Preweek - HO#4 - Taxation Law PDF

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3 Floor, Philippine Nurses Association, TAXATION LAW

# 1663 F. T. Benitez St, Malate, Manila
2018 PREWEEK
HO No. 4
I. J. Del Castillo Cases
1. The grant of a tax deduction scheme covering the 20% Senior Citizen’s discount under Republic Act
(“RA”) No. 9257 is constitutional as a valid exercise of police power. Even if RA No. 9258 does not provide
for a peso for peso reimbursement of the 20% discount given by private establishments, no constitutional
infirmity obtains because, being a valid exercise of police power, payment of just compensation is not
warranted. The 20% discount is intended to improve the welfare of senior citizens. The grant of the 20%
discount as a tax deduction scheme is not an exercise of the power of eminent domain. It does not purport
to appropriate or burden specific properties, used in the operation or conduct of the business of private
establishments, for the use or benefit of the public, or senior citizens for that matter, but merely regulates
the pricing of goods and services relative to, and the amount of profits or income/gross sales that such
private establishments may derive from, senior citizens. (Manila Memorial Park Inc. vs. DSWD, GR No.
175356 dated December 3, 2013)
2. For a taxpayer’s suit to prosper, two (2) requisites must be met:
1) Public funds derived from taxation are disbursed by a political subdivision or instrumentality and
in doing so, a law is violated or some irregularity is committed; and,
2) The petitioner is directly affected by the alleged act.
As to the second requisite, the Supreme Court, in recent cases, has relaxed the stringent "direct injury
test" bearing in mind that locus standi is a procedural technicality. By invoking "transcendental
importance", "paramount public interest", or "far-reaching implications", ordinary citizens and taxpayers
were allowed to sue even if they failed to show direct injury. In cases where serious legal issues were
raised or where public expenditures of millions of pesos were involved, the Supreme Court did not
hesitate to give standing to taxpayers. (Mamba vs. Lara, GR No. 165109 dated December 14, 2009)
3. Under Revenue Regulations (“RR”) No. 15-2006 dated September 27, 2006, an application for
abatement is considered approved only upon issuance of a termination letter. Based on the guidelines of
RR No. 15-2006, the last step in the tax abatement process is the issuance of the termination letter. The
presentation of the termination letter is essential as it proves that the taxpayer's application for tax
abatement has been approved. Thus, without a termination letter, a tax assessment cannot be considered
closed and terminated. (Asiatrust Development Bank, Inc. vs. CIR, GR No. 201530 dated April 19, 2017)
4. Interest of members’ savings and time deposits with duly registered cooperatives are not subject to
income and withholding tax. The 20% Final Withholding Tax under Sec. 24(B)(1) of the NIRC applies to
interest paid by banks and does not cover interest paid by cooperatives. Moreover, members’ deposits
with the cooperatives are not currency bank deposits nor deposit substitutes. (Dumaguete Cathedral
Credit Cooperative vs. CIR, GR No. 182722 dated January 22, 2010)
5. In order to be exempt from income tax as a charitable institution under Sec. 30(E) of the NIRC, the
charitable institution must be:
1) A non-stock corporation or association;

2) Organized exclusively for charitable purposes;
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3) Operated exclusively for charitable purposes; and,

4) No part of its net income or asset shall belong to or inure to the benefit of any member, organizer,
officer or any specific person.
A hospital which receives approximately P1.73 billion from paying patients is not an institution "operated
exclusively" for charitable purposes. Thus, insofar as its as its revenues from paying patients are
concerned, St. Luke’s is not exempt from income tax under Sec. 30(E) of the NIRC. Moreover, income from
paying patients is considered income from an activity conducted for profit. The last paragraph of Sec. 30
of the NIRC provides that: “income of whatever kind and character of the foregoing organizations from
any of their properties, real or personal, or from any of their activities conducted for profit regardless of
the disposition made of such income, shall be subject to income tax.” Thus, the hospital, insofar as its
income from paying patients, is considered a proprietary non-profit hospital which is subject to the 10%
income tax based on taxable income under Sec. 27(B) of the NIRC. (CIR vs. St. Luke’s Medical Center, Inc.,
GR No. 203514 dated February 13, 2017)
6. The transfer of property through expropriation proceedings is a sale or exchange within the meaning
of Secs. 24(D) and 56(A)(3) of the NIRC, and profit from the transaction constitutes capital gain. Since
capital gains tax is a tax on passive income, it is the seller, or property owner who is liable to pay the tax.
