LAVILLA
revenue taxes, fees or other charges, penalties imposed in
TAXATION LAW 2
I. ORGANZATION AND FUNCTIONS OF THE BIR
1. Powers and Duties of the Bureau of Internal Revenue
SEC 2: Powers and Duties of the Bureau of Internal Revenue
- The Bureau of Internal Revenue shall be under the supervision
and control of the Department of Finance and its powers and
duties shall comprehend the assessment and collection of all
national internal revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and fines connected
therewith, including the execution of judgments in all cases
decided in its favor by the Court of Tax Appeals and the ordinary
courts.
The Bureau shall give effect to and administer the supervisory
and police powers conferred to it by this Code or other laws.
2. Chief Officials of the BIR
SEC 3: Chief Officials of the Bureau of Internal Revenue - The
Bureau of Internal Revenue shall have a chief to be known as
Commissioner of Internal Revenue, hereinafter referred to as the
Commissioner and four (4) assistant chiefs to be known as
Deputy Commissioners.
3. Powers of the Commissioner to Interpret Tax Laws and Decide Tax
Cases
SEC 4: Power of the Commissioner to Interpret Tax Laws
and to Decide Tax Cases - The power to interpret the
provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner, subject
to review by the Secretary of Finance.
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The power to decide disputed assessments, refunds of internal
relation thereto, or other matters arising under this Code or other
laws or portions thereof administered by the Bureau of Internal
Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.
A.) Rulings with First Impression:
These refer to the rulings, opinions and interpretations of the
Commissioner of Internal Revenue with respect to the provisions
of the Tax Code and other tax laws without established
precedent, and which are issued in response to a specific
request for ruling filed by taxpayer with the Bureau of Internal
Revenue. Provided, however, that the term shall include
reversal, modification or revocation of any existing ruling.
B.) Rulings with Established Precedents:
These refer to mere reiteration of previous rulings, opinions and
interpretations of the Commissioner, as delegated to duly
authorized internal revenue officers ( i.e. Deputy Commissioner,
Legal and Inspection Group; Assistant Commissioner, Legal
Service; Regional Directors) that are issued in response to a
specific request for ruling filed by a taxpayer with the Bureau of
Internal Revenue.
C.) Revenue Memorandum Rulings
These refer to the rulings, opinions and interpretations of the
Commissioner of Internal Revenue with respect to the provisions
of the Tax Code and other tax laws, as applied to a specific set
of facts, with or without established precedents, and which the
Commissioner may issue from time to time for the purpose of
providing taxpayers guidance on the tax consequences in
specific situations.
D.) Revenue Memorandum Circulars
These issuances shall disseminate and embody pertinent and
applicable portions, as well as amplifications of the rules,
precedents, laws, regulations, opinions and other orders and
directives issued by or administered by the Commissioner of
Internal Revenue, and by offices and agencies other than the
 Bureau of Internal Revenue, for the information, guidance or SEC. 5 Power of the Commissioner to Obtain Information,
compliance of revenue personnel. and to Summon, Examine, and Take Testimony of Persons -
In ascertaining the correctness of any return, or in making a
return when none has been made, or in determining the liability
of any person for any internal revenue tax, or in collecting any
E.) Revenue Memorandum Orders
such liability, or in evaluating tax compliance, the Commissioner
These are directives or instructions outlining procedures,
is authorized:
techniques, methods, processes, operations, activities, work
flow, and the like, which are necessary to carryout programs or
(A) To examine any book, paper, record, or other data which
to achieve policy goals and objectives. These issuances may be
may be relevant or material to such inquiry;
of general or of limited scope yet in any case require definite
compliance by those concerned. They are not addressed to any
(B) To obtain on a regular basis from any person other than the
particular group of employees or offices because they are for
person whose internal revenue tax liability is subject to audit or
general information, but those directly concerned with the
investigation, or from any office or officer of the national and
compliance of these provisions are either definitely stated, or
local governments, government agencies and instrumentalities,
unmistakably implied thereat.
including the Bangko Sentral ng Pilipinas and government-
owned or -controlled corporations, any information such as, but
F.) Revenue Audit Memorandum Orders
not limited to, costs and volume of production, receipts or sales
These refer to the uniform audit procedures to be observed
and gross incomes of taxpayers, and the names, addresses, and
by revenue officers in the conduct of audit of tax cases and
financial statements of corporations, mutual fund companies,
in their submission of reports of investigation.
insurance companies, regional operating headquarters of
multinational companies, joint accounts, associations, joint
G.) Revenue Delegation of Authority Orders
ventures or consortia and registered partnerships, and their
These refer to the functions delegated by the Commissioner
members: Provided, That the Cooperative Development
to revenue officers in accordance with law
Authority shall submit to the Bureau a tax incentive report, which
shall include information on the income tax, value-added tax, and
H.) Revenue Administrative Orders
other tax incentives availed of by cooperatives registered and
enjoying incentives under Republic Act No. 6938, as amended:
These refer to matters that deal strictly with more or less
Provided, further, That the information submitted by the
permanent administrative set-up of the Bureau. Delineation
Cooperative Development Authority to the Bureau shall be
of organizational structures, statements of functions and/or
submitted to the Department of Finance and shall be included in
responsibilities, definitions and delegations of authority,
the database created under Republic Act No. 10708, otherwise
staffing and personnel requirements, standards of
known as ‘The Tax Incentives Management and Transparency
performance, establishment of Bureau
Act (TIMTA)’.

(C) To summon the person liable for tax or required to file a

4. Power of the Commissioner to Make Assessments and Prescribe return, or any officer or employee of such person, or any person
Additional Requirements for Tax Administration and Enforcement having possession, custody, or care of the books of accounts
and other accounting records containing entries relating to the
business of the person liable for tax, or any other person, to

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 appear before the Commissioner or his duly authorized
representative at a time and place specified in the summons and
to produce such books, papers, records, or other data, and to
give testimony;
(D) To take such testimony of the person concerned, under oath,
as may be relevant or material to such inquiry; and
(E) To cause revenue officers and employees to make a canvass
from time to time of any revenue district or region and inquire
after and concerning all persons therein who may be liable to
pay any internal revenue tax, and all persons owning or having
the care, management or possession of any object with respect
to which a tax is imposed.
The provisions of the foregoing paragraphs notwithstanding,
nothing in this Section shall be construed as granting the
Commissioner the authority to inquire into bank deposits other
than as provided for in Section 6(F) of this Code.
SEC. 6. Power of the Commissioner to Make assessments and
Prescribe additional Requirements for Tax Administration and
Enforcement. –
(A) Examination of Returns and Determination of Tax Due
After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly
authorized representative may authorize the examination of
any taxpayer and the assessment of the correct amount of
tax, notwithstanding any law requiring the prior authorization
of any government agency or instrumentality: Provided,
however, That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any
taxpayer.
(B) Failure to Submit Required Returns, Statements, Reports
and other Documents – When 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 laws or rules
and regulations or when there is reason to believe that any such
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report is false, incomplete or erroneous, the Commissioner shall
assess the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document
at the time prescribed by law, or willfully or otherwise files a false
or fraudulent return or other document, the Commissioner shall
make or amend the return from his own knowledge and from
such information as he can obtain through testimony or
otherwise, which shall be prima facie correct and sufficient for all
legal purposes.
(C) Authority to Conduct Inventory-taking, surveillance and
to Prescribe Presumptive Gross Sales and Receipts - The
Commissioner may, at any time during the taxable year, order
inventory-taking of goods of any taxpayer as a basis for
determining his internal revenue tax liabilities, or may place the
business operations of any person, natural or juridical, under
observation or surveillance if there is reason to believe that such
person is not declaring his correct income, sales or receipts for
internal revenue tax purposes.
The findings may be used as the basis for assessing the taxes
for the other months or quarters of the same or different taxable
years and such assessment shall be deemed prima facie correct.
When it is found that a person has failed to issue receipts and
invoices in violation of the requirements of Sections 113 and 237
of this Code, or when there is reason to believe that the books of
accounts or other records do not correctly reflect the declarations
made or to be made in a return required to be filed under the
provisions of this Code, the Commissioner, after taking into
account the sales, receipts, income or other taxable base of
other persons engaged in similar businesses under similar
situations or circumstances or after considering other relevant
information may prescribe a minimum amount of such gross
receipts, sales and taxable base, and such amount so prescribed
shall be prima facie correct for purposes of determining the
internal revenue tax liabilities of such person.
(D) Authority to Terminate Taxable Period - When it shall
come to the knowledge of the Commissioner that a taxpayer is
retiring from business subject to tax, or is intending to leave the
Philippines or to remove his property therefrom or to hide or
conceal his property, or is performing any act tending to obstruct
the proceedings for the collection of the tax for the past or
current quarter or year or to render the same totally or partly
ineffective unless such proceedings are begun immediately, the
Commissioner shall declare the tax period of such taxpayer
terminated at any time and shall send the taxpayer a notice of
such decision, together with a request for the immediate
payment of the tax for the period so declared terminated and the
tax for the preceding year or quarter, or such portion thereof as
may be unpaid, and said taxes shall be due and payable
immediately and shall be subject to all the penalties hereafter
prescribed, unless paid within the time fixed in the demand made
by the Commissioner.
(E) Authority of the Commissioner to Prescribe Real
Property Values - The Commissioner is hereby -authorized to
divide the Philippines into different zones or areas and shall,
upon mandatory consultation with competent appraisers both
from the private and public sectors, and with prior notice to
affected taxpayers, determine the fair market value af real
properties located in each zone or area, subject to automatic
adjustment once every three (3) years through rules and
regulations issued by the Secretary of Finance based on the
current Philippine valuation standards: Provided, That no
adjustment in zonal valuation shall be valid unless published in a
newspaper of general circulation in the province, city or
municipality concerned, or in the absence thereof, shall be
posted in the provincial capitol, city or municipal hall and in two
(2) other conspicuous public places therein: Provided, further,
That the basis of any valuation, including the records of
consultations done, shall be public records open to the inquiry of
any taxpayer. For purposes of computing any internal revenue
tax, the value of the property shall be, whichever is the higher of:
“(1) the fair market value as determined by the Commissioner; or
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“(2) the fair market value as shown in the schedule of values of
the Provincial and City Assessors.”
(F) Authority of the Commissioner to inquire into Bank
Deposit Accounts - Notwithstanding any contrary provision of
Republic Act No. 1405 and other general or special laws, the
Commissioner is hereby authorized to inquire into the bank
deposits of:
(1) a decedent to determine his gross estate; and (2) any
taxpayer who has filed an application for compromise of his tax
liability under Sec. 204 (A) (2) of this Code by reason of financial
incapacity to pay his tax liability.
In case a taxpayer files an application to compromise the
payment of his tax liabilities on his claim that his financial
position demonstrates a clear inability to pay the tax assessed,
his application shall not be considered unless and until he
waives in writing his privilege under Republic Act No. 1405 or
under other general or special laws, and such waiver shall
constitute the authority of the Commissioner to inquire into the
bank deposits of the taxpayer.
(G) Authority to Accredit and Register Tax Agents - The
Commissioner shall accredit and register, based on their
professional competence, integrity and moral fitness, individuals
and general professional partnerships and their representatives
who prepare and file tax returns, statements, reports, protests,
and other papers with or who appear before, the Bureau for
taxpayers.
Within one hundred twenty (120) days from January 1, 1998, the
Commissioner shall create national and regional accreditation
boards, the members of which shall serve for three (3) years,
and shall designate from among the senior officials of the
Bureau, one (1) chairman and two (2) members for each board,
subject to such rules and regulations as the Secretary of Finance
shall promulgate upon the recommendation of the
Commissioner.
 Individuals and general professional partnerships and their
representatives who are denied accreditation by the
Commissioner and/or the national and regional accreditation
boards may appeal such denial to the Secretary of Finance, who
shall rule on the appeal within sixty (60) days from receipt of
such appeal.
Failure of the Secretary of Finance to rule on the Appeal within
the prescribed period shall be deemed as approval of the
application for accreditation of the appellant.
(H) Authority of the Commissioner to Prescribe Additional
Procedural or Documentary Requirements - The
Commissioner may prescribe the manner of compliance with any
documentary or procedural requirement in connection with the
submission or preparation of financial statements accompanying
the tax returns.
5.) Authority of the Commissioner to Delegate Power
SEC. 7. Authority of the Commissioner to Delegate Power - The
Commissioner may delegate the powers vested in him under the pertinent
provisions of this Code to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of finance, upon recommendation of the
Commissioner: Provided, however, That the following powers of the
Commissioner shall not be delegated:(a) The power to recommend the
promulgation of rules and regulations by the Secretary of Finance;(b) The
power to issue rulings of first impression or to reverse, revoke or modify
any existing ruling of the Bureau;(c) The power to compromise or abate,
under Sec. 204 (A) and (B) of this Code, any tax liability: Provided,
however, That assessments issued by the regional offices involving basic
deficiency taxes of Five hundred thousand pesos (P500,000) or less, and
minor criminal violations, as may be determined by rules and regulations
to be promulgated by the Secretary of finance, upon recommendation of
the Commissioner, discovered by regional and district officials, may be
compromised by a regional evaluation board which shall be composed of
the Regional Director as Chairman, the Assistant Regional Director, the
heads of the Legal, Assessment and Collection Divisions and the
Revenue District Officer having jurisdiction over the taxpayer, as
members; and(d) The power to assign or reassign internal revenue
officers to establishments where articles subject to excise tax are
produced or kept.
6.) Duty of the Commissioner to Ensure the Provision and Distribution of
Forms, Receipts, Certificates, and Appliances, and the Acknowledgement of
Payment of Taxes.
SEC. 8. Duty of the Commissioner to Ensure the Provision and
Distribution of forms, Receipts, Certificates, and Appliances, and the
Acknowledgment of Payment of Taxes. –
(A) Provision and Distribution to Proper Officials. - It shall be the duty
of the Commissioner, among other things, to prescribe, provide, and
distribute to the proper officials the requisite licenses internal revenue
stamps, labels all other forms, certificates, bonds, records, invoices,
books, receipts, instruments, appliances and apparatus used in
administering the laws falling within the jurisdiction of the Bureau.
For this purpose, internal revenue stamps, strip stamps and labels shall
be caused by the Commissioner to be printed with adequate security
features.
Internal revenue stamps, whether of a bar code or fusion design, shall be
firmly and conspicuously affixed on each pack of cigars and cigarettes
subject to excise tax in the manner and form as prescribed by the
Commissioner, upon approval of the Secretary of Finance.
(B) Receipts for Payment Made - It shall be the duty of the
Commissioner or his duly authorized representative or an
authorized agent bank to whom any payment of any tax is made
under the provision of this Code to acknowledge the payment of
such tax, expressing the amount paid and the particular account
for which such payment was made in a form and manner
prescribed therefor by the Commissioner.

