credit
operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods,
materials and supplies. During that period of transition
from non-VAT to VAT status, the transitional input tax
credit serves to alleviate the impact of the VAT on the
taxpayer. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
18. Persons who can avail of input tax credit
In a VAT-exempt transaction, the seller is not allowed
to charge VAT to his customer. Since no output tax is
shifted by the seller, there is no output tax against
which the related input taxes may be credited. Neither
can he credit this input tax against the VAT due on
other sales. In this case, he is treated as the end
user who will shoulder the cost of the input VAT.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN
ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)
Unlike the input taxes related to exempt sales, input
taxes related to zero-rated sales may be credited
against output taxes on other sales and in case it is not
fully utilized, the excess may be carried over to the
succeeding quarter or quarters and there is no
prescription period for the carry-over. The law gives the
taxpayer another option for the recovery of used input
taxes: application for refund or tax credit certificate.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN
ROQUE POWER CORPORATION, G.R. No. 187485,
February 12, 2013)
19. Determination of output/input tax; VAT
payable; excess input tax credits
a) Determination of output tax
b) Determination of input tax creditable
c) Allocation of input tax on mixed transactions
d) Determination of the output tax and VAT
payable and computation of VAT payable or
excess tax credits
20. Substantiation of input tax credits
21. Refund or tax credit of excess input tax
If, however, the input taxes exceed the output taxes,
the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or
from the acquisition of capital goods, any excess over
the output taxes shall instead be refunded to the
taxpayer or credited against other internal revenue
taxes. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
While a tax liability is essential to the availment or use
of any tax credit, prior tax payments are not. On the
contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is
needed. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
As regards Section 110, while the law only provides for
a tax credit, a taxpayer who erroneously or excessively
pays his output tax is still entitled to recover the
payments he made either as a tax credit or a tax
refund. In this case, since petitioner still has available
transitional input tax credit, it filed a claim for refund to
recover the output VAT it erroneously or excessively
paid for the 1st quarter of 1997. Thus, there is no
reason for denying its claim for tax refund/credit.
(FORT BONIFACIO DEVELOPMENT CORPORATION vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
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 81
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 claim82for 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.
COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 197525, June 4,
2014, J. Mendoza
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. DA-489-03 was still in force.
(San Roque)
5. Late filing is absolutely prohibited, even
during the time when BIR Ruling No. DA-489-
03 was in force. (San Roque) (COMMISSIONER
OF INTERNAL REVENUE vs. MINDANAO II
GEOTHERMAL PARTNERSHIP, G.R. No. 191498,
January 15, 2014)
It is indisputable that compliance with the 120-day
waiting period is mandatory and jurisdictional. Failure
to comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the
petition premature and thus without a cause of action,
with the effect that the CTA does not acquire
jurisdiction over the taxpayers petition. (MINDANAO II
GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11,
2013)
Stated otherwise, the two-year prescriptive period does
not refer to the filing of the judicial claim with the CTA
but to the filing of the administrative claim with the
Commissioner. As held in Aichi, the "phrase within two
years x x x apply for the issuance of a tax credit or
refund refers to applications for refund/credit with the
CIR and not to appeals made to the CTA." (MINDANAO
II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
San Roque's failure to comply with the 120-day
mandatory period renders its petition for review with
the CTA void as Article 5 of the Civil Code provides,
"Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law
itself authorizes their validity." San Roque's void
petition for review cannot be legitimized by the CTA or
this Court because Article 5 of the Civil Code states that
such void petition cannot be legitimized "except when
the law itself authorizes [its] validity," and there is no
law authorizing the petition's validity. (COMMISSIONER
OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
Sec. 112(A) clearly provides in no uncertain terms that
unutilized input VAT payments not otherwise used for
any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the 83 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.
84
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-
489-03) 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, 85
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. DA-
489-03 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
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 taxpayer-claimant 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
86 VAT in
and judicial claims for refund/credit of its input
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.