(Republic vs. Spouses Salvador, GR No. 205428 dated June 7, 2017)
7. The legislature never intended operators or proprietors of cinema/theater houses to be covered by

VAT. Only lessors or distributors of cinematographic films are included in the coverage of VAT. Thus, the
gross receipts derived by cinema/theater operators or proprietors from admission tickets in showing
motion pictures, film or movie are not subject to VAT. (CIR vs. SM Prime Holdings, Inc., GR No. 183505
dated February 26, 2010)
8. Pawnshops are considered non-bank financial intermediaries. Its services, together with banks and
other non-bank financial intermediaries were only subject to VAT in the year 2003. (TFS, Inc. vs. CIR, GR
No. 166829 dated April 19, 2010)
9. Failure to print the word "zero-rated" in the invoices/receipts is fatal to a claim for credit/refund of
input VAT on zero-rated sales. The appearance of the word “zero-rated” on the face of invoices covering
zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was
actually paid. If, absent such word, a successful claim for input VAT is made, the government would be
refunding money it did not collect. Further, the printing of the word “zero-rated” on the invoice helps
segregate sales that are subject to 12% VAT from those sales that are zero-rated. (J.R.A. Philippines, Inc.
vs. CIR, GR No. 177127 dated October 11, 2010)
10. The Authority to Print (“ATP”) from the Bureau of Internal Revenue (“BIR”) need not be reflected or
indicated in the invoices or receipts because there is no law or regulation (prior to the year 2013) requiring
it. Thus, in the absence of such law or regulation, failure to print the ATP on the invoices or receipts should
not result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of
claiming a refund. However, since the ATP is not indicated in the invoices or receipts, the only way to
verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP
from the BIR. Without this proof, the invoices or receipts would have no probative value for the purpose
of refund. (Silicon Philippines, Inc. vs. CIR, GR No. 172378 dated January 17, 2011)
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11. The two (2) year period under Sec. 112(A) of the NIRC to file the claim for refund of excess input VAT
attributable to a zero-rated sale refers only the claim for refund filed with the Commissioner of Internal
Revenue (“CIR”) and not with the Court of Tax Appeals (“CTA”). Applying the two (2) year period to judicial
claims would render nugatory Section 112(C) of the NIRC, which already provides for a specific period
within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section
112(C) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of
the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the
taxpayer has 30 days within which to file an appeal with the CTA. (CIR vs. Aichi Forging Company of Asia,
Inc., GR No. 184823 dated October 6, 2010)
12. Prior payment of VAT is not necessary in order to claim transitional input VAT credit under Sec. 111(A)
of the NIRC. What the NIRC merely requires is the filing of a beginning inventory with the BIR. To require
the same would tantamount to judicial legislation. Moreover, prior payment of taxes is not required to
avail of the transitional input tax credit because it is not a tax refund per se but a tax credit. (Fort Bonifacio
Development vs. CIR, GR No. 173425 dated September 4, 2012)
13. A Final Assessment Notice (“FAN”) which tells the taxpayer to “appeal” if he does not agree with it
and uses the words “final decision” can be considered the decision on a disputed assessment appealable
to the CTA even if the FAN was not protested. This is a case of estoppel on the part of the BIR and
considered as an exception to the rule on exhaustion of administrative remedies. The words used,
specifically the words "final decision" and "appeal", taken together led the taxpayer to believe that the
FAN was in fact the final decision of the CIR on the letter-protest it filed (on the Preliminary Assessment
Notice) and that the available remedy was to appeal the same to the CTA. (Allied Banking Corporation vs.