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 6.a. LIST OF BIR FORMS Application for Registration for One-Time Taxpayer and Persons
1904 Registering under E.O. 98 (Securing a TIN to be able to transact with any
FORM NO. FORM TITLE Government Office)

Payment Form Application for Registration Information Update for Updating / Cancellation
0605
1905 of Registration / Cancellation of TIN / New Copy of TIN card / New copy
Remittance Return of Percentage Tax on Winnings and Prizes Withheld by of Certificate of Registration
1600WP
Race Track Operators
1906 Application for Authority to Print Receipts and Invoices
1601C Monthly Remittance Return of Income Taxes Withheld on Compensation
Application for Permit to Use Cash Register machines/Point-of-Sale
1907
Monthly Remittance Return of Creditable Income Taxes Withheld Machine
1601E
(Expanded)
2000 Documentary Stamps Tax Declaration/ Return
1601F Monthly Remittance Return of Final Income Taxes Withheld
2000-OT Documentary Stamp Tax Declaration/Return (One Time Transactions)
Monthly Remittance Return of Final Income Taxes Withheld (On Interest
1602 Application for Abatement or Cancellation of Tax, Penalties and/or Interest
Paid on Deposits and Yield on Deposit Substitutes/Trusts/Etc.) 2110
Under Rev. Reg. No. ______
Annual Information Return of Income Tax Withheld on Compensation and 2200 A Excise Tax Return for Alcohol Products
1604CF
Final Withholding Taxes
2200 AN Excise Tax Return for Automobiles and Non-Essential
Annual Information Return of Creditable Income Taxes Withheld
1604E (Expanded)/ Income Payments Exempt from Withholding Taxes 2200 M Excise Tax Return for Mineral Products
Withholding Tax Remittance Return (For Transactions Involving Real 2200 P Excise Tax Return for Petroleum Products
1606 Property other than Capital Asset including Taxable and Exempt)
2200 T Excise Tax Return for Tobacco Products
Account Information Form (AIF) for Self-employed Individuals, Estates and
1701-AIF Trusts (engaged in trade and business) Certificate of Income Payment Not Subject to Withholding Tax (Excluding
2304
Compensation Income)
Account Information Form (AIF) For Corporations and Partnerships in
1702-AIF Certificate of Update of Exemption and of Employer's and Employee's
General 2305
Information
Application to Use Loose-Leaf / Computerized Books of Accounts and/or
1900 2306 Certificate of Final Income Tax Withheld
Accounting Records
Application for Registration for Self-Employed and Mixed Income 2307 Certificate of Creditable Tax Withheld at Source
1901
Individuals, Estates/Trusts
Certificate of Compensation Payment / Tax Withheld For Compensation
2316
Application for Registration For Individuals Earning Purely Compensation Payment With or Without TAx Withheld
1902 Income, and Non-Resident Citizens / Resident Alien Employee