DA-489-03 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. Perlas-
Bernabe
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. 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 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 non-
compliance with the substantiation requirements
provided by law. (BONIFACIO WATER CORPORATION
(formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 175142, July 22, 2013)
Taxpayers claiming for a refund or tax credit certificate
must comply with the strict and mandatory invoicing
and accounting requirements provided under the 1997
NIRC, as amended, and its implementing rules and
regulations. Thus, the change of petitioner's name to
"Bonifacio GDE Water Corporation," being
unauthorized and without approval of the SEC, and the
issuance of official receipts under that name which
were presented to support petitioner's claim for tax
refund, cannot be used to allow the grant of tax refund
or issuance of a tax credit certificate in petitioner's
favor. (BONIFACIO WATER CORPORATION (formerly
BONIFACIO VIVENDI WATER CORPORATION) vs. THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
175142, July 22, 2013)
87
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
taxpayer-claimant. 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
a) Invoicing and recording deemed sale transactions
b) Consequences of issuing erroneous VAT invoice
or VAT official receipt
22. Filing of return and payment
23. 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 taxpayer in the course of
business.68 In this era of developing information-storage
technology, there is no valid reason to immunize
companies with computer-based, record-keeping
capabilities from BIR scrutiny. The standard 88
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
89 assess
BIR and petitioner, within which the former may
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
information due to mistake, carelessness or ignorance. 13
It is possible that real property may be sold for less than
adequate consideration for a bona fide business
purpose; in such event, the sale remains an "arm's
length" transaction. In the present case, the private
respondent was compelled to sell the property even at a
price less than its market value, because it would have
lost all ownership rights over it upon the expiration of the
parity amendment. (CIR vs BF Goodrich Phils., Inc., GR
no. 104171, February 24, 1999)
Fraud cannot be presumed but must be proven. As a
corollary thereto, we can also state that fraudulent intent
could not be deduced from mistakes however frequent
they may be, especially if such mistakes emanate from
erroneous entries or erroneous classification of items in
accounting methods utilized for determination of tax
liabilities. The lower court's conclusion regarding the
existence of fraudulent intent to evade payment of taxes
was based merely on a presumption and not on evidence
establishing a willful filing of false and fraudulent returns
so as to warrant the imposition of the fraud penalty. The
fraud contemplated by law is actual and not constructive.
It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to
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
90 which
withholding taxes in the amount of P2,690,850.91
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.
(a) 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
(b) Notice of informal conference [ is this same as
(b) above?] 91
(c) Issuance of preliminary assessment notice [ is
this same as (c)?]
(d) Exceptions to issuance of preliminary assessment
notice
(e) Reply to preliminary assessment notice
(f) Issuance of formal letter of demand and
assessment notice/final assessment notice
Tax assessments by tax examiners are presumed correct
and made in good faith. The taxpayer has the duty to
prove otherwise. In the absence of proof of any
irregularities in the performance of duties, an assessment
duly made by a Bureau of Internal Revenue examiner and
approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax
assessments. (Sy Po vs CTA, GR 81446, August 18, 1988)
An assessment fixes and determines the tax liability of a
taxpayer. As soon as it is served, an obligation arises on
the part of the taxpayer concerned to pay the amount
assessed and demanded. Hence, assessments should not
be based on mere presumptions no matter how
reasonable or logical said presumptions may be. In order
to stand the test of judicial scrutiny, the assessment must
be based on actual facts. (CIR vs Island Garment
Manufacturing Co., GR L-46644, September 11, 1987)
Taxpayers shall be informed in writing of the law and the
facts on which the assessment is made, otherwise,
the assessment shall be void. The old
requirement of merely notifying the taxpayer of the CIRs
findings was changed in 1998 to inform the taxpayer of
not only the law but also the facts on which an
assessment would be made. Failure to comply with Sec.
228 of the Tax Code does not only render the assessment
void, but also finds no validation in any provision in the
Tax Code. (CIR vs. Reyes, 480 SCRA 382)
A taxpayer must be informed in writing of the legal and
factual bases of the tax assessment made against him.
This is a mandatory requirement. The advice of a tax
deficiency given by the CIR to an employee of Enron as
well as the preliminary 5-day letter notice, were not valid
substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment. Sec. 228 of the NIRC
requires that the legal and factual bases be stated in the
formal letter of demand and assessment notice.
Otherwise the law and RR 12-99 would be rendered
nugatory. In view of the absence of a fair opportunity for
Enron to be informed of the bases of the assessment, the
assessment was void. This is a requirement of due
process. (CIR v. Enron Subic Power Corp. 575 SCRA 212)
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
(g) Disputed assessment
(h) 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)
(ii) Protesting assessment
(a) Protest of assessment by taxpayer
(1) Protested assessment
(2) When to file a protest
(3) Forms of protest
This Court had consistently ruled in a number of cases
that a request for reconsideration or reinvestigation by
the taxpayer, without a valid waiver of the prescriptive
periods for the assessment and collection of tax, as
required by the Tax Code and implementing rules, will not
suspend the running thereof. (BPI vs CIR, GR 139736,
October 17, 2005)
It bears to emphasize that under Section 224 of the Tax
Code of 1977, as amended, the running of the prescriptive
period for collection of taxes can only be suspended by a
request for reinvestigation, not a request for
reconsideration. Undoubtedly, a reinvestigation, which
entails the reception and evaluation of additional
evidence, will take more time than a reconsideration of a
tax assessment, which will be limited to the evidence
already at hand; this justifies why the former can suspend
the running of the statute of limitations on collection of
the assessed tax, while the latter can not. (BPI vs CIR, GR
139736, October 17, 2005)
(4) Content and validity of protest
(b) Submission of documents within 60 days from
filing of protest Petitioner cannot insist on the submission
of proof of DST payment because such document does
not exist as respondent claims that it is not liable to pay,
and has not paid, the DST on the deposit on subscription.