CIR, GR No. 175097 dated February 5, 2010)
14. The Doctrine of Estoppel is not applicable, as a rule, to validate a defective waiver. Failure to strictly
comply with the requirements of a valid waiver invalidates the waiver and does not extend the
prescriptive period to assess or collect. The BIR cannot hide behind the Doctrine of Estoppel to cover its
failure to comply with RMO No. 20-90 and RDAO No. 05-01, which the BIR itself issued. Having caused the
defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To
stress, a waiver of the statute of limitations, being a derogation of the taxpayer’s right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed. (CIR vs. Kudos Metal,
GR No. 178087 dated May 5, 2010)
15. Requisites of a claim for refund of excess Creditable Withholding Tax (“CWT”):
a) The claim must be filed with the CIR within the two-year period from the date of payment of the
tax;
b) It must be shown on the return that the income received was declared as part of the gross income;
and,
c) The fact of withholding must be established by a copy of a statement (BIR Form 2307) duly issued
by the payor to the payee showing the amount paid and the amount of the tax withheld. (CIR vs. Far
East Bank, GR No. 173854 dated March 15, 2010).
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16. Under the irrevocability rule, once the option to carry-over excess income tax payments to the
succeeding years has been made, it becomes irrevocable. Thus, applications for refund of the unutilized
excess income tax payments may no longer be allowed. The taxpayer, however, may apply the unutilized
excess income tax payments as a tax credit to the succeeding taxable years until such has been fully
applied pursuant to Section 76 of the NIRC. (Belle Corporation vs. CIR, GR No. 181298 dated January 10,
2011)
17. A withholding agent has legal right to file a claim for refund on behalf of the principal taxpayer for two
(2) reasons:
1) He is considered a taxpayer under the NIRC as he is personally liable for the withholding tax if the
same is not remitted to the government; and,
2) As an agent of the taxpayer, his authority to file the necessary income tax return and to remit the
tax withheld to the government impliedly includes the authority to file a claim for refund and to bring
an action for recovery of such claim.
Relation between the taxpayer and the withholding agent is a factor that increases the latter's legal
interest to file a claim for refund, but it is not necessary to clothe the withholding agent personality to file
the claim for refund. If the claim for refund is granted, the withholding agent has the obligation to remit
the amount refunded to the principal taxpayer. (CIR vs. Smart Communication, Inc. vs. GR Nos. 179045-46
dated August 25, 2010)
18. Tax evasion is deemed complete when the violator has knowingly and willfully filed a fraudulent
return with intent to evade and defeat a part or all of the tax. Corollarily, an assessment of the tax
deficiency is not required in a criminal prosecution for tax evasion. However, the Supreme Court has
clarified that although a deficiency assessment is not necessary, the fact that a tax is due must first be
proved before one can be prosecuted for tax evasion. (BIR vs. CA and Spouses Manly, GR No. 197590 dated
November 24, 2014 citing Ungab v. Cusi, Jr., GR No. L-41919-24 dated May 30, 1980; and, CIR vs. CA, GR
No. 119322 dated June 4, 1996)
19. In civil cases, in order for the CTA En Banc to take cognizance of an appeal, a timely motion for
reconsideration or new trial must first be filed with the CTA Division. Failure to do so is a ground for the
dismissal of the appeal. The foregoing rule also applies to an amended decision. An amended decision is
a different decision and is a proper subject of a motion for reconsideration. Thus, if an amended decision
is rendered by the CTA Division disposing of the motions for reconsideration filed by the taxpayer and the
CIR, the amended decision must also be contested by way of a motion for reconsideration before any
appeal can be made to the CTA En Banc. (CIR vs. Asiatrust Development Bank, GR Nos. 201680-81 dated
April 19, 2017)
20. Unlike the NIRC, the Local Tax Code [now Local Government Code (“LGC”)] does not contain any
specific provision prohibiting courts from enjoining the collection of local taxes. Nevertheless, it must be
emphasized that although there is no express prohibition in the LGC, injunctions enjoining the collection
of local taxes are frowned upon. Courts therefore should exercise extreme caution in issuing such
injunctions. (Angeles City vs. Angeles City Electric Corporation, GR No. 166134 dated June 29, 2010)
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21. Sec. 5 of RA No. 7678 which provides that: “the grantee shall be liable to pay the same taxes on its
real estate, buildings, and personal property exclusive of this franchise as other persons or corporations
are now or hereafter may be required by law to pay,” does not exempt DIGITEL from payment of real
property tax on real properties used in the operation of its franchise. The heading of Sec. 5 is “Tax
Provisions,” and not Tax Exemptions. The phrase “exemption from real estate tax” or other words
conveying exemption from realty tax do not appear in the first sentence of Sec. 5. The phrase “exclusive
of this franchise” in the first sentence of Sec. 5 merely qualifies the phrase personal property to exclude
DIGITEL’s legislative franchise, which is an intangible personal property. (Digital Communications
Philippines, Inc. vs. Cantos, GR No. 180200 dated November 25, 2013)
22. If the RTC denies a taxpayer’s prayer for issuance of a writ of preliminary injunction relative to a
complaint for injunction filed with the RTC to contest an illegal real property tax assessment, the taxpayer
may question the order denying the said prayer by filing a special civil action for Certiorari with the CTA
Division and not with the Court of Appeals (“CA”). As held by the Supreme Court in City of Manila vs.