Application for Registration for Corporations/ Partnerships (Taxable/Non-

1903
Taxable)

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7.) Internal Revenue Districts
SEC. 9. Internal Revenue Districts - With the approval of the Secretary
of Finance, the Commissioner shall divide the Philippines into such
number of revenue districts as may form time to time be required for
administrative purposes. Each of these districts shall be under the
supervision of a Revenue District Officer.
SEC. 10. Revenue Regional Director. - Under rules and regulations,
policies and standards formulated by the Commissioner, with the approval
of the Secretary of Finance, the Revenue Regional director shall, within
the region and district offices under his jurisdiction, among others:
(a) Implement laws, policies, plans, programs, rules and regulations of the
department or agencies in the regional area;
(b) Administer and enforce internal revenue laws, and rules and
regulations, including the assessment and collection of all internal
revenue taxes, charges and fees.
(c) Issue Letters of authority for the examination of taxpayers within the
region;(d) Provide economical, efficient and effective service to the people
in the area;(e) Coordinate with regional offices or other departments,
bureaus and agencies in the area;(f) Coordinate with local government
units in the area;(g) Exercise control and supervision over the officers and
employees within the region; and(h) Perform such other functions as may
be provided by law and as may be delegated by the Commissioner.
8.) Agents and Deputies for Collection of National Internal Revenue Taxes
SEC. 12. Agents and Deputies for Collection of National Internal
Revenue Taxes - The following are hereby constituted agents of the
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Commissioner:(a) The Commissioner of Customs and his subordinates
with respect to the collection of national internal revenue taxes on imported
goods;(b) The head of the appropriate government office and his
subordinates with respect to the collection of energy tax; and(c) Banks duly
accredited by the Commissioner with respect to receipt of payments
internal revenue taxes authorized to be made thru bank. Any officer or
employee of an authorized agent bank assigned to receive internal revenue
tax payments and transmit tax returns or documents to the Bureau of
Internal Revenue shall be subject to the same sanctions and penalties
prescribed in Sections 269 and 270 of this Code.
9.) Duties and Authorities of Revenue District Officer and Revenue Officer
SEC. 11. Duties of Revenue District Officers and Other Internal
Revenue Officers - It shall be the duty of every Revenue District Officer or
other internal revenue officers and employees to ensure that all laws, and
rules and regulations affecting national internal revenue are faithfully
executed and complied with, and to aid in the prevention, detection and
punishment of frauds of delinquencies in connection therewith.
It shall be the duty of every Revenue District Officer to examine the
efficiency of all officers and employees of the Bureau of Internal Revenue
under his supervision, and to report in writing to the Commissioner, through
the Regional Director, any neglect of duty, incompetency, delinquency, or
malfeasance in office of any internal revenue officer of which he may obtain
knowledge, with a statement of all the facts and any evidence sustaining
each case.
10) Other Functions of the BIR
SEC. 11. Duties of Revenue District Officers and Other Internal
Revenue Officers - It shall be the duty of every Revenue District Officer or
other internal revenue officers and employees to ensure that all laws, and
rules and regulations affecting national internal revenue are faithfully
executed and complied with, and to aid in the prevention, detection and
punishment of frauds of delinquencies in connection therewith.
It shall be the duty of every Revenue District Officer to examine the
efficiency of all officers and employees of the Bureau of Internal Revenue
under his supervision, and to report in writing to the Commissioner, through
the Regional Director, any neglect of duty, incompetency, delinquency, or
malfeasance in office of any internal revenue officer of which he may obtain
knowledge, with a statement of all the facts and any evidence sustaining
each case.
SEC. 12. Agents and Deputies for Collection of National Internal
Revenue Taxes - The following are hereby constituted agents of the
Commissioner:(a) The Commissioner of Customs and his subordinates
with respect to the collection of national internal revenue taxes on imported
goods;(b) The head of the appropriate government office and his
subordinates with respect to the collection of energy tax; and(c) Banks duly
accredited by the Commissioner with respect to receipt of payments
internal revenue taxes authorized to be made thru bank.Any officer or
employee of an authorized agent bank assigned to receive internal revenue
tax payments and transmit tax returns or documents to the Bureau of
Internal Revenue shall be subject to the same sanctions and penalties
prescribed in Sections 269 and 270 of this Code.
SEC. 13. Authority of a Revenue Offices. - subject to the rules and
regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, a Revenue Officer assigned to
perform assessment functions in any district may, pursuant to a Letter of
Authority issued by the Revenue Regional Director, examine taxpayers
within the jurisdiction of the district in order to collect the correct amount of
tax, or to recommend the assessment of any deficiency tax due in the same
manner that the said acts could have been performed by the Revenue
Regional Director himself.
SEC. 14. Authority of Officers to Administer Oaths and Take
Testimony. - The Commissioner, Deputy Commissioners, Service Chiefs,
Assistant Service Chiefs, Revenue Regional Directors, Assistant Revenue
Regional Directors, Chiefs and Assistant Chiefs of Divisions, Revenue
District Officers, special deputies of the Commissioner, internal revenue
officers and any other employee of the Bureau thereunto especially
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deputized by the Commissioner shall have the power to administer oaths
and to take testimony in any official matter or investigation conducted by
them regarding matters within the jurisdiction of the Bureau.
SEC. 15. Authority of Internal Revenue Officers to Make Arrests and
Seizures. - The Commissioner, the Deputy Commissioners, the Revenue
Regional Directors, the Revenue District Officers and other internal
revenue officers shall have authority to make arrests and seizures for the
violation of any penal law, rule or regulation administered by the Bureau of
Internal Revenue.
Any person so arrested shall be forthwith brought before a court, there to
be dealt with according to law.
SEC. 16. Assignment of Internal Revenue Officers Involved in Excise
Tax Functions to Establishments Where Articles subject to Excise Tax
are Produced or Kept. - The Commissioner shall employ, assign, or
reassign internal revenue officers involved in excise tax functions, as often
as the exigencies of the revenue service may require, to establishments or
places where articles subject to excise tax are produced or kept: Provided,
That an internal revenue officer assigned to any such establishment shall
in no case stay in his assignment for more than two (2) years, subject to
rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
SEC. 17. Assignment of Internal Revenue Officers and Other
Employees to Other Duties. - The Commissioner may, subject to the
provisions of Section 16 and the laws on civil service, as well as the rules
and regulations to be prescribed by the Secretary of Finance upon the
recommendation of the Commissioner, assign or reassign internal revenue
officers and employees of the Bureau of Internal Revenue, without change
in their official rank and salary, to other or special duties connected with the
enforcement or administration of the revenue laws as the exigencies of the
service may require: Provided, That internal revenue officers assigned to
perform assessment or collection function shall not remain in the same
assignment for more than three (3) years; Provided, further, That
assignment of internal revenue officers and employees of the Bureau to
special duties shall not exceed one (1) year.
SEC. 18. Reports of Violation of Laws. - When an internal revenue officer
discovers evidence of a violation of this Code or of any law, rule or
regulations administered by the Bureau of Internal Revenue of such
character as to warrant the institution of criminal proceedings, he shall
immediately report the facts to the Commissioner through his immediate
superior, giving the name and address of the offender and the names of
the witnesses if possible: Provided, That in urgent cases, the Revenue
Regional director or Revenue District Officer, as the case may be, may
send the report to the corresponding prosecuting officer in the latter case,
a copy of his report shall be sent to the Commissioner.
SEC. 19. Contents of Commissioner's Annual Report. - The Annual
Report of the Commissioner shall contain detailed statements of the
collections of the Bureau with specifications of the sources of revenue by
type of tax, by manner of payment, by revenue region and by industry group
and its disbursements by classes of expenditures.
In case the actual collection exceeds or falls short of target as set in the
annual national budget by fifteen percent (15%) or more, the Commissioner
shall explain the reason for such excess or shortfall.
SEC. 20. Submission of Report and Pertinent Information by the
Commissioner - (A) Submission of Pertinent Information to Congress. -
The provision of Section 270 of this Code to the contrary notwithstanding,
the Commissioner shall, upon request of Congress and in aid of legislation,
furnish its appropriate Committee pertinent information including but not
limited to: industry audits, collection performance data, status reports in
criminal actions initiated against persons and taxpayer's returns: Provided,
however, That any return or return information which can be associated
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with, or otherwise identify, directly or indirectly, a particular taxpayer shall
be furnished the appropriate Committee of Congress only when sitting in
Executive Session Unless such taxpayer otherwise consents in writing to
such disclosure.
(B) Report to Oversight Committee. - The Commissioner shall, with
reference to Section 204 of this Code, submit to the Oversight
Committee referred to in Section 290 hereof, through the
Chairmen of the Committee on Ways and Means of the Senate
and House of Representatives, a report on the exercise of his
powers pursuant to the said section, every six (6) months of each
calendar year.
11.) National Internal Revenue Taxes
National taxes are what we pay to the government through the Bureau of
Internal Revenue. This includes income tax, Value Added Tax (VAT),
percentage tax, excise tax, estate tax, donor’s tax, documentary stamp tax,
capital gains tax, and other taxes covered by the National Internal Revenue
Code (Republic Act No. 8424 or known as the Tax Reform Act of 1997, as
amended) – the tax code or law that governs national taxation in the
Philippines.
On the other hand, local taxes are what we pay to the local government
units, which include the provinces, municipalities, cities, and barangays.
The local government taxation in our country is based on Republic Act 7160
or otherwise known as the Local Government Code of 1991, as amended
12.) Definitions:
SEC. 22 Definitions - When used in this Title:
(A) The term "person" means an individual, a trust, estate or corporation
***(B) The term "corporation" shall include partnerships, no matter
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), association, or insurance companies, but
does not include general professional partnerships and a joint
venture or consortium formed for the purpose of undertaking
construction projects or engaging in petroleum, coal, geothermal and
other energy operations pursuant to an operating consortium
agreement under a service contract with the Government "General
professional partnerships" are partnerships formed by persons for
the sole purpose of exercising their common profession, no part of
the income of which is derived from engaging in any trade or business
(C) The term "domestic", when applied to a corporation, means created
or organized in the Philippines or under its laws
(D) The term "foreign", when applied to a corporation, means a
corporation which is not domestic
***(E) The term "nonresident citizen" means:
(1) A citizen of the Philippines who establishes to the satisfaction of
the Commissioner the fact of his physical presence abroad with a
definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the
taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from
abroad and whose employment thereat requires him to be physically
present abroad most of the time during the taxable year.
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(4) A citizen who has been previously considered as nonresident
citizen and who arrives in the Philippines at any time during the
taxable year to reside permanently in the Philippines shall likewise be
treated as a nonresident citizen for the taxable year in which he
arrives in the Philippines with respect to his income derived from
sources abroad until the date of his arrival in the Philippines.
(5) The taxpayer shall submit proof to the Commissioner to show his
intention of leaving the Philippines to reside permanently abroad or
to return to and reside in the Philippines as the case may be for
purpose of this Section.
(F) The term "resident alien" means an individual whose residence is
within the Philippines and who is not a citizen thereof.
(G) The term "nonresident alien" means an individual whose residence is
not within the Philippines and who is not a citizen thereof.
(H) The term "resident foreign corporation" applies to a foreign
corporation engaged in trade or business within the Philippines.
(I) The term 'nonresident foreign corporation' applies to a foreign
corporation not engaged in trade or business within the Philippines.
(J) The term "fiduciary" means a guardian, trustee, executor,
administrator, receiver, conservator or any person acting in any fiduciary
capacity for any person.
***(K) The term "withholding agent" means any person required to 'Taxable year' includes, in the case of a return made for a fractional part of
deduct and withhold any tax under the provisions of Section 57. a year under the provisions of this Title or under rules and regulations
prescribed by the Secretary of Finance, upon recommendation of the
commissioner, the period for which such return is made.
(L) The term "shares of stock" shall include shares of stock of a
corporation, warrants and/or options to purchase shares of stock, as well
as units of participation in a partnership (except general professional ***(Q) The term "fiscal year" means an accounting period of twelve
partnerships), joint stock companies, joint accounts, joint ventures taxable (12) months ending on the last day of any month other than December.
as corporations, associations and recreation or amusement clubs (such as
golf, polo or similar clubs), and mutual fund certificates.
(R) The terms "paid or incurred" and 'paid or accrued' shall be construed
according to the method of accounting upon the basis of which the net
(M) The term "shareholder" shall include holders of a share/s of stock, income is computed under this Title.
warrant/s and/or option/s to purchase shares of stock of a corporation, as
well as a holder of a unit of participation in a partnership (except general
professional partnerships) in a joint stock company, a joint account, a
(S) The term "trade or business" includes the performance of the
taxable joint venture, a member of an association, recreation or amusement
functions of a public office.
club (such as golf, polo or similar clubs) and a holder of a mutual fund
certificate, a member in an association, joint-stock company, or insurance
company.
(T) The term "securities" means shares of stock in a corporation and rights
to subscribe for or to receive such shares.
(N) The term "taxpayer" means any person subject to tax imposed by this
Title.
The term includes bonds, debentures, notes or certificates, or other
evidence or indebtedness, issued by any corporation, including those
issued by a government or political subdivision thereof, with interest
(O) The terms "including" and "includes", when used in a definition
coupons or in registered form.
contained in this Title, shall not be deemed to exclude other things
otherwise within the meaning of the term defined.

(U) The term "dealer in securities" means a merchant of stocks or

securities, whether an individual, partnership or corporation, with an
***(P) The term "taxable year" means the calendar year, or the fiscal
established place of business, regularly engaged in the purchase of
year ending during such calendar year, upon the basis of which the
securities and the resale thereof to customers; that is, one who, as a
net income is computed under this Title.
merchant, buys securities and re-sells them to customers with a view to the
gains and profits that may be derived therefrom.

11
(V) The term "bank" means every banking institution, as defined in Section
2 of Republic Act No. 337, as amended, otherwise known as the General
banking Act.
A bank may either be a commercial bank, a thrift bank, a development
bank, a rural bank or specialized government bank.
(W) The term "non-bank financial intermediary" means a financial
intermediary, as defined in Section 2(D)(C) of Republic Act No. 337, as
amended, otherwise known as the General Banking Act, authorized by the
Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking activities.
These instruments may include, but need not be limited to bankers'
acceptances, promissory notes, repurchase agreements, including reverse
repurchase agreements entered into by and between the Bangko Sentral
ng Pilipinas (BSP) and any authorized agent bank, certificates of
assignment or participation and similar instruments with recourse:
Provided, however, That debt instruments issued for interbank call loans
with maturity of not more than five (5) days to cover deficiency in reserves
against deposit liabilities, including those between or among banks and
quasi-banks, shall not be considered as deposit substitute debt
instruments.
***(Z) The term "ordinary income" includes any gain from the sale or
exchange of property which is not a capital asset or property
described in Section 39(A)(1).

(X) The term "quasi-banking activities" means borrowing funds from

twenty (20) or more personal or corporate lenders at any one time, through
Any gain from the sale or exchange of property which is treated or
the issuance, endorsement, or acceptance of debt instruments of any kind
considered, under other provisions of this Title, as 'ordinary income' shall
other than deposits for the borrower's own account, or through the issuance
be treated as gain from the sale or exchange of property which is not a
of certificates of assignment or similar instruments, with recourse, or of
capital asset as defined in Section 39(A)(1).
repurchase agreements for purposes of relending or purchasing
receivables and other similar obligations: Provided, however, That
commercial, industrial and other non-financial companies, which borrow
funds through any of these means for the limited purpose of financing their The term 'ordinary loss' includes any loss from the sale or exchange of
own needs or the needs of their agents or dealers, shall not be considered property which is not a capital asset.
as performing quasi-banking functions.

Any loss from the sale or exchange of property which is treated or

(Y) The term "deposit substitutes" shall mean an alternative from of
obtaining funds from the public (the term 'public' means borrowing from
twenty (20) or more individual or corporate lenders at any one time) other
than deposits, through the issuance, endorsement, or acceptance of debt
instruments for the borrowers own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing their own
needs or the needs of their agent or dealer.
considered, under other provisions of this Title, as 'ordinary loss' shall be
treated as loss from the sale or exchange of property which is not a capital
asset.
(AA) The term "rank and file employees" shall mean all employees who
are holding neither managerial nor supervisory position as defined under
existing provisions of the Labor Code of the Philippines, as amended.

12
(BB) The term "mutual fund company" shall mean an open-end and
close-end investment company as defined under the Investment Company
Act. II. GENERAL PRINCIPLES AND INCOME FROM SOURCES WITHIN

THE PHILIPPINES

(CC) The term "trade, business or profession" shall not include (SEC 22& 42, NIRC)
performance of services by the taxpayer as an employee.