The term relevant supporting documents should be
understood as those documents necessary to support the
legal basis in disputing a tax assessment as determined
by the taxpayer. The BIR can only inform the taxpayer to
submit additional documents. The BIR cannot demand
what type of supporting documents should be submitted.
Otherwise, a taxpayer will be at the mercy of the BIR,
which may require the production of documents that a
taxpayer cannot submit. (CIR vs First Express 92
Pawnshop
Company, GR 172045-46, June 16, 2009)
(c) Effect of failure to protest
The rule is that for the Court of Tax Appeals to acquire
jurisdiction, an assessment must first be disputed by the
taxpayer and ruled upon by the Commissioner of Internal
Revenue to warrant a decision from which a petition for
review may be taken to the Court of Tax Appeals. Where
an adverse ruling has been rendered by the Commissioner
of Internal Revenue with reference to a disputed
assessment or a claim for refund or credit, the taxpayer
may appeal the same within thirty (30) days after receipt
thereof. A request for reconsideration must be made
within thirty (30) days from the taxpayers receipt of the
tax deficiency assessment, otherwise, the decision
becomes final, unappealable and therefore, demandable.
A tax assessment that has become final, executory and
enforceable for failure of the taxpayer to assail the same
as provided in Section
228 can no longer be contested. (Oceanic Network
Wireless Inc., GR 148380, December 9, 2005)
(d) Period provided for the protest to be acted upon
(iii) Rendition of decision by Commissioner
(a) Denial of protest
Records show that petitioner disputed the PAN but not
the Formal Letter of Demand with Assessment Notices.
Nevertheless, we cannot blame petitioner for not filing a
protest against the Formal Letter of Demand with
Assessment Notices since the language used and the
tenor of the demand letter indicate that it is the final
decision of the respondent on the matter. We have time
and again reminded the CIR to indicate, in a clear and
unequivocal language, whether his action on a disputed
assessment constitutes his final determination thereon in
order for the taxpayer concerned to determine when his
or her right to appeal to the tax court accrues. Viewed in
the light of the foregoing, respondent is now estopped
from claiming that he did not intend the Formal Letter of
Demand with Assessment Notices to be a final decision.
(Allied Banking Corporation vs CIR, G.R. No. 175097,
February 5, 2010)
(1) Commissioners actions equivalent to denial of
protest
The request for reinvestigation and reconsideration was
in effect considered denied by petitioner when the latter
filed a civil suit for collection of deficiency income. Under
the circumstances, the Commissioner of Internal
Revenue, not having clearly signified his final action on
the disputed assessment, legally the period to appeal has
not commenced to run. Thus, it was only when private
respondent received the summons on the civil suit for
collection of deficiency income on December 28, 1978
that the period to appeal commenced to run. (CIR vs
Union Shipping Corporation, GR L-66160, May 21, 1990)
The letter of February 18, 1963, in the view of the Court,
is tantamount to a denial of the reconsideration or protest
of the respondent corporation on the assessment made
by the petitioner, considering that the said letter is in
itself a reiteration of the demand by the Bureau of
Internal Revenue for the settlement of the assessment
already made, and for the immediate payment of the sum
of P758, 687.04 in spite of the vehement protest of the
respondent corporation on April 21, 1961. This certainly
is a clear indication of the firm stand of petitioner against
the reconsideration of the disputed assessment in view
of the continued refusal of the respondent corporation to
execute the waiver of the period of limitation upon the
assessment in question. (CIR vs Ayala Securities Corp.,
GR L- 29485, March 31, 1976)
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
(iv) 93
Remedies of taxpayer to action by Commissioner
(a) In case of denial of protest
(b) In case of inaction by Commissioner within 180
days from submission of documents
In case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of
submission of documents, a taxpayer can either: (1) file
a petition for review with the Court of Tax Appeals within
30 days after the expiration of the 180-day period; or (2)
await the final decision of the Commissioner on the
disputed assessments and appeal such final decision to
the Court of Tax Appeals within 30 days after receipt of
a copy of such decision. (RCBC vs CIR, G.R. No. 168498,
April 24, 2007)
(c) Effect of failure to appeal
a) 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 94
(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)