Cuerdo, the CTA likewise has the jurisdiction to issue writs of certiorari or to determine whether there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing
an interlocutory order in cases falling within the CTA’s exclusive appellate jurisdiction. Since the main case
(injunction case) is considered a local tax case, a decision rendered by the RTC relative to the main case is
appealable to the CTA Division. On the other hand, a Certiorari petition (incident to the main case)
questioning an interlocutory order issued in a local tax case falls under the jurisdiction of the CTA. (CE
Casecnan Water and Energy Company, Inc., vs. The Province of Nueva Ecija, GR No. 196278 dated June 17,
2015)
23. A “time deposit” account which is payable on demand and evidenced by a passbook (not by a
“certificate of deposit”) is subject to Documentary Stamp Tax (“DST”). Sec. 179 (then Sec. 180) of the NIRC
imposes DST on all loan agreements including certificates of deposits drawing interest. The fact that the
“time deposit” account is evidenced by a passbook likewise cannot remove its coverage from Sec. 179
(then Sec. 180) of the NIRC, as amended. A document to be considered a certificate of deposit need not
be in a specific form. Thus, a passbook issued by a bank qualifies as a certificate of deposit drawing interest
because it is considered a written acknowledgement by a bank that it has accepted a deposit of a sum of
money from a depositor.
Note that Sec. 179 of the NIRC, as currently worded, now provides that the term “debt instrument” shall
mean instruments representing borrowing and lending transactions including but not limited to xxx
deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing
interest significantly higher than the regular savings deposit taking into consideration the size of the
deposit and the risks involved or drawing interest and having a specific maturity date. (Prudential Bank
vs. CIR, GR No. 180390 dated July 27, 2011)
24. The transfer of real properties from the absorbed corporation to the surviving corporation via merger
is not subject to DST. The phrase "granted, assigned, transferred or otherwise conveyed" under Sec. 196
of the NIRC is qualified by the word "sold" which means that the DST is imposed on the transfer of realty
by way of sale and does not apply to all conveyances of real property. The fact that Sec. 196 of the NIRC
refers to words "sold", "purchaser" and "consideration" undoubtedly leads to the conclusion that only
sales of real property are contemplated therein. In a merger, the real properties are not deemed "sold"
to the surviving corporation and the latter could not be considered as "purchaser" of realty since the real
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properties subject of the merger were merely absorbed by the surviving corporation by operation of law
and these properties are deemed automatically transferred to and vested in the surviving corporation
without further act or deed. (CIR vs. La Tondena Distillers, Inc., GR No. 175188 dated July 15, 2015)
Note that when the DST provisions of the NIRC were amended in 2004, Sec. 199(m) of the NIRC now
expressly provides that the transfer of property pursuant to Section 40(c)(2) of the NIRC is not subject to
DST. Sec. 40(c)(2) of the NIRC includes transfer of property by way of merger, among others.
II. General Principles
Basic Principles
25. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer
are not creditors and debtors of each other. There is a material distinction between a tax and a debt.
Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its
sovereign capacity. A person cannot refuse to pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government. (Philex Mining Corporation vs. CIR, GR No. 125704 dated August 28,
1998.) However, if the government’s claim for taxes and the taxpayer’s claim against the government
have already become overdue, demandable and fully liquidated, compensation takes place by operation
of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code. (Domingo vs. Garlitos,
GR No. L-18994 dated June 29, 1963)
26. There is prohibited or obnoxious double taxation when the same taxpayer is taxed twice when he
should be taxed only once for the same purpose by the same taxing authority within the same jurisdiction
during the same taxing period, and the taxes are of the same kind or character. If a business is already
paying business tax as a retailer under Sec. 143(a) of the LGC, it is no longer liable to pay business tax on
businesses subject to VAT and Percentage Tax under Sec. 143(h) of the LGC. Sec. 143(h) of the LGC may
invoked by the Local Government Unit if the business is not otherwise specified in the preceding
paragraphs (Secs. 143(a) to (g) of the LGC). In this case, the imposition constituted prohibited double
taxation. (Nursery Care Corporation vs. Acevedo, GR No. 180651 dated July 30, 2014)
27. In distinguishing tax and regulation as a form of police power, the determining factor is the purpose
of the implemented measure. If the purpose is primarily to raise revenue, then it will be deemed a tax
even though the measure results in some form of regulation. On the other hand, if the purpose is primarily
to regulate, then it is deemed a regulation (or a fee) and an exercise of the police power of the state, even
though incidentally, revenue is generated. A charge of a fixed sum which bears no relation at all to the
cost of inspection and regulation may be held to be a tax rather than an exercise of the police power.
(Angeles University Foundation vs. City of Angeles, GR No. 189999 dated June 27, 2012)
Tax Treaties
28. The BIR cannot deprive a taxpayer the benefits of a lower tax rate under a tax treaty for failure to
strictly comply with a treaty relief application under Revenue Memorandum Order (“RMO”) No. 1-2000.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000.
The BIR must not impose additional requirements that would negate the availment of the reliefs provided
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for under international agreements. More so, when the tax treaty does not provide for any pre-requisite
for the availment of the benefits under said agreement. (Deutsche Bank AG Manila Branch vs. CIR, GR No.
188550 dated August 19, 2013)
Tax Rulings
29. Contesting a tax ruling:
a) A ruling of the CIR may be appealed to the Secretary of Finance (“SOF”) by filing a Request for
Ruling Review within thirty (30) days from receipt of the unfavorable ruling; (DOF Department Order
No. 23-2001 dated October 25, 2001)
b) The ruling of the SOF or the ruling of the CIR (if appeal to the SOF may be dispensed with) is
appealable to the CTA. The CTA has undoubted jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting
an assessment or claiming a refund. The CTA may likewise take cognizance of cases directly
challenging the constitutionality or validity of a tax law or regulation or administrative issuance
(revenue orders, revenue memorandum circulars, rulings). Jurisdictional basis under RA No. 9282 is
“other matters arising under the NIRC or other laws administered by the BIR.” (BDO vs. Republic, GR
No. 198756 dated August 16, 2016)
30. Any revocation, modification or reversal of a ruling or circular issued by the CIR shall not be given
retroactive application if the revocation, modification or reversal will be prejudicial to a taxpayer, except:
a) where the taxpayer deliberately misstates or omits material facts from his return or any document
required of him by the Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
c) where the taxpayer acted in bad faith. (Sec. 246 of the NIRC)
Important Constitutional Provisions
31. All appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives, but
the Senate may propose or concur with amendments. (Sec. 24, Art. VI of the Constitution) It is not the law
but the revenue bill which is required by the Constitution to "originate exclusively" in the House of
Representatives. To insist that a revenue statute and not only the bill which initiated the legislative
process culminating in the enactment of the law must substantially be the same as the House bill would
be to deny the Senate's power not only to "concur with amendments" but also to "propose amendments."
It would be to violate the coequality of legislative power of the two houses of Congress and in fact make
the House superior to the Senate. (Tolentino vs. The Secretary of Finance, GR No. 115455 dated August
25, 1994)
32. No law granting any tax exemption shall be passed without the concurrence of a majority of all the
Members of the Congress. (Sec. 28(4), Art. VI of the Constitution)
33. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-
profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for
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religious, charitable, or educational purposes shall be exempt from taxation.(Sec. 28(3), Art. VI of the
Constitution) The said provision covers exemption from property taxes only. (CIR vs. CA, GR No. 124043
dated October 14, 1998)
34. The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national development program of the
Government. (Sec. 28(2), Art. VI of the Constitution)
35. A subsequent law may repeal a tax exemption under a franchise or special law and the same will not
violate the non-impairment clause under the Constitution. A franchise partakes the nature of a grant,
which is beyond the purview of the non-impairment clause of the Constitution. Art. XII, Sec. 11, of the
Constitution is explicit that no franchise for the operation of a public utility shall be granted except under
the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and
when the common good so requires. (MERALCO vs. Province of Laguna, GR No. 131359 dated May 5,
1999)
Compromise and Abatement
36. The taxpayer may compromise a tax liability by:
a) paying 40% of the basic assessed tax on the ground of doubtful validity of an assessment; or
b) paying 10% of the basic assessed tax on the ground of financial incapacity.