***(DD) The term "regional or area headquarters" shall mean a branch

12. MEMORIZE
established in the Philippines by multinational companies and which
headquarters do not earn or derive income from the Philippines and
which act as supervisory, communications and coordinating center
for their affiliates, subsidiaries, or branches in the Asia-Pacific Region SEC. 23. General Principles of Income Taxation in the Philippines-
and other foreign markets. Except when otherwise provided in this Code:

(A) A citizen of the Philippines residing therein is taxable on all income

***(EE) The term "regional operating headquarters" shall mean a
branch established in the Philippines by multinational companies
which are engaged in any of the following services: general
administration and planning; business planning and coordination;
sourcing and procurement of raw materials and components;
corporate finance advisory services; marketing control and sales
promotion; training and personnel management; logistic services;
research and development services and product development;
technical support and maintenance; data processing and
communications; and business development.
derived from sources within and without the Philippines;
(B) A nonresident citizen is taxable only on income derived from sources
within the Philippines;
(C) An individual citizen of the Philippines who is working and deriving
income from abroad as an overseas contract worker is taxable only on
income derived from sources within the Philippines: Provided, That a
seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the
complement of a vessel engaged exclusively in international trade shall
be treated as an overseas contract worker;

(D) An alien individual, whether a resident or not of the Philippines, is

(FF) The term "long-term deposit or investment certificates" shall refer to taxable only on income derived from sources within the Philippines;
certificate of time deposit or investment in the form of savings, common or
(E) A domestic corporation is taxable on all income derived from sources
individual trust funds, deposit substitutes, investment management
within and without the Philippines; and
accounts and other investments with a maturity period of not less than five
(5) years, the form of which shall be prescribed by the Bangko Sentral ng (F) A foreign corporation, whether engaged or not in trade or business in
Pilipinas (BSP) and issued by banks only (not by nonbank financial the Philippines, is taxable only on income derived from sources within the
intermediaries and finance companies) to individuals in denominations of Philippines.
Ten thousand pesos (P10,000) and other denominations as may be
prescribed by the BS.

13. CORRELATE: SECTION 22, NIRC DEFINITIONS OF:

13
I. The term "domestic", when applied to a corporation, means
created or organized in the Philippines or under its laws
II. The term "foreign", when applied to a corporation, means a
corporation which is not domestic
III. The term "nonresident citizen" means:
(1) A citizen of the Philippines who establishes to the satisfaction
of the Commissioner the fact of his physical presence abroad with
a definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during
the taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from
abroad and whose employment thereat requires him to be
physically present abroad most of the time during the taxable year.
(4) A citizen who has been previously considered as nonresident
citizen and who arrives in the Philippines at any time during the
taxable year to reside permanently in the Philippines shall likewise
be treated as a nonresident citizen for the taxable year in which
he arrives in the Philippines with respect to his income derived
from sources abroad until the date of his arrival in the Philippines.
The taxpayer shall submit proof to the Commissioner to show his
intention of leaving the Philippines to reside permanently abroad
or to return to and reside in the Philippines as the case may be for
purpose of this Section.
IV. The term "resident alien" means an individual whose
residence is within the Philippines and who is not a citizen thereof.
V. The term "nonresident alien" means an individual whose
residence is not within the Philippines and who is not a citizen
thereof.
VI. The term "resident foreign corporation" applies to a foreign
corporation engaged in trade or business within the Philippines.
14
VII. The term 'nonresident foreign corporation' applies to a
foreign corporation not engaged in trade or business within the
Philippines.
14.) SECTION 42, NIRC
SEC. 42. Income from Sources Within the Philippines. -
(A) Gross Income From Sources Within the Philippines. - The
following items of gross income shall be treated as gross income
from sources within the Philippines:
(1) Interests. - Interests derived from sources within the
Philippines, and interests on bonds, notes or other interest-
bearing obligation of residents, corporate or otherwise;
(2) Dividends. - The amount received as dividends:.
(a) from a domestic corporation; and
(b) from a foreign corporation, unless less than fifty percent (50%)
of the gross income of such foreign corporation for the three-year
period ending with the close of its taxable year preceding the
declaration of such dividends or for such part of such period as
the corporation has been in existence) was derived from sources
within the Philippines as determined under the provisions of this
Section; but only in an amount which bears the same ration to
such dividends as the gross income of the corporation for such
period derived from sources within the Philippines bears to its
gross income from all sources.
(3) Services - Compensation for labor or personal services
performed in the Philippines; (4) Rentals and Royalties. - Rentals
and royalties from property located in the Philippines or from any
interest in such property, including rentals or royalties for - (a) The
use of or the right or privilege to use in the Philippines any
copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or
right; (b) The use of, or the right to use in the Philippines any
industrial, commercial or scientific equipment; (c) The supply of
scientific, technical, industrial or commercial knowledge or
information; (d) The supply of any assistance that is ancillary and
subsidiary to, and is furnished as a means of enabling the
application or enjoyment of, any such property or right as is
mentioned in paragraph (a), any such equipment as is mentioned
in paragraph (b) or any such knowledge or information as is
mentioned in paragraph (c); (e) The supply of services by a
nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from such
nonresident person; (f) Technical advice, assistance or services
rendered in connection with technical management or
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme; and (g) The use of or the
right to use: (i) Motion picture films;
(ii) Films or video tapes for use in connection with television; and
(iii) Tapes for use in connection with radio broadcasting.
(5) Sale of Real Property - Gains, profits and income from the
sale of real property located in the Philippines; and
(6) Sale of Personal Property. - Gains; profits and income from
the sale of personal property, as determined in Subsection (E) of
this Section.
15
(B) Taxable Income From Sources Within the Philippines. - (1)
General Rule. - From the items of gross income specified in
Subsection (A) of this Section, there shall be deducted the
expenses, losses and other deductions properly allocated thereto
and a ratable part of expenses, interests, losses and other
deductions effectively connected with the business or trade
conducted exclusively within the Philippines which cannot
definitely be allocated to some items or class of gross income:
Provided, That such items of deductions shall be allowed only if
fully substantiated by all the information necessary for its
calculation.
The remainder, if any, shall be treated in full as taxable income
from sources within the Philippines.
(2) Exception. - No deductions for interest paid or incurred abroad
shall be allowed from the item of gross income specified in
subsection (A) unless indebtedness was actually incurred to
provide funds for use in connection with the conduct or operation
of trade or business in the Philippines.
(C) Gross Income From Sources Without the Philippines. -
The following items of gross income shall be treated as income
from sources without the Philippines: (1) Interests other than those
derived from sources within the Philippines as provided in
paragraph (1) of Subsection (A) of this Section; (2) Dividends
other than those derived from sources within the Philippines as
provided in
paragraph (2) of Subsection (A) of this Section; (3) Compensation
for labor or personal services performed without the Philippines;
(4) Rentals or royalties from property located without the
Philippines or from any interest in
such property including rentals or royalties for the use of or for the
privilege of using
without the Philippines, patents, copyrights, secret processes and
formulas, goodwill,
trademarks, trade brands, franchises and other like properties;
and (5) Gains, profits and income from the sale of real property
located without the Philippines.
(D) Taxable Income From Sources Without the Philippines. -
From the items of gross income specified in Subsection (C) of this
Section there shall be deducted the expenses, losses, and other
deductions properly apportioned or allocated thereto and a ratable
part of any expense, loss or other deduction which cannot
definitely be allocated to some items or classes of gross income.
The remainder, if any, shall be treated in full as taxable income
from sources without the Philippines.
(E) Income From Sources Partly Within and Partly Without the
Philippines. - Items of gross income, expenses, losses and
deductions, other than those specified in Subsections (A) and (C)
of this Section, shall be allocated or apportioned to sources within
or without the Philippines, under the rules and regulations
prescribed by the Secretary of Finance, upon recommendation of
the Commissioner.
Where items of gross income are separately allocated to sources
within the Philippines, there shall be deducted (for the purpose of
computing the taxable income therefrom) the expenses, losses
and other deductions properly apportioned or allocated thereto
and a ratable part of other expenses, losses or other deductions
which cannot definitely be allocated to some items or classes of
gross income.
16
The remainder, if any, shall be included in full as taxable income
from sources within the Philippines.
In the case of gross income derived from sources partly within and
partly without the Philippines, the taxable income may first be
computed by deducting the expenses, losses or other deductions
apportioned or allocated thereto and a ratable part of any
expense, loss or other deduction which cannot definitely be
allocated to some items or classes of gross income; and the
portion of such taxable income attributable to sources within the
Philippines may be determined by processes or formulas of
general apportionment prescribed by the Secretary of Finance.
Gains, profits and income from the sale of personal property
produced (in whole or in part) by the taxpayer within and sold
without the Philippines, or produced (in whole or in part) by the
taxpayer without and sold within the Philippines, shall be treated
as derived partly from sources within and partly from sources
without the Philippines.
Gains, profits and income derived from the purchase of personal
property within and its sale without the Philippines, or from the
purchase of personal property without and its sale within the
Philippines shall be treated as derived entirely form sources within
the country in which sold: Provided, however, That gain from the
sale of shares of stock in a domestic corporation shall be treated
as derived entirely form sources within the Philippines regardless
of where the said shares are sold.
The transfer by a nonresident alien or a foreign corporation to
anyone of any share of stock issued by a domestic corporation
shall not be effected or made in its book unless: (1) the transferor
has filed with the Commissioner a bond conditioned upon the
future payment by him of any income tax that may be due on the
 gains derived from such transfer, or (2) the Commissioner has
certified that the taxes, if any, imposed in this Title and due on the
gain realized from such sale or transfer have been paid.
It shall be the duty of the transferor and the corporation the shares
of which are sold or transferred, to advise the transferee of this
requirement.
(F) Definitions. - As used in this Section the words "sale" or "sold"
include "exchange" or "exchanged"; and the word "produced"
includes "created", "fabricated", "manufactured", "extracted",
"processed", "cured" or "aged".
III. SALIENT FEATURES OF THE PRESENT INCOME TAX SYSTEM AND
OTHER RELATED CONCEPTS
15. Individual Income Taxation
15.a. Schedular Tax Treatment
In a schedular system, income items are categorized into
schedules according to the type of activity which produced them.
Different tax rates are applied for each type of income, one set of
tax rates for salaries and wages, another set of rates for
business income and so on. Its main thrust is the type of income
than the characteristic of the taxpayer.
1. It classifies income.
2. Provides different tax rules.
3. It imposes different tax rates.
15.b. Net Income Taxation
17
Gross income less statutory deductions and exemptions. Net
income must be computed with respect to a fixed period or
taxable year. That period is normally a calendar year, covering
12 mos. ending in December 31st of every year, except in the
case of a corporation filing returns on a fiscal year.
Items of income and of expenditures, which, as gross
income and deductions, are elements in the computation of
net income, need not to be in the form of cash. It is sufficient
that such items ay be appraised in terms of money.
1. Resident Citizen (RC)
2. Non- resident Citizen (NRC)
3. Resident alien (RA)
4. Non-resident alien engaged in trade or business (NRA-
ETB)
15.c. Gross Income Taxation
Means income, gain, or profit subject to income tax. It includes
compensation for personal services, business income, profits,
and income derived from any source whatever (illegal or legal),
unless it is exempt from income tax by law or subject to final
withholding income tax in accordance with the semi-global or
semi- scheduler tax system adapted by PH. It is the difference
between Gross Sales (for sellers of goods) or Gross Revenue
(for sellers of service) and the Cost of Goods Sold and Cost of
Service. The definition of gross income is broad and
comprehensive to include proceeds from sales of transport
documents.
Non- Resident alien engages in trade or business (NRA-
NETB)
15.d. Income Tax Situs
1. Residence – RA, RC
 2. Place- NRA, NRC ITR, whether for an individual or for cop, assoc, or partnership,
3. Citizenship- RC are required to be filed on Dec. 31st of every year
- Individual taxpayers (compensation earners) except NRA-NETB
are entitled to personal exemptions.
16.f. Fiscal Period

16. Corporate Income Taxation corporation, assoc, or partnership may with the approval of the
Commissioner of IR, file their returns and compute their income
on the basis of a fiscal year

16.a. Global Tax Treatment - an accounting period of 12 months ending on the last day of the
month other than Dec.
1. It generally provides for uniform rules.
DOES NOT APPLY TO - individual taxpayer
2. It generally provides uniform tax rate.
16.g. Short Period
3. It does not generally classify income.
an accounting period of a taxpayer for less than 12 mos., as
when the annual accounting period of a subsidiary is changed to
conform with the annual accounting period adopted by its foreign
16.b. Net Income Taxation
parent company for easy consolidation of their audited worldwide
1. Domestic Corporation (DC) financial statements.