b) 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 95 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 96situation
here. Quite the contrary, Fortune Tobaccos claim for
refund is premised on its erroneous payment of the tax,
or better still the governments exaction in the absence of
a law. (CIR vs Fortune Tobacco Corp., GR 167274-75, July
21, 2008)
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 erroneously-paid tax/illegally assessed
collected
(e) Tax refund vis--vis tax credit
Formally, a tax refund requires a physical return of the
sum erroneously paid by the taxpayer, while a tax credit
involves the application of the reimbursable amount
against any sum that may be due and collectible from the
taxpayer. On the practical side, the taxpayer to whom the
tax is refunded would have the option, among others, to
invest for profit the returned sum, an option not
proximately available if the taxpayer chooses instead to
receive a tax credit. (CIR vs Philippine Phosphate Fertilizer
Corporation, G.R. No. 144440, September 1, 2004)
(f) Essential requisites for claim of refund
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 INTERNAL
REVENUE vs. TEAM (PHILS.) ENERGY CORPORATION
(FORMERLY MIRANT PHILS ENERGY CORPORATION),
G.R. No. 188016, January 14,
2015, J. Bersamin
(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)
97
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 affecting 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
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. COCA-COLA
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 98
under Rule 58. (Angeles City vs. Angeles City Electric
Corp., GR 166134, June 29, 2010)
b) Judicial remedies
3. Statutory offenses and penalties
a) Civil penalties
It is mandatory to collect penalty and interest at the
stated rate in case of delinquency. The intention of the
law is to discourage delay in the payment of taxes due
the Government and, in this sense, the penalty and
interest are not penal but compensatory for the
concomitant use of the funds by the taxpayer beyond the
date when he is supposed to have paid them to the
Government. If penalties could be condoned for flimsy
reasons, the law imposing penalties for delinquencies
would be rendered nugatory, and the maintenance of the
Government and its multifarious activities will be
adversely affected. (Philippine Refining Company vs. CA,
GR 118794, May 8, 1996)
The taxpayer should be liable only for tax proper and
should not be held liable for the surcharge and interest
when it appears that the assessment is highly
controversial. The Commissioner at the outset was not
certain as to petitioner's income tax liability. (Cagayan
Electric Power Light vs CIR, G.R. No. L-60126, September
25, 1985)
(i) Surcharge
(ii) Interest
(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 prerequisite99at 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) Authority to prescribe penalties for tax violations
c) Authority to grant local tax exemptions
d) Withdrawal of exemptions
e) Authority to adjust local tax rates
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) 10
Tax on transfer of real property ownership
(ii) Tax on business of printing and publication
0
(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) Professional tax
(vi) Amusement tax
Resorts, swimming pools, bath houses, hot springs, and
tourist spots are not among those places expressly
mentioned by Section 140 of the LGC as being subject to
amusement taxes. (Principle of Ejusdem Generis)
(Pelizloy Realty Corp. v. Province of Benguet, G.R. No.
183137, April 10, 2013)
In determining the meaning of the phrase "other places
of amusement," under Sec. 13 of the Local Tax Code, one
must refer to the prior enumeration of theaters,
cinematographs, concert halls and circuses with artistic
expression as their common characteristic. Professional
basketball games do not fall under the same category as
theaters, cinematographs, concert halls and circuses as
the latter basically belong to artistic forms of
entertainment while the former caters to sports and
10Appeals,
gaming. (Philippine Basketball Assn. v. Court of
G.R. No. 119122, August 08, 2000) 1
It is the intent of the legislature not to impose VAT on
persons already covered by the amusement tax. (CIR v.
SM Prime Holdings, Inc., G.R. No. 183505, February 26,
2010)
(vii) Tax on delivery truck/van
b) Taxing powers of cities
c) Taxing powers of municipalities
(i) Tax on various types of businesses
Business taxes imposed in the exercise of police power for
regulatory purposes are paid for the privilege of carrying
on a business in the year the tax was paid. It is paid at
the beginning of the year as a fee to allow the business
to operate for the rest of the year. It is deemed a
prerequisite to the conduct of business.||| (Mobil
Philippines Inc. v. City Treasurer of Makati, G.R. No.