A criminal violation that has already been filed in court or a criminal violation involving fraud cannot be
the subject of a compromise between the BIR and the taxpayer. (Sec. 204(A) of the NIRC)
37. A compromise penalty is an amount paid by the taxpayer in lieu of criminal prosecution. It is an
amount paid to compromise a violation of the penal provisions of the NIRC. Since a compromise is in the
nature of a contract, it is now a well settled doctrine that a compromise penalty cannot be imposed or
collected without the agreement or conformity of the taxpayer. (Wonder Mechanical Engineering
Corporation vs. CTA, GR Nos. L-22805 & L-27858 dated June 30, 1975)
38. Good faith and honest belief that one is not subject to tax on the basis of previous interpretation of
government agencies tasked to implement the tax law, are sufficient justification to delete the imposition
of surcharges and interest. (CIR vs. St. Luke’s Medical Center, Inc., GR Nos. 195909 and 195960 dated
September 26, 2012)
39. The CIR may abate or cancel a tax liability when:
a) the tax or any portion thereof appears to be unjustly or excessively assessed; or

b) the administration and collections costs involved do not justify the collection of the amount due.
The CIR has the sole power or authority to abate a tax liability. (Sec. 204(B) and Sec. 7(c) of the NIRC)
CIR’s Power to Interpret the Provisions of the NIRC
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40. Under Sec. 4 of the NIRC, the CIR shall have the exclusive and original jurisdiction to interpret the
provisions of the NIRC and other tax laws, subject to review by the SOF. The Voluntary Arbitrator has no
jurisdiction to settle tax matters. The Voluntary Arbitrator’s jurisdiction is limited to labor disputes. The
issues raised before the Panel of Voluntary Arbitrators are: (1) whether the cash conversion of the gasoline
allowance shall be subject to fringe benefit tax or the graduated income tax rate on compensation; and,
(2) whether the company wrongfully withheld income tax on the converted gas allowance. Consequently,
if the company and/or the union desire/s to seek clarification of these issues, it/they should have
requested for a tax ruling from the BIR. (Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist
Supervisors Union, GR No. 204142 dated November 19, 2014)
III. Income Tax
41. Tax rules and doctrines for the following entities:
Entity Taxation of Income Received Other Important Matters

1. Proprietary Educational Subject to a preferential rate of 10% on a. The term “unrelated trade, business
Institutions and hospitals taxable income provided its gross or other activity” means any trade,
that are non-profit. income from unrelated trade, business business or other activity, the conduct of
or other activity does not exceed 50% of which is not substantially related to the
its total gross income from all sources exercise or performance by such
except those which are subject to final educational institution or hospital of its
tax under Sec. 27(D) of the NIRC. If primary purpose or function.
income from unrelated trade business or
other activity exceeds 50%, it will be b. Not exempt from income tax.
subject to the 30% Regular Corporate
Income Tax.
2. Non-stock, non-profit a. Tuition Fees and other income a. The last paragraph of Sec. 30 of the
educational institutions. received by the School that is directly NIRC is without force and effect with
related to the exercise or performance respect to non-stock, non-profit
by such educational institution of its educational institutions, provided, that
educational purpose or function is the non-stock, non-profit educational
exempt from income tax. Income institutions prove that its assets and
received by a non-stock, non-profit revenues are used actually, directly and
educational institution “as such” is exclusively for educational purposes.
exempt from income tax. (Sec. 30(H) of The tax-exemption constitutionally-
the NIRC). granted to non-stock, non-profit
educational institutions, is not subject to
b.1. Revenues derived from and assets limitations imposed by law.