2. Resident Foreign Corporation (RFC) 16.h. Instance when a taxpayer may have a short taxable period

16.c. Gross Income Taxation

1. Non- Resident Foreign Corporation (NRFC) 17. Common Features

17.a. Pay as you File System

16.d. Income Tax Situs 1. Individuals- upon filing of their income tax returns

1. Residence- RFC 2. Corporations- upon filing of their quarterly corporate income

tax returns and final adjustment corporate returns.
2. Place- NRFC

3. Nationality- DC
17.b. Creditable Withholding Tax

SEC 57 B. Withholding of Creditable Tax at Source.— The

16.e. Calendar Period Secretary of Finance may, upon the recommendation of the
Commissioner, require the withholding of a tax on the items of
income payable to natural or juridical persons, residing in the

18
 Philippines, by payor-corporation/persons as provided for by law,
at the rate of not less than one percent (1%) but not more than
thirty-two percent (32%) thereof, which shall be credited against
the income tax liability of the taxpayer for the taxable year:
Provided, That, beginning January 1, 2019, the rate of
withholding shall not be less than one percent (1%) but not more
than fifteen percent (15%) of the income payment.

*AMENDED SEC 17. RA 10963 TRAIN LAW

17.c. Final Withholding Tax

SEC 57. A. Withholding of Final Tax on Certain Incomes. -

Subject to rules and regulations the Secretary of Finance may
promulgate, upon the recommendation of the Commissioner,
requiring the filing of income tax return by certain income
payees, the tax imposed or prescribed by Sections 24(B)(1),
24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C),
25(D), 25(E), 27(D)(!), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4),
28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2),
28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and
282 of this Code on specified items of income shall be withheld
by payor-corporation and/or person and paid in the same
manner and subject to the same conditions as provided in
Section 58 of this Code.

17.d. Revenue Regulations 2-98

REVENUE REGULATIONS NO. 2-98 issued May 17, 1998

prescribes the regulations to implement Republic Act (RA) No.
8424 relative to the Withholding on Income subject to the
Expanded Withholding Tax and Final Withholding Tax,
Withholding of Income Tax on Compensation, Withholding of
Creditable Value- Added Tax and Other Percentage Taxes. Said
Regulations will take effect on compensation income paid
beginning January 1,1998. No penalties for non-compliance with
the new features of the Tax Code will apply until May 15, 1998.

19
 CASES
PART I:
EUGENIO PEREZ V CTA GR. NO. L-10507 MAY 30, 1958
Facts:
Petitioner was assessed by the Collector with deficiency tax due to its
increase in net worth. In making the deficiency assessments, the Collector
employed what is known as the "net worth" technique and started by
determining the opening net worth of petitioner at the start of the year
1947 which he fixed at P936.72. The Court of Tax Appeals declared the
"net worth" method of determining understated income to have been
validly and properly applied; found that the consistent underdeclaration of
income, unexplained acquisition of properties, and the fact of petitioner's
having claimed fictitious losses evidenced fraudulent intent, and ordered
him to pay deficiency income taxes and surcharges in the sum of
P241,547.77.
Issue:
(1) Whether the Collector of Internal Revenue is empowered by law
toinvestigate appellant's (petitioner) income tax returns for 1947, 1948,
and1949 and to enforce collection of the alleged deficiency income taxes
for saidyears by summary proceedings of distraint and levy more than
three yearsafter the income tax returns covering them were filed
(2) Whether the use ofthe "net worth" method by the respondent in
computing appellant's netincome is valid
Ruling:
(1) No. Reiteratirg a long line of decisions to the effect that thethree-year
prescriptive period under section 51 (d) of the National InternalRevenue
Code constituted a limitation to the right of the government to enforce the
collection of income taxes by summary proceedings of distraintand levy,
though, it could proceed to recover the taxes due by the institutionof the
corresponding civil action. Nevertheless, the appealof the taxpayer vested
jurisdiction on the Court of Tax Appeals to reviewand determine his tax
liability for the aforesaid period.
20
(2) Yes. This method of proving unreported income, according to the
Court of TaxAppeals, is based upon the general theory that money and
other assets inexcess of liabilities of a taxpayer (after an accurate and
proper adjustment ofnon- deductible items) not accounted for by his
income tax returns, leads tothe inference that part of his income has not
been reported (p. 6, B.T.A. 189).There is no question that the application
of the "net worth" method ofdetermining the taxable income of a taxpayer
has been an accepted practice.
In fine, we hold:
That section 38 of our National Internal Revenue Code authorizes the
application of the Net Worth Method in this jurisdiction (Baiter, Fraud
Under Fed.Tax Law, sec. 224; Vol. 2, 1951 CCH 386. Oil, Byer Net Worth
Technique for Determining Income, supra: Holland vs. U.S., supra; Estate
of Bartley, 22 U.S.Tax Ct. lep. 1230; Hurley, 22 U. S. Tax Ct. Rep. 1264;
S B.T.A. 169).
That no civil cases, the Government need not prove the specific source of
income (this is reasonable on the basic assumption that most assets are
derived from a taxable source and that when this is not true the taxpayer
is in a position to explain the discrepancy, {see Holland case, supra);
That the determination of the tax deficiency by the Government has prima
facie validity and the burden rests upon the taxpayer to overcome this
presumption and to show to the satisfaction of the Tax Court that the
determination was not correct (Archer vs. Commissioner, supra; Thomas
vs. Commissioner, supra; Laughinghouse vs. Commissioner, sutra:
William Lias, 24 T.C. No. 23,May 26, 1955, Virginia Law Review, 41 p. 7;
Halle, 7 T.C. 245, aff'd 175 F. 2d 500, 339 U.S. 949; Byer, "Net Worth
Technique for Determining Income").
And finally, that no sufficient grounds exist to warrant a reversal of the
findings of fraud of the lower court as being "clearly erroneous"; on the
contrary, we find them supported by reason.
COMMISSIONER OF INTERNAL REVENUE V FARCON MARKETING
CORP. CTA EB NO. 1306 (CTA CASE O. 8367), NOV. 21, 2016
CIR V PASCOR REALTY AND DEVELOPMENT CORP. GR NO. 128345
JUNE 29, 1999
Facts: The CIR authorized certain BIR officers to examine the
books of accounts and other accounting records of Pascor
Realty and Development Corp. (PRDC) for 1986, 1987 and
1988. The examination resulted in recommendation for the
issuance of an assessment of P7,498,434.65 and P3,015,236.35
for 1986 and 1987, respectively.
On March 1, 1995, Commissioner filed a criminal complaint for
tax evasion against PRDC, its president and treasurer before the
DOJ. Private respondents filed immediately an urgent request for
reconsideration on reinvestigation disputing the tax assessment
and tax liability.
On March 23, 1995, private respondents received a subpoena
from the DOJ in connection with the criminal complaint. In a
letter dated, May 17, 1995, the Commissioner denied private
respondent’s request for reconsideration (reinvestigation on the
ground that no formal assessment has been issued which the
latter elevated to the CTA on a petition for review. The
Commissioner’s motion to dismiss on the ground of the CTA’s
lack of jurisdiction inasmuch as no formal assessment was
issued against private respondent was denied by CTA and
ordered the Commissioner to file an answer but did not instead
filed a petition with the CA alleging grave abuse of discretion and
lack of jurisdiction on the part of CTA for considering the
affidavit/report of the revenue officers and the endorsement of
said report as assessment which may be appealed to he CTA.
The CA sustained the CTA decision and dismissed the petition.
Issues:
21
1. Whether or not the criminal complaint for tax evasion can be
construed as an assessment.
2. Whether or not an assessment is necessary before criminal
charges for tax evasion may be instituted.
Held:
The filing of the criminal complaint with the DOJ cannot be
construed as a formal assessment. Neither the Tax Code nor the
revenue regulations governing the protest assessments provide
a specific definition or form of an assessment.
An assessment must be sent to and received by the taxpayer,
and must demand payment of the taxes described therein within
a specific period. The revenue officer’s affidavit merely contained
a computation of respondent’s tax liability. It did not state a
demand or period for payment. It was addressed to the
Secretary of Justice not to the taxpayer. They joint affidavit was
meant to support the criminal complaint for tax evasion; it was
not meant to be a notice of tax due and a demand to private
respondents for the payment thereof. The fact that the complaint
was sent to the DOJ, and not to private respondent, shows that
commissioner intended to file a criminal complaint for tax
evasion, not to issue an assessment.
An assessment is not necessary before criminal charges can be
filed. A criminal charge need not only be supported by a prima
facie showing of failure to file a required return. The CIR had, in
such tax evasion cases, discretion on whether to issue an
assessment, or to file a criminal case against the taxpayer, or to
do both.
UNGAB V CUSI GR NO.L-419419-24 MAY 30, 1980
FACTS: In July 1974, Quirico Ungab filed his income tax return. He was
subjected to a tax audit and the tax examiner was convinced that Ungab
filed a fraudulent return. He was issued an assessment demanding
payment of P104k in taxes. At the same time, the tax examiner
recommended the filing of criminal cases of tax evasion against Ungab.
Meanwhile, Ungab filed a protest with the Commissioner of Internal
Revenue (CIR).
Acting on the recommendation of the tax examiner, a state prosecutor
filed 6 informations against Ungab for various violations of the National
Internal Revenue Code. The informations were filed with Court of First
Instance of Davao presided by Judge Vicente Cusi, Jr. Ungab filed a
motion to quash the informations on the ground that his pending protest
with the CIR has not yet been acted upon hence the assessment is not
yet final and executory and therefore the trial court has no jurisdiction yet
over the criminal cases.
ISSUE: Whether or not Ungab is correct.
HELD: No. What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed
by the Court of Tax Appeals, but a criminal prosecution for violations of
the National Internal Revenue Code (NIRC) which is within the
cognizance of courts of first instance (regional trial courts). While there
can be no civil action to enforce collection before the assessment
procedures provided in the NIRC 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. In fact, there is not
even a requirement that an assessment first be issued before a criminal
case for violation of the NIRC be filed.
SPLASH CORPORATION V CIR CTA. CASE NO. 8483 18 AUG 2017
AMENDED DECISION
22
DEL ROSARIO, PJ:
For resolution are the following:
1. Petitioner's Motion for Partial Reconsideration filed on April 25, 2017,
without respondent's comment as per Records Verification dated June 29,
2017; and
2. Respondent's Motion for Partial Reconsideration (re: Decision
promulgated on 06 April 2017) filed on April 25, 2017, with petitioner's
Comment/ Opposition (to Respondent's Motion for Partial
Reconsideration dated April 24, 2017) filed on June 23, 2017.
Both Motions assail the Decision promulgated on April 6, 2017 ("Assayed
Decision"). The dispositive portion thereof states:
“WHEREFORE, premises considered the Petition for Review is
PARTIALLY GRANTED The Final Assessment Notice dated August 18,
2011, assessing petitioner for deficiency income tax, value-added tax,
expanded withholding tax and compromise penalty is MODIFIED so as to
reflect the basic deficiency income tax assessment amounting to P105
580 605.01, basic value added-tax assessment amounting to
P7,872,021.91 and basic deficiency expanded withholding tax amounting
to P413,950.00.
Accordingly, petitioner is hereby ORDERED to pay respondent the
REDUCED AMOUNT of ONE HUNDRED FORTY-TWO MILLION THREE
HUNDRED THIRTY-THREE THOUSAND TWO HUNDRED TWENTY-
ONE PESOS AND 15/100 (P142,333,221.15), inclusive of 25% surcharge
imposed under Section 248(A)(3) of the NIRC of 1997, as amended,
computed as follows:
 Expanded Withholding Tax