154092, July 14, 2005)
When a municipality or city has already imposed a
business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce,
pursuant to Section 143 (a) of the LGC, said municipality
or city may no longer subject the same manufacturers,
etc. to a business tax under Section 143 (h) of the same
Code. Section 143 (h) may be imposed only on businesses
that are subject to excise tax, VAT, or percentage tax
under the NIRC, and that are "not otherwise specified in
preceding paragraphs". (City of Manila v. Coca-Cola
Bottlers Philippines, Inc., G.R. No. 181845, August 04,
2009)
By its very nature a condominium corporation is not
engaged in business, and any profit that it derives is
merely incidental, hence it may not be subject to business
taxes. (Yamane , etc.
v. BA Lepanto Condominium Corporation, G. R. No.
154993, October 25, 2005)
(ii) Ceiling on business tax impossible on
municipalities within Metro Manila
(iii) Tax on retirement on business
(iv) Rules on payment of business tax
Tax should be computed based on gross receipts; the
right to receive income, and not the actual receipt,
determines when to include the amount in gross income.
The imposition of local business tax based on petitioners
gross revenue will inevitably result in the constitutionally
proscribed double taxation taxing of the same person
twice by the same jurisdiction for the same thing
inasmuch as petitioners revenue or income for a taxable
year will definitely include its gross receipts already
reported during the previous year and for which local
business tax has already been paid. (Ericsson Telecoms
vs. City of Pasig. G.R. NO. 176667, November 22, 2007)
(v) Fees and charges for regulation & licensing
A municipality is authorized to impose three kinds of
licenses: 1) license for regulation of useful occupations or
enterprises; 2) license for restriction or regulation of non-
useful occupations or enterprises; and 3) license for
revenue. The first two easily fall within the broad police
power granted under the general welfare clause; the third
class, however, is for revenue 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
10primarily
essentially the same, the power to tax is [still]
vested in the Congress. (Quezon City, et al., v.2 ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6,
2008 citing City Government of Quezon City, et al. v.
Bayan Telecommunications, Inc., G.R. No. 162015,
March 6, 2006, 484 SCRA 169 in turn referring to
Mactan Cebu
International Airport Authority, v. Marcos, G.R. No.
120082, September 11, 1996, 261 SCRA 667, 680)
Section 133(e) of RA No. 7160 prohibits the imposition, in
the guise of wharfage, of fees
as well as all other taxes or charges in any form
whatsoever on goods or merchandise. It is therefore
irrelevant if the fees imposed are actually for police
surveillance on the goods, 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 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.
10
(Jardine Davies Insurance Brokers Inc. v. Aliposa, G.R.
No. 118900, February 27, 2003) 3
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 be paying taxes for a property that is not in his10actual or
Republic is exempt from real estate tax except when the constructive possession. They constitute at least4 proof
government gives the beneficial use of the real property that the holder has a claim of title over the property.
to a taxable entity. The justification for the exception to (Heirs of Santiago v. Heirs of Santiago, G.R. No. 151440,
the exemption is that the real property, although owned June 17, 2003)
by the Republic, is not devoted to public use or public It is `the duty of each person' acquiring real estate in the
service but devoted to the private gain of a taxable city to make a new declaration thereof, with the
person. (Manila International Airport Authority v. Court of advertence that failure to do so shall make the
Appeals, G.R. No. 155650, July 20, 2006) assessment in the name of the previous owner 'valid and
binding on all persons interested, and for all purposes, as
In MIAA v. Court of Appeals & Paraaque City, 495 SCRA though the same had been assessed in the name of its
591 [2006], the Supreme Court resolved this issue that actual owner.' (Heirs of Tajonera v. Court of Appeals, G.R.