used in the operations of
cafeterias/canteens, dormitories, b. The Constitution does not require that
bookstores are exempt from income tax the revenues must have been sourced
provided they are owned and operated from educational activities or activities
by the educational institution as related to the purposes of an
ancillary activities and the same are educational institution. The phrase all
located within the school premises. revenues is unqualified by any reference
to the source of revenues.
b.2. Revenues derived from and assets
used in the operations of hospitals are
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exempt from taxation provided they are c. The tax exemption granted to non-
owned and operated by the educational stock, non-profit educational
institution as an indispensable institutions under the Constitution was
requirement in the operation and seen as beneficial to students who may
maintenance of its medical otherwise be charged unreasonable
school/college/institute. (DOF Order No. tuition fees if not for the tax exemption
137-87 dated December 15, 1987) extended to all revenues and assets of
non-stock, non-profit educational
c. Revenues from lease of facilities to institutions.
concessionaires for the operation of
cafeterias/canteens, bookstores or any d. If the “Revenue” is used actually,
other income not mentioned above may directly and exclusively for educational
be exempted from income tax provided purposes, the same is not only exempt
that the revenues are used actually, from income tax, it is also exempt from
directly, and exclusively for educational VAT and Local Business Tax. On other
purposes. All revenues and assets of hand, if the “Assets” are used actually,
non-stock, non-profit educational directly and exclusively for educational
institutions used actually, directly, and purposes, the same is exempt from real
exclusively for educational purposes property tax, VAT on importation and
shall be exempt from taxes and duties. customs duties. (CIR vs. De La Salle
(Sec. 4(3), Art. XIV of the Constitution) University, GR No. 196596 dated
November 9, 2016)
3. Non-stock, non-profit a. In order to be exempt from income a. A non-stock, non-profit charitable
charitable institutions. tax, the charitable institution must institution operating a hospital which
comply with the following requirements: receives P1.73 billion from paying
patients is not an institution "operated
1. It must be a non-stock corporation or exclusively" for charitable purposes and
association; therefore not entitled to income tax
2. It must be organized exclusively for exemption under Sec. 30(E) of the NIRC.
charitable purposes;
3. It must be operated exclusively for b. Income from paying patients is
charitable purposes; and, considered income from an activity
4. No part of its net income or asset shall conducted for profit. Thus, a non-stock,
belong to or inure to the benefit of any non-profit charitable institution
member, organizer, officer or any operating as a hospital, insofar as its
specific person.(Sec. 30(E) of the NIRC) income from paying patients, is
considered a proprietary non-profit
2.a. A charitable institution does not lose hospital which is subject to the 10%
its character as such and its exemption income tax based on taxable income
from taxes simply because it derives under Sec. 27(B) of the NIRC.(St. Luke’s
income from paying patients, whether Medical Center, Inc., GR Nos. 195909
out-patient, or confined in the hospital, and 195960 dated September 26, 2012)
or receives subsidies from the
government, so long as the money
received is devoted or used altogether
to the charitable object which it is
intended to achieve; and no money
inures to the private benefit of the
persons managing or operating the
institution.
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2.b. However, since a non-stock, non-

profit charitable institution is a Sec.
30(E) Corporation, it is covered by the
last paragraph of Sec. 30 which provides
that income from: (1) any of their
properties, real or personal, or (2) any of
their activities conducted for profit,
regardless of the disposition made of
such income, shall be subject to income
tax. (Sec. 30 of the NIRC)
2.c. Thus, even if the charitable

institution has income from property or
activity conducted for profit it does not
lose its tax exempt status for its not-for-
profit activities. Its income from not-for-
profit activities will still be exempt from
income tax. (St. Luke’s Medical Center,
Inc., GR Nos. 195909 and 195960 dated
September 26, 2012)
Minimum Wage Earners
42. RR No. 10-2008 which states that a Minimum Wage Earner (“MWE”) is disqualified to claim exemption
if he receives other benefits in excess of the statutory limit of Php82,000.00 is inconsistent with the NIRC
and is therefore invalid. It adds a condition that is not found under the law. The NIRC is clear that a MWE
is exempt from income tax on his Statutory Minimum Wage, overtime pay, holiday pay, overtime pay,
hazard pay and night shift differential pay. It does not provide or require any other qualification as to who
are MWEs.