Tax Type

413,950.00

Basic Tax

103,487.50

25% Surcharge

517,437.50

Total

Total

Income Tax

P113,866,576.92

P105,580,605.01

P28.466.644.23

P26.395.151.25

P142.333.221.15

P131.975.756.26

Value Added Tax In addition, petitioner is ORDERED to pay:

7,872,021.91 a. Deficiency interest at the rate of 20% per annum on the basic
deficiency income tax of P105,580,605.01 computed from April 15, 2009
until full payment thereof pursuant to Section 249(B) of the NIRC of 1997,
1,968,005.48 as amended;

9,840,027.39 b. Delinquency interest at the rate of 20 per annum on the total amount
due of P142,333,221.15 representing deficiency income tax, deficiency
VAT and deficiency EWT, inclusive of the 25% surcharge, computed from

23
October 31, 2011 until full payment thereof, pursuant to Section 249(C) of
the NIRC of 1997, as amended; and,
c. Delinquency interest at the rate of 20% per annum on the 20%
deficiency interest which have accrued as afore-stated in (a) computed
from October 31, 2011 until full payment thereof, pursuant to Section
249(C) of the NIRC of 1997, as amended.
SO ORDERED.”
Petitioner’s Motion for Partial Reconsideration
In its Motion for Partial Reconsideration, petitioner prays that the Court
reverse and set aside the Assailed Decision and promulgate a new one
cancelling the Final Assessment Notice issued by respondent on
September 7, 2011, based on the following grounds:
1. Petitioner is not liable for income tax on income derived from the sale of
technologies in accordance with Section 6 of the Inventors and Invention
Incentives Act of the Philippines (Republic Act No. 7459);
2. The Bureau of Internal Revenue (BIR) itself has recognized through
several general interpretative rulings as well as specific rulings it issued
that the benefits under Section 6 apply to income from the sale of
inventions and technologies, even if commercialization is done through a
corporation;
3. The assessment is void for having been carried out without a valid
letter of authority (LOA);
24
4. The decisions in Commissioner of Internal Revenue vs. Splash
Corporation, CTA EB No. 330, May 5, 2008 and Commissioner of Internal
Revenue vs. Splash Corporation, G.R. No. 183160, August 4, 2004 are
stare decisis;
5. The waivers did not validly extend the prescriptive period, the same
being executed in violation of Revenue Memorandum Order (RMO) No.
20-90 and thus are void; and,
6. Since the instant case involves a difficult interpretation of the law,
deficiency and delinquency interest should not be imposed.1
Respondent’s Motion for Partial Reconsideration
In moving for the reconsideration of the assailed Decision, respondent
contends in his Motion for Partial Reconsideration that:
1. Petitioner is liable for deficiency income tax and value-added tax (VAT)
due to under-declared sales amounting to P56,587,354.52;
2. Petitioner's minimum corporate income tax (MCIT) and its income tax
credits carried over to the succeeding period amounting to
P21,491,889.88 should have been deducted from petitioner's income tax
credits in arriving at petitioner's deficiency tax liabilities for the taxable
year 2008;
3. Petitioner is liable for deficiency expanded withholding tax (EWT) at the
rate of 5% on its payment of display allowances amounting to
P43,959,957.66; and,
4. Petitioner is liable for compromise penalties amounting to P75.000.00
and P125,000.00.2
In its Comment/ Opposition, petitioner counters that the foregoing
arguments relied upon by respondent are the same issues and arguments
passed upon by the Court in the Assailed Decision. In the absence of any
new and compelling reasons that warrant the nullification and reversal of
the Court’s findings, petitioner submits that the respondent’s Motion for
Partial Reconsideration must be denied.
In addition, petitioner reiterates that the tax assessment issued by
respondent against petitioner has already prescribed considering that the
three (3) waivers it executed are invalid for failure to strictly comply with
the requirements of RMO No. 20-90. Petitioner invokes the ruling in
Commissioner of Internal Revenue vs. Philippine Daily Inquirer3 that a
taxpayer is not estopped from questioning the validity of waivers and that
the Bureau of Internal Revenue (BIR) cannot hide behind the doctrine of
estoppel to cover its failure to comply with RMO 20-90 and Revenue
Delegation Authority Order (RDAO) No. 05-01 which were issued by the
BIR itself.
THE COURT’S RULING
The Court notes that both Motions rely upon the same arguments passed
upon by the Court in the Assailed Decision, except petitioner's last
argument that deficiency and delinquency interest should not be imposed
since the instant case involves a difficult interpretation of the law.
Ordinarily, when the arguments and issues advanced in a party’s motion
for reconsideration are mere rehash and repetition of arguments
previously raised, which have been sufficiently considered and addressed
by the court in the assailed decision, there is no need to discuss the same
arguments again when the Court resolves the motion for reconsideration.
A motion for reconsideration which does not specify the findings and
conclusions of the Court that are allegedly contrary to law or not
25
supported by evidence, or which fails to substantiate the alleged error of
the Court, or which merely alleges that the decision in question was
contrary to law, may be denied for being pro forma.4
On the other hand, where the circumstances of a case do not show an
intent on the part of the movant to merely delay the proceedings, and the
motion reveals a bona fide effort to present additional matters or to
reiterate the previous arguments in a different light, the courts should be
slow to declare the motion for reconsideration outright as pro forma.5
As aforementioned, the bulk of the parties’ respective arguments are
mere rehash of their previous arguments which have been passed upon
by the Court in the assailed Decision. With respect to petitioner’s
argument that the assessment issued against it is void for having been
carried out without a valid LOA, the Court notes that, although this issue
has been resolved in the assailed Decision, its findings and conclusions
thereon must be re-visited in light of the pronouncement of the Supreme
Court in Medicard Philippines Inc. vs. Commissioner of Internal Revenue6
specifically on the matter of the authority of the revenue officers who
conducted the audit and examination of the taxpayer's books of accounts
and other accounting records.
Interestingly, the decision in Medicard,7 supra, was rendered on April 5,
2017 or one day before the assailed Decision subject of the present
controversy was rendered.
In Medicard, the Supreme Court declared as void the disputed
assessment for lack of an LOA authorizing the revenue officers to
examine the taxpayer’s books of account and other accounting records,
albeit the issue was only brought up during trial, viz.:
"The absence of an LOA violated MEDICARD's right to due process
An LOA is the authority given to the appropriate revenue officer assigned
to perform assessment functions. It empowers or enables said revenue
officer to examine the books of account and other accounting records of a xxx xxx xxx. In fact, apart from being a statutory requirement, an LOA is
taxpayer for the purpose of collecting the correct amount of tax. An LOA is equally needed even under the BIR’s RELIEF System because the
premised on the fact that the examination of a taxpayer who has already rationale of requirement is the same whether or not the CIR conducts a
filed his tax returns is a power that statutorily belongs only to the CIR physical examination of the taxpayer’s records: to prevent undue
himself or his duly authorized representatives. Section 6 of the NIRC harassment of a taxpayer and level the playing field between the
clearly provides as follows: government’s vast resources for tax assessment, collection and
enforcement, on one hand, and the solitary taxpayer’s dual need to
prosecute its business while at the same time responding to the BIR
exercise of its statutory powers. The balance between these is achieved
Based on the afore-quoted provision, it is clear that unless authorized by by ensuring that any examination of the taxpayer by the BIR’s revenue
the CIR himself or by his duly authorized representative, through an LOA, officers is properly authorized in the first place by those to whom the
an examination of the taxpayer cannot ordinarily be undertaken. The discretion to exercise the power of examination is given by the statute.
circumstances contemplated under Section 6 where the taxpayer may be
assessed through best-evidence obtainable, inventory-taking, or
surveillance among others has nothing to do with the LOA. These are
simply methods of examining the taxpayer in order to arrive at the correct
amount of taxes. Hence, unless undertaken by the CIR himself or his duly
MODERN IMAGING SOLUTIONS INC. V CIR DIVISION CAE 8987 21 MARCH
authorized representatives, other tax agents may not validly conduct any
2017
of these kinds of examinations without prior authority
*SEPARATE
In this case, there is no dispute that no LOA was issued prior to the
issuance of a PAN and FAN against MEDICARD. Therefore no LOA was
also served on MEDICARD. The LN that was issued earlier was also not
converted into an LOA contrary to the above quoted provision.
Surprisingly, the CIR did not even dispute the applicability of the above
provision of RMO 32-2005 in the present case which is clear and
unequivocal on the necessity of an LOA for the assessment proceeding to
be valid. xxx xxx xxx.

In the case of Commissioner of Internal Revenue vs. Sony Philippines,

Inc., the Court said that:

Clearly, there must be a grant of authority before any revenue officer can
conduct an examination or assessment. Equally important is that the
revenue officer so authorized must not go beyond the authority given. In
the absence of such an authority, the assessment or examination is a
nullity. (Emphasis and underscoring ours)

xxx xxx xxx

26
PART 2 CASES:
NATIONAL DEVELOPMENT CORP V CIR JUNE 30 1987
FACTS:
The National Development Company (NDC) entered into contracts in
Tokyo with several Japanese shipbuilding companies for the construction
of 12 ocean-going vessels. Initial payments were made in cash and
through irrevocable letters of credit. When the vessels were completed
and delivered to the NDC in Tokyo, the latter remitted to the shipbuilders
the amount of US$ 4,066,580.70 as interest on the balance of the
purchase price. No tax was withheld. The Commissioner then held the
NDC liable on such tax in the total sum of P5,115,234.74. Negotiations
followed but failed. NDC went to CTA. BIR was sustained by CTA. BIR
was sustained by CTA. Hence, this petition for certiorari.
ISSUE:
Is NDC liable for the tax?
RULING:
Yes.
Although NDC is not the one taxed since it was the Japanese shipbuilders
who were liable on the interest remitted to them under Section 37 of the
Tax Code, still, the imposition is valid.
The imposition of the deficiency taxes on NDC is a penalty for its failure to
withhold the same from the Japanese shipbuilders. Such liability is
imposed by Section 53c of the Tax Code. NDC was remiss in the
discharge of its obligation as the withholding agent of the government and
so should be liable for the omission.
27
CIR V. MARUBENI CORP GR. NO. 137377 DEC18 2001
Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist
from collecting the 1985 deficiency income, branch profit remittance and
contractor’s taxes from Marubeni Corp after finding the latter to have
properly availed of the tax amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in general import and export
trading, financing and construction, is duly registered in the Philippines
with Manila branch office. CIR examined the Manila branch’s books of
accounts for fiscal year ending March 1985, and found that respondent
had undeclared income from contracts with NDC and Philphos for
construction of a wharf/port complex and ammonia storage complex
respectively.
On August 27, 1986, Marubeni received a letter from CIR assessing it for
several deficiency taxes. CIR claims that the income respondent derived
were income from Philippine sources, hence subject to internal revenue
taxes. On Sept 1986, respondent filed 2 petitions for review with CTA: the
first, questioned the deficiency income, branch profit remittance and
contractor’s tax assessments and second questioned the deficiency
commercial broker’s assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes
for 1981-85, and that taxpayers who wished to avail this should on or
before Oct 31, 1986. Marubeni filed its tax amnesty return on Oct 30,
1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and
donor’s taxes under Title 3 and business tax under Chap 2, Title 5 of
NIRC, extended the period of availment to Dec 15, 1986 and stated those
who already availed amnesty under EO 41 should file an amended return
to avail of the new benefits. Marubeni filed a supplemental tax amnesty
return on Dec 15, 1986.