MIAA is not a government owned or controlled No. L-26677, March 27, 1981)
corporation but a government instrumentality vested with
corporate powers and performing essential public c) Listing of real property in assessment rolls
services. MIAA is not subject to any local tax except when d) Preparation of schedules of fair market value
its properties are used by taxable entity or if the beneficial (i) Authority of assessor to take evidence
use of real property owned by the Republic is given to a (ii) Amendment of schedule of fair market value
taxable entity. e) Classes of real property
f) Actual use of property as basis of assessment
The airport lands and buildings of MIAA are properties g) Assessment of real property
devoted to public use and thus are properties of public (i) Assessment levels
dominion. They are owned by the State or the Republic (ii) General revisions of assessments and property
under Art. 420 of the NCC. Hence, the properties of MIAA classification
are exempted from the real property tax under Sec. (iii) Date of effectivity of assessment or reassessment
234(a) LGC. Only those portions of the NAIA Pasay (iv) Assessment of property subject to back taxes
properties which are leased to taxable persons like private (v) Notification of new or revised assessment
parties are the ones subject to the real property tax by h) Appraisal and assessment of machinery
Pasay City. (MIAA v. City of Pasay, 583 SCRA 234)
5. Collection of real property tax
4. Appraisal and assessment of real property tax a) Date of accrual of real property tax and special
a) Rule on appraisal of real property at fair market levies
value b) Collection of tax
(i) Collecting authority
Real properties shall be appraised at the current and fair (ii) Duty of assessor to furnish local treasurer with
market value prevailing in the locality where the property assessment rolls
is situated and classified for assessment purposes on the (iii) Notice of time for collection of tax
basis of its actual use. (Allied Banking Corporation, etc., c) Periods within which to collect real property tax
v. Quezon City Government, et al., G. R. No. 154126, d) Special rules on payment
October 11, 2005) (i) Payment of real property tax in installments
In fixing the value of real property, assessors have to (ii) Interests on unpaid real property tax
consider all the circumstances and elements of value and (iii) Condonation of real property tax
must exercise prudent discretion in reaching conclusions. e) Remedies of LGUs for collection of real property
(Allied Banking Corporation, etc., v. Quezon City tax
Government, et al., G. R. No. 154126, October 11, 2005) (i) Issuance of notice of delinquency for real
property tax payment
b) Declaration of real property
With regard to determining to whom the notice of sale
A tax declaration does not prove ownership; it is merely should have been sent, settled is the rule that, for
an indicium of a claim of ownership. Neither tax receipts purposes of real property taxation, the registered owner
nor declaration of ownership for taxation purposes are of the property is deemed the taxpayer. Thus, in
evidence of ownership or of the right to possess realty identifying the real delinquent taxpayer, a local treasurer
when not supported by other effective proofs. (De Vera- cannot rely solely on the tax declaration but must verify
Cruz v. Miguel, G.R. No. 144103, August 31, 2005) with the Register of Deeds who the registered owner of
the particular property is. (Spouses Hu v. Spouses Unico,
Although tax declarations or realty tax payment of G.R. No. 146534, September 18, 2009)
property are not conclusive evidence of ownership,
nevertheless, they are good indicia of possession in It has been ruled that the notices and publication, as well
the concept of owner, for no one in his right mind would 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) Local governments lien
(iii) Remedies in general
(iv) Resale of real estate taken for taxes, fees or
charges
(v) Further levy until full payment of amount due
6. Refund or credit of real property tax
a) Payment under protest
b) Repayment of excessive collections
7. Taxpayers remedies
a) Contesting an assessment of value of real
property
(i) Appeal to the Local Board of Assessment Appeals
(ii) Appeal to the Central Board of Assessment
Appeals
(iii) Effect of payment of tax
b) Payment of real property tax under protest
(i) File protest with local treasurer 10
5
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) Appeal to the Central Board of Assessment
Appeals
(iv) Appeal to the CTA
(v) Appeal to the Supreme Court
IV. Tariff and Customs Code of 1978, as amended
A. Tariff and duties, defined
"Customs duties" is "the name given to taxes on the
importation and exportation of commodities, the tariff or
tax assessed upon merchandise imported from, or
exported to, a foreign country. (Nestle Philippines, Inc. v.
Court of Appeals, G.R. No. 134114, July 06, 2001)
B. General rule: all imported articles are subject to
duty.
1. Importation by the government taxable
C. Purpose for imposition
D. Flexible tariff clause
E. Requirements of importation
1. Beginning and ending of importation
Section 1202 of the Tariff and Customs Code provides
that importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with
intention to unload therein. It is clear from the provision
of the law that mere intent to unload is sufficient to
commence an importation and "intent," being a state of
mind, is rarely susceptible of direct proof, but must
ordinarily be inferred from the facts, and therefore can
only be proved by unguarded, expressions, conduct and
circumstances generally. (Feeder International Line, Pte.,
Ltd. v. Court of Appeals, G.R. No. 94262, May 31, 1991)