Moreover, RR No. 10-2008 cannot declare the income earned by a minimum wage earner from January
1, 2008 to July 5, 2008 to be taxable and those earned by him for the rest of that year to be tax-exempt.
To do so would be to contradict the NIRC and jurisprudence, as taxable income would then cease to be
determined on a yearly basis. RA No. 9504 which amended the NIRC is undoubtedly a piece of social
legislation. It was intended to alleviate the plight of the working class, especially the low-income earners.
(Soriano vs. Secretary of Finance, GR No. 184450 dated February 8, 2017)
Deposits and Deposit Substitutes
43. A BIR ruling which states that all government bonds are deposit substitutes regardless of the number
of lenders is not valid because it completely disregards the “20 or more lender rule” found under Sec.
22(Y) of the NIRC. The term “deposit substitutes” means an alternative form of obtaining funds from the
public. The term “public” means borrowing from twenty (20) or more individual or corporate lenders at
any one time. Moreover, the phrase "at any one time" does not mean at the point of origination alone.
From the point of view of the financial market, the phrase “at any one time” for purposes of determining
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the “20 or more lender rule” would mean every transaction executed in the primary or secondary market
in connection with the purchase or sale of securities.
44. If the bonds are considered deposit substitutes (20 or more lenders), the interest income is generally
subject to the 20% Final Withholding Tax. If the bonds are not considered deposit substitutes (19 or less
lenders), the interest income forms part of gross income and is subject to the regular income tax rates.
(BDO vs. Republic, GR No. 198756 dated January 13, 2015)
Capital Gains Tax
45. For domestic corporations, the 6% capital gains tax only applies to the sale of land and/or buildings in
the Philippines held as a capital asset. It does not include the sale of machineries and equipment which
should be subject to the 30% Regular Corporation Income Tax. (SMI-ED Technology Corporation, Inc. vs.
CIR, GR No. 175410 dated November 12, 2014)
Gross Philippine Billings Tax
46. The Gross Philippine Billings Tax (“GPBT”) applies only to resident foreign corporations or an
international carrier having landing rights in the Philippines. It does not apply to domestic corporations
(like Philippine Airlines or Cebu Pacific Air). The GPBT attaches only when the carriage of persons, excess
baggage, cargo, and mail: (a) originated from the Philippines; (b) in a continuous and uninterrupted flight,
regardless of where the passage documents were sold. For a flight which originates from the Philippines,
but transshipment of passenger takes place at a foreign port on another airline, only the aliquot portion
of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment
shall form part of GPBT. (Sec. 28(A)(3)(a) of the NIRC)
47. An offline carrier (has no landing rights in the Philippines) which sells tickets in the Philippines through
an agent is not liable to pay GPBT because its flights do not originate in the Philippines in a continuous
and uninterrupted flight. However, it is considered a resident foreign corporation subject to the 30%
Regular Corporate Income Tax because it is considered doing business in the Philippines. If a tax treaty is
applicable, it must be considered in applying the correct income tax rate. (Air Canada vs. CIR, GR No.
169507 dated January 11, 2016)
Branch Profits Remittance Tax
48. The Branch Profits Remittance Tax (“BPRT”) only applies to a resident foreign corporation. The BPRT
is imposed on any profit remitted by a branch to its head office that is effectively connected with the
conduct of its trade or business in the Philippines. The 15% BPRT is based on the total profits applied or
earmarked for remittance without any deduction for the tax component thereof (except those activities
which are registered with the Philippine Economic Zone Authority). (Sec. 28(A)(5) of the NIRC)
Improperly Accumulated Earnings Tax
49. The Improperly Accumulated Earnings Tax (“IAET”) is imposed on the improperly accumulated taxable
income of corporations formed or availed of for the purpose of avoiding the income tax with respect to
its shareholders or the shareholders of any other corporation, by permitting the earnings and profits of
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the corporation to accumulate instead of dividing them among or distributing them to the shareholders.
The rationale is that if the earnings and profits were distributed, the shareholders would then be liable to
income tax thereon, whereas if the distribution were not made to them, they would incur no tax in respect
to the undistributed earnings and profits of the corporation. Thus, a tax is being imposed in the nature of
a penalty to the corporation for