CTA found that Marubeni properly availed of the tax amnesty and deemed
cancelled the deficiency taxes. CA affirmed on appeal
Issue:
W/N Marubeni is exempted from paying tax
Held:
Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls
under the exception in Sec 4b of EO 41:
“Sec. 4. Exceptions.—The following taxpayers may not avail themselves
of the amnesty herein granted: xxx b) Those with income tax cases
already filed in Court as of the effectivity hereof;”
Petitioner argues that at the time respondent filed for income tax amnesty
on Oct 30, 1986, a case had already been filed and was pending before
the CTA and Marubeni therefore fell under the exception. However, the
point of reference is the date of effectivity of EO 41 and that the filing of
income tax cases must have been made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case questioning the 1985
deficiency was filed with CTA on Sept 26, 1986. When EO 41 became
effective, the case had not yet been filed. Marubeni does not fall in the
exception and is thus, not disqualified from availing of the amnesty under
EO 41 for taxes on income and branch profit remittance.
28
The difficulty herein is with respect to the contractor’s tax assessment
(business tax) and respondent’s availment of the amnesty under EO 64,
which expanded EO 41’s coverage. When EO 64 took effect on Nov 17,
1986, it did not provide for exceptions to the coverage of the amnesty for
business, estate and donor’s taxes. Instead, Section 8 said EO provided
that:
“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are
not contrary to or inconsistent with this amendatory Executive Order shall
remain in full force and effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO
41 and its date of effectivity. The general rule is that an amendatory act
operates prospectively. It may not be given a retroactive effect unless it is
so provided expressly or by necessary implication and no vested right or
obligations of contract are thereby impaired.
2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it
is still not liable for the deficiency tax because the income from the
projects came from the “Offshore Portion” as opposed to “Onshore
Portion”. It claims all materials and equipment in the contract under the
“Offshore Portion” were manufactured and completed in Japan, not in the
Philippines, and are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government
corporations NDC and Philphos. In the contracts, the prices were broken
down into a Japanese Yen Portion (I and II) and Philippine Pesos Portion
and financed either by OECF or by supplier’s credit. The Japanese Yen
Portion I corresponds to the Foreign Offshore Portion, while Japanese
Yen Portion II and the Philippine Pesos Portion correspond to the
Philippine Onshore Portion. Marubeni has already paid the Onshore
Portion, a fact that CIR does not deny.)
 CIR argues that since the two agreements are turn-key, they call for the
supply of both materials and services to the client, they are contracts for a
piece of work and are indivisible. The situs of the two projects is in the
Philippines, and the materials provided and services rendered were all
done and completed within the territorial jurisdiction of the Philippines.
Accordingly, respondent’s entire receipts from the contracts, including its
receipts from the Offshore Portion, constitute income from Philippine
sources. The total gross receipts covering both labor and materials should
be subjected to contractor’s tax (a tax on the exercise of a privilege of
selling services or labor rather than a sale on products).
the petitioner withholding taxes on the ceded reinsurance premiums to
which the latter protested the
assessment on the ground that the premiums are not subject to tax for the
premiums did not constitute income
from sources within the Philippines because the foreign reinsurers did not
engage in business in the Philippines,
and CIR's previous rulings did not require insurance companies to
withhold income tax due from foreign

companies.
Marubeni, however, was able to sufficiently prove in trial that not all its
work was performed in the Philippines because some of them were
completed in Japan (and in fact subcontracted) in accordance with the ISSUE: Are insurance companies not required to withhold tax on
provisions of the contracts. All services for the design, fabrication, reinsurance premiums ceded to foreign
engineering and manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in Japan. These insurance companies, which deprives the government from collecting the
services were rendered outside Philippines’ taxing jurisdiction and are tax due from them?
therefore not subject to contractor’s tax. Petition denied.

HELD: No. The power to tax is an attribute of sovereignty. It is a power

emanating from necessity. It is a

necessary burden to preserve the State's sovereignty and a means to

give the citizenry an army to resist an
PH GUARANTY CO. V CIR GR NO. L-2707 APRIL 30, 1965
aggression, a navy to defend its shores from invasion, a corps of civil
FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic servants to serve, public improvement
insurance company, entered into reinsurance
designed for the enjoyment of the citizenry and those which come within
contracts with foreign insurance companies not doing business in the the State's territory, and facilities and
country, thereby ceding to foreign
protection which a government is supposed to provide. Considering that
reinsurers a portion of the premiums on insurance it has originally the reinsurance premiums in question
underwritten in the Philippines. The premiums
were afforded protection by the government and the recipient foreign
paid by such companies were excluded by the petitioner from its gross reinsurers exercised rights and privileges
income when it file its income tax returns
guaranteed by our laws, such reinsurance premiums and reinsurers
for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. should share the burden of maintaining the
Consequently, the CIR assessed against
state.

29
 The petitioner's defense of reliance of good faith on rulings of the CIR
requiring no withholding of tax due on
reinsurance premiums may free the taxpayer from the payment of
surcharges or penalties imposed for failure to
pay the corresponding withholding tax, but it certainly would not exculpate
it from liability to pay such
withholding tax. The Government is not estopped from collecting taxes by
the mistakes or errors of its agents.
ALEXANDER HOWDEN & CO. LTD V CIR GR NO. L-19392, 14 APRIL 1965
In 1950 the Commonwealth Insurance Co., a domestic corporation,
entered into reinsurance contracts with 32 British insurance companies
not engaged in trade or business in the Philippines, whereby the former
agreed to cede to them a portion of the premiums on insurances on fire,
marine and other risks it has underwritten in the Philippines. Alexander
Howden & Co., Ltd., also a British corporation not engaged in business in
this country, represented the aforesaid British insurance companies. The
reinsurance contracts were prepared and signed by the foreign reinsurers
in England and sent to Manila where Commonwealth Insurance Co.
signed them.
Pursuant to the aforesaid contracts, Commonwealth Insurance Co., in
1951, remitted P798,297.47 to Alexander Howden & Co., Ltd., as
reinsurance premiums. In behalf of Alexander Howden & Co., Ltd.,
Commonwealth Insurance Co. filed in April 1952 an income tax return
declaring the sum of P798,297.47, with accrued interest thereon in the
amount of P4,985.77, as Alexander Howden & Co., Ltd.'s gross income
for calendar year 1951. It also paid the Bureau of Internal Revenue
P66,112.00 income tax thereon.
On May 12, 1954, within the two-year period provided for by law,
Alexander Howden & Co., Ltd. filed with the Bureau of Internal Revenue a
claim for refund of the P66,112.00, later reduced to P65,115.00, because
Alexander Howden & Co., Ltd. agreed to the payment of P977.00 as
30
income tax on the P4,985.77 accrued interest. A ruling of the
Commissioner of Internal Revenue, dated December 8, 1953, was
invoked, stating that it exempted from withholding tax reinsurance
premiums received from domestic insurance companies by foreign
insurance companies not authorized to do business in the Philippines.
Subsequently, Alexander Howden & Co., Ltd. instituted an action in the
Court of First Instance of Manila for the recovery of the aforesaid amount
claimed. Pursuant to Section 22 of Republic Act 1125 the case was
certified to the Court of Tax Appeals. On November 24, 1961 the Tax
Court denied the claim.
Plaintiffs have appealed, thereby squarely raising the following issues: (1)
Are portions of premiums earned from insurances locally underwritten by
a domestic corporation, ceded to and received by non-resident foreign
reinsurance companies, thru a non-resident foreign insurance broker,
pursuant to reinsurance contracts signed by the reinsurers abroad but
signed by the domestic corporation in the Philippines, subject to income
tax or not? (2) If subject thereto, may or may not the income tax on
reinsurance premiums be withheld pursuant to Sections 53 and 54 of the
National Internal Revenue Code?
Section 24 of the National Internal Revenue Code subjects to tax a non-
resident foreign corporation's income from sources within the Philippines.
The first issue therefore hinges on whether or not the reinsurance
premiums in question came from sources within the Philippines.
Appellants would impress upon this Court that the reinsurance premiums
came from sources outside the Philippines, for these reasons: (1) The
contracts of reinsurance, out of which the reinsurance premiums were
earned, were prepared and signed abroad, so that their situs lies outside
the Philippines; (2) The reinsurers, not being engaged in business in the
Philippines, received the reinsurance premiums as income from their
business conducted in England and, as such, taxable in England; and, (3)
Section 37 of the Tax Code, enumerating what are income from sources
within the Philippines, does not include reinsurance premiums.
The source of an income is the property, activity or service that produced
the income. 1 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. In the first place, the
reinsured, the liabilities insured and the risks originally underwritten by
Commonwealth Insurance Co., upon which the reinsurance premiums
and indemnity were based, were all situated in the Philippines. Secondly,
contrary to appellants' view, the reinsurance contracts were perfected in
the Philippines, for Commonwealth Insurance Co. signed them last in
Manila. The American cases cited are inapplicable to this case because in
all of them the reinsurance contracts were signed outside the jurisdiction
of the taxing State. And, thirdly, the parties to the reinsurance contracts in
question evidently intended Philippine law to govern. Article 11 thereof
provided for arbitration in Manila, according to the laws of the Philippines,
of any dispute arising between the parties in regard to the interpretation of
said contracts or rights in respect of any transaction involved.
Furthermore, the contracts provided for the use of Philippine currency as
the medium of exchange and for the payment of Philippine taxes.
Appellants should not confuse activity that creates income with business
in the course of which an income is realized. An activity may consist of a
single act; while business implies continuity of transactions. 2 An income
may be earned by a corporation in the Philippines although such
corporation conducts all its businesses abroad. Precisely, Section 24 of
the Tax Code does not require a foreign corporation to be engaged in
business in the Philippines in order for its income from sources within the
Philippines to be taxable. It subjects foreign corporations not doing
business in the Philippines to tax for income from sources within the
Philippines. If by source of income is meant the business of the taxpayer,
foreign corporations not engaged in business in the Philippines would be
exempt from taxation on their income from sources within the Philippines.
Furthermore, as used in our income tax law, "income" refers to the flow of
wealth. 3 Such flow, in the instant case, proceeded from the Philippines.
Such income enjoyed the protection of the Philippine Government. As
wealth flowing from within the taxing jurisdiction of the Philippines and in
consideration for protection accorded it by the Philippines, said income
should properly share the burden of maintaining the government.
31
Appellants further contend that reinsurance premiums not being among
those mentioned in Section 37 of the Tax Code as income from sources
within the Philippines, the same should not be treated as such. Section
37, however, is not an all-inclusive enumeration. It states that "the
following items of gross income shall be treated as gross income from
sources within the Philippines." It does not state or imply that an income
not listed therein is necessarily from sources outside the Philippines.
As to appellants' contention that reinsurance premiums constitute "gross
receipts" instead of "gross income", not subject to income tax, suffice it to
say that, as correctly observed by the Court of Tax Appeals, "gross
receipts" of amounts that do not constitute return of capital, such as
reinsurance premiums, are part of the gross income of a taxpayer. At any
rate, the tax actually collected in this case was computed not on the basis
of gross premium receipts but on the net premium income, that is, after
deducting general expenses, payment of policies and taxes.
The reinsurance premiums in question being taxable, we turn to the issue
whether or not they are subject to withholding tax under Section 54 in
relation to Section 53 of the Tax Code.
Subsection (b) of Section 53 subjects to withholding tax the following:
interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits, and income of any non-
resident alien individual not engaged in trade or business within the
Philippines and not having any office or place of business therein. Section
54, by reference, applies this provision to foreign corporations not
engaged in trade or business in the Philippines.
Appellants maintain that reinsurance premiums are not "premiums" at all
as contemplated by Subsection (b) of Section 53; that they are not within
the scope of "other fixed or determinable annual or periodical gains,
profits, and income"; that, therefore, they are not items of income subject
to withholding tax.