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. 165265,10February
06, 2006) 6
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 10
Regional trial courts are devoid of any competence to
pass upon the validity or regularity of seizure 7 and
forfeiture proceedings conducted by the BOC and to
H. Classification of duties enjoin or otherwise interfere with these proceedings.
1. Ordinary/regular duties Regional trial courts are precluded from assuming
a) Ad valorem; methods of valuation cognizance over such matters even through petitions for
(i) Transaction value certiorari, prohibition or mandamus. (Subic Bay
(ii) Transaction value of identical goods Metropolitan Authority v. Rodriguez, G.R. No. 160270,
(iii) Transaction value of similar goods April 23, 2010)
(iv) Deductive value Even if the seizure by the Collector of Customs were
(v) Computed value illegal, which has yet to be proven, we have said that such
(vi) Fallback value act does not deprive the Bureau of Customs of jurisdiction
thereon. The allegations of petitioners regarding the
b) Specific propriety of the seizure should properly be ventilated
before the Collector of Customs. (Jao v. Court of Appeals,
2. Special duties G.R. No. 104604, 111223, October 06, 1995)
a) Dumping duties
b) Countervailing duties A forfeiture proceeding is in the nature of a proceeding in
c) Marking duties rem, i.e., directed against the res or imported articles
d) Retaliatory/discriminatory duties and entails a determination of the legality of their
e) Safeguard importation. In this proceeding, it is in legal
contemplation the property itself which commits the
I. Remedies violation and is treated as the offender, without reference
1. Government whatsoever to the character or conduct of the owner.
a) Administrative/extrajudicial (Transglobe International, Inc. v. Court of Appeals, G.R.
(i) Search, seizure, forfeiture, arrest No. 126634, January 25, 1999)

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)
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 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 non-exhaustion 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
10 OILINK
and duties. COMMISSIONER OF CUSTOMS vs.
INTERNATIONAL CORPORATION, G.R. No. 161759,
8 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
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 10
(180)-day
period; otherwise the decision shall become 9 final,
executory and demandable.||| (Rizal Commercial Banking
Corp. v. Commr., G.R. No. 168498, June 16, 2006)
The period to appeal from a decision of the Commissioner
of Internal Revenue to the Court of Tax Appeals under
Republic Act No. 1125 is jurisdictional and non-extendible
and a taxpayer may not delay indefinitely a tax
assessment by reiterating his original defenses over and
over again, without substantial variation. (Filipinas
Investment & Finance Corp. v. Commr., G.R. No. L-23501,
May 16, 1967)
To allow a litigant to assume a different posture when he
comes before the court and challenge the position he had
accepted at the administrative level, would be to sanction
a procedure whereby the Court which is supposed to
review administrative determinations would not review,
but determine and decide for the first time, a question not
raised at the administrative forum. Thus, it is well settled
that under the same underlying principle of prior
exhaustion of administrative remedies, on the judicial
level, issues not raised in the lower court cannot be raised
for the first time on appeal. (Commr. v. Wander Phils.,
Inc., G.R. No. 68375, April 15, 1988)
By withdrawing the appeal, petitioner is deemed to have
accepted the decision of the CTA. Petitioner cannot be
allowed to circumvent the denial of its request for a tax
credit by abandoning its appeal and filing a new claim.
(Central Luzon Drug Corp. v. Commr., G.R. No. 181371,
March 02, 2011)
Sec. 7 of RA 1125 provides that the CTA has exclusive
appellate jurisdiction to review by appeal decisions of the
CIR in cases involving disputed assessments. Likewise
Sec. 4 of the 1997 NIRC [RA 8424] provides that the CIR
has the power to decide disputed assessments subject to
the exclusive appellate jurisdiction of the CTA. The latest
law on the jurisdiction of the CTA under Sec. 7 of RA
9282 provides that the CTA exercises exclusive appellate
jurisdiction to review by appeal decisions of the CIR in
cases involving disputed assessments. Thus the CTAs
jurisdiction is to entertain an appeal only from a final
decision or assessment of the CIR or in cases where the
CIR has not acted within the period prescribed by the
NIRC. So when the CIR has not issued an assessment,
then there is nothing to protest or dispute. (Adamson vs.
Court of Appeals, 588 SCRA 27)
The period to appeal the decision or ruling of the RTC in
local tax cases to CTA via petition for review is governed
by Sec. 11 of RA 9282 and Sec. 3(a), Rule 8 of the Revised
Rules of CTA, which is 30 days from receipt of decision or
ruling. To appeal an adverse ruling of the RTC to the CTA
the taxpayer must file a petition for review with the CTA
within 30 days from receipt of the adverse decision or
ruling. An extension may be granted for 15 days. With the
several extensions asked the CTA can dismiss the petition.
Failure to comply with 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 internal-revenue tax, fee or charge, thereby
indicating the legislative policy to allow the Collector of
Internal Revenue much latitude in the speedy and prompt
collection of taxes. (Republic v. Lim Tian Teng Sons & Co.,
Inc., G.R. No. L-21731, March 31, 1966)
For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment,
our tax law provides a statute of limitations in the
collection of taxes. (Commissioner of Internal Revenue v.
B.F. Goodrich Phils, Inc., (now Sime Darby International
Tire Co., Inc.), et al., G.R. No. 104171, February 24, 1999,
303 SCRA 546; Philippine Journalists, 11Inc. v.
Commissioner of Internal Revenue, G. R. No. 0 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, 11
G. R. No.
173176, August 26, 2008) 1
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
11the duty
case cannot operate to discharge defendant from
of paying the taxes which the law requires to 2 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. L-22356,
July 21, 1967)
With regard to the tax proper, the state correctly points
out in its brief that the acquittal in the criminal case could
not operate to discharge petitioner from the duty to pay
the tax, since that duty is imposed by statue prior to and
independently of any attempts on the part of the taxpayer
to evade payment. The obligation to pay the tax is not a
mere consequence of the felonious acts charged in the
information, nor is it a mere civil liability derived from
crime that would be wiped out by the judicial declaration
that the criminal acts charged did not exist. (Castro
v. Collector of Internal Revenue, G.R. No. L-12174, April
26, 1962)
b) Appeal and period to appeal
(i) Solicitor General as counsel for the people and
government officials sued in their official capacity
c) Petition for review on certiorari to the Supreme
Court
C. Taxpayers suit impugning the validity of tax
measures or acts of taxing authorities
1. Taxpayers suit, defined
It is hornbook principle that a taxpayer is allowed to sue
where there is a claim that public funds are illegally
disbursed, or that public money is being deflected to any
improper purpose, or that there is wastage of public funds
through the enforcement of an invalid or unconstitutional
law. For a taxpayer's suit to prosper, two requisites must
be met namely, (1) public funds derived from taxation are
disbursed by a political subdivision or instrumentality and
in doing so, a law is violated or some irregularity is
committed; and (2) the petitioner is directly affected by
the alleged act. (LBP v. Cacayuran, G.R. No. 191667, April
17, 2013)
What is a taxpayers suit? In the case of a taxpayer, he
is allowed to sue where there is a claim that public funds
are illegally disbursed, or that public money is being
deflected to any improper purpose, or that there is a
wastage of public funds through the enforcement of an
invalid or unconstitutional law. Before he can invoke the
power of judicial review, however, he must specifically
prove that he has sufficient interest in preventing the
illegal expenditure of money raised by taxation and that
he would sustain a direct injury as a result of the
enforcement of the questioned statute or contract. It is
not sufficient that he has merely a general interest
common to all members of the public. At all events, courts
are vested with discretion as to whether or not a
taxpayer's suit should be entertained. This Court opts to
grant standing to most of the petitioners, given their
allegation that any impending transmittal to the Senate of
the Articles of Impeachment and the ensuing trial of the
Chief Justice will necessarily involve the expenditure of
public funds. (Francisco, Jr. vs. Nagmamalasakit na mga
Manananggol ng mga Manggagawang Pilipino, 415 SCRA
44)
2. Distinguished from citizens suit
Taxpayers have been allowed to sue where there is a
claim that public funds are illegally disbursed or that
public money is being deflected to any improper purpose,
or that public funds are wasted through the enforcement
of an invalid or unconstitutional law. On the other hand,
as citizens, petitioners have must fulfill the standing
requirement given that the issues they 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
11
raised by taxation. (Public Interest Center vs. Roxas, 513
SCRA 457) 3
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-in-interest as he was
unable to show that he has sustained or is in immediate
or imminent danger of sustaining some direct and
personal injury as a result of the execution and
enforcement of the assailed contracts or agreements.
Moreover, they assert that not all government contracts
can justify a taxpayers suit especially when no public
funds were utilized in contravention of the Constitution or
a law. We explicated in Chavez v. PCGG, 299 SCRA 744
(1998), that in cases where issues of transcendental
public importance are presented, there is no necessity to
show that petitioner has experienced or is in actual
danger of suffering direct and personal injury as the
requisite injury is assumed. We find our ruling in Chavez
v. PEA, 384 SCRA 152 (2002), as conclusive authority on
locus standi in the case at bar since the issues raised in 11
this petition are averred to be in breach of the fair 4
diffusion of the countrys natural resources and the
constitutional right of a citizen to information which have
been declared to be matters of transcendental public
importance. Moreover, the pleadings especially those of
respondents readily reveal that public funds have been
indirectly utilized in the Project by means of Smokey
Mountain Project Participation Certificates (SMPPCs)
bought by some government agencies. Hence,
petitioner, as a taxpayer, is a proper party to the instant
petition before the court. (Chavez vs. NHA, 530 SCRA
235)

c) Ripeness for judicial determination

115