It is urged for the applicant that no opposition has been registered against
his petition on the issues above-discussed. Absence of opposition,
however, does not preclude the scanning of the whole record by the
appellate court, with a view to preventing the conferment of citizenship to
persons not fully qualified therefor (Lee Ng Len vs. Republic, G.R. No. L-
20151, March 31, 1965). The applicant's complaint of unfairness could
have some weight if the objections on appeal had been on points not
previously passed upon. But the deficiencies here in question are not new
but well-known, having been ruled upon repeatedly by this Court, and we
see no excuse for failing to take them into account.1äwphï1.ñët
The argument of appellants is that "premiums", as used in Section 53 (b),
is preceded by "rents, salaries, wages" and followed by "annuities,
compensations, remunerations" which connote periodical income payable
to the recipient on account of some investment or for personal services
rendered. "Premiums" should, therefore, in appellants' view, be given a
meaning kindred to the other terms in the enumeration and be understood
in its broadest sense as "a reward or recompense for some act done; a
bonus; compensation for the use of money; a price for a loan; a sum in
addition to interest."
We disagree with the foregoing proposition. Since Section 53 subjects to
withholding tax various specified income, among them, "premiums", the
generic connotation of each and every word or phrase composing the
enumeration in Subsection (b) thereof is income. Perforce, the word
"premiums", which is neither qualified nor defined by the law itself, should
mean income and should include all premiums constituting income,
whether they be insurance or reinsurance premiums.
Assuming that reinsurance premiums are not within the word "premiums"
in Section 53, still they may be classified as determinable and periodical
income under the same provision of law. Section 199 of the Income Tax
Regulations defines fixed, determinable, annual and periodical income:
32
Income is fixed when it is to be paid in amounts definitely pre-determined.
On the other hand, it is determinable whenever there is a basis of
calculation by which the amount to be paid may be ascertained.
The income need not be paid annually if it is paid periodically; that is to
say, from time to time, whether or not at regular intervals. That the length
of time during which the payments are to be made may be increased or
diminished in accordance with someone's will or with the happening of an
event does not make the payments any the less determinable or
periodical. ...
Reinsurance premiums, therefore, are determinable and periodical
income: determinable, because they can be calculated accurately on the
basis of the reinsurance contracts; periodical, inasmuch as they were
earned and remitted from time to time.
Appellants' claim for refund, as stated, invoked a ruling of the
Commissioner of Internal Revenue dated December 8, 1953. Appellants'
brief also cited rulings of the same official, dated October 13, 1953,
February 7, 1955 and February 8, 1955, as well as the decision of the
defunct Board of Tax Appeals in the case of Franklin Baker Co., 4 thereby
attempting to show that the prevailing administrative interpretation of
Sections 53 and 54 of the Tax Code exempted from withholding tax
reinsurance premiums ceded to non-resident foreign insurance
companies. It is asserted that since Sections 53 and 54 were
"substantially re-enacted" by Republic Acts 1065 (approved June 12,
1954), 1291 (approved June 15, 1955), 1505 (approved June 16, 1956)
and 2343 (approved June 20, 1959) when the said administrative rulings
prevailed, the rulings should be given the force of law under the principle
of legislative approval by re-enactment.
The principle of legislative approval by re-enactment may briefly be stated
thus: Where a statute is susceptible of the meaning placed upon it by a
ruling of the government agency charged with its enforcement and the
Legislature thereafter re-enacts the provisions without substantial change,
such action is to some extent confirmatory that the ruling carries out the
legislative purpose.5

The aforestated principle, however, is not applicable to this case. Firstly,
Sections 53 and 54 were never reenacted. Republic Acts 1065, 1291,
1505 and 2343 were merely amendments in respect to the rate of tax
imposed in Sections 53 and 54. Secondly, the administrative rulings of the
Commissioner of Internal Revenue relied upon by the taxpayers were only
contained in letters to taxpayers and never published, so that the
Legislature is not presumed to know said rulings. Thirdly, in the case on
which appellants rely, Interprovincial Autobus Co., Inc. vs. Collector of
Internal Revenue, L-6741, January 31, 1956, what was declared to have
acquired the force or effect of law was a regulation promulgated to
PHILAM LIFE V CTA AND CIR CA-GR SP NO. 31283, APRIL 15, 1995
implement a law; whereas, in this case, what appellants would seek to
have the force of law are opinions on queries submitted.
It may not be amiss to note that in 1963, after the Tax Court rendered
judgment in this case, Congress enacted Republic Act 3825, as an
amendment to Sections 24 and 54 of the Tax Code, exempting from
income taxes and withholding tax, reinsurance premiums received by
foreign corporations not engaged in business in the Philippines. Republic
Act 3825 in effect took out from Sections 24 and 54 something which
formed a part of the subject matter therein,6 thereby affirming the
taxability of reinsurance premiums prior to the aforestated amendment.
Finally, appellant would argue that Judge Augusto M. Luciano, who
penned the decision appealed from, was disqualified to sit in this case
since he had appeared as counsel for the Commissioner of Internal
Revenue and, as such, answered plaintiff's complaint before the Court of
First Instance of Manila.
The Rules of Court provides that no judge shall sit in any case in which he
has been counsel without the written consent of all the parties in interest,
signed by them and entered upon the record. The party objecting to the
judge's competency may file, in writing, with such judge his objection
stating therein the grounds for it. The judge shall thereupon proceed with
the trial or withdraw therefrom, but his action shall be made in writing and
made part of the record.7
33
Appellants, instead of asking for Judge Luciano's disqualification by
raising their objection in the Court of Tax Appeals, are content to raise it
for the first time before this Court. Such being the case they may not now
be heard to complain on this point, when Judge Luciano has given his
opinion on the merits of the case. A litigant cannot be permitted to
speculate upon the action of the court and raise an objection of this nature
after decision has been rendered.
Doctrine:
The test of taxability is the ‘source’, and the source of an
income is that activity which produced the income.
Facts:
Petitioner Philippine American Life Insurance Co., Inc. (PHILAMLIFE), a
domestic corporation entered into a Management Services Agreement
with American International Reinsurance Co., Inc. (AIRCO), a non-
resident foreign corporation with principal place of business in Pembroke,
Bermuda whereby, effective January 1, 1972, for a fee of not exceeding
$250,000.00 per annum, AIRCO shall perform for PHILAMLIFE various
management services. On September 30, 1978, AIRCO merged with
petitioner American International Group, Inc. (AIGI) with the latter as the
surviving corporation and successor-in-
interest in AIRCO’s
Management Services Agreement with PHILAMLIFE. On November 18,
1980, respondent Commission of Internal Revenue (CIR) issued in favour
of PHILAMLIFE Tax Credit Memo in the amount of Php643,125.00
representing erroneous payment of withholding tax at source on
remittances to AIGI for services rendered abroad in 1979. On the basis of
the said issuance of tax credit, PHILAMLIFE, through a letter dated March
21, 1981, filed with CIR a claim for refund of the second erroneous tax
payment of Php643,125.00 which was made on December 16, 1980.
Another letter dated July 6, 1982 was sent wherein PHILAMLIFE alleged
that the claim for refund of the amount paid in 1980 is exactly the same
subject matter as in the previous claim for refund in 1979. Without waiting
for CIR to resolve the claim, petitioners filed with the Court of Tax Appeals
(CTA) on July 29, 1982 the petition docketed as CTA Case No. 3540,
seeking said refund.
During pendency of said case, respondent denied PHILAMLIFE’s
claim for refund of Php643,125.00 as withholding tax at source for 1980.
Respondent also cancelled the tax credit memo in the amount of
Php643,125.00 previously issued to PHILAMLIFE on November 18, 1980
and requested the latter to pay the amount of Php643,125.00 as
deficiency withholding tax at source for 1979 plus increments. Without
protesting the assessment, petitioners filed a petition with CTA on June
14, 1985, docketed as CTA Case No. 3943, seeking the annulment of
said assessment. After trial on the merits, respondent tax court rendered
the decision dated March 10, 1993 denying both petitions for review and
subsequent motions for reconsiderations. Both parties filed motion for
reconsideration on the March 10, 1993 decision wherein the respondent
tax court issued a resolution dated May 19, 1993 which modified the
dispositive portion of the said decision ordering the PHILAMLIFE to pay
respondent the amount of Php643,125.00 with interest at the rate of
twenty per centum (20%) per annum from March 9, 1981 until paid.
Issues:
1.Whether or not compensation for advisory services admittedly
performed abroad by the personnel of a non-resident foreign corporation
not doing business in the Philippines are subject to Philippine withholding
income tax
–YES
2.Whether or not respondent CIR is barred by prescription, laches,
estoppel, or equitable considerations in cancelling the previous approval
of petitioners claim for refund more than 5 years thereafter, after it has
determined, after investigation, that the advisory services were rendered
or performed abroad by the personnel of AIGI, a non-resident foreign
corporation not doing business in the Philippines
–NO
3.Whether or not respondent tax court can amend its decision on a motion
for reconsideration by respondent Commissioner, ordering petitioner
PHILAMLIFE to pay Php643,125.00 with interest at 20% per annum until
paid on the presumption that it has utilized the tax credit memo already
34
issued and without evidence being presented of actual usage of the tax
credit memo
–
YES
Ratio:
1.In our jurisprudence, the test of taxability is the ‘source’,
and the source of an income is that activity which produced the income. It
is not the presence of any property from which one derives rentals and
royalties that is controlling, but rather as expressed under the expanded
meaning of “royalties” in Section 37 (a) of National Internal Revenue Code
, it includes “royalties for the supply of scientific, technical, industrial, or
commercial knowledge or information; and the technical advice,
assistance or services rendered in connection with the technical
management and administration of any scientific, industrial or commercial
undertaking, venture,project or scheme”.
The Management Services Agreement falls under the expanded meaning
of royalties as it provides for the supply of a non-resident foreign
corporation of technical and commercial information, knowledge, advice,
assistance or services in connection with technical management or
administration of an insurance business
– a commercial undertaking. Therefore, the income derived for the
services performed by AIGI for PHILAMLIFE under the said
agreement contract shall be considered as income from services
within the Philippines. AIGI, being a non-resident foreign corporation
not engage in trade and business in the Philippines shall pay tax
equal to 35% of the gross income received during each taxable year
from all sources within the Philippines as interest, dividends, rents,
royalties (including remuneration for technical services), salaries,
premiums, annuities, emoluments, or other fixed or determinable
annual, periodical or casual gains, profits and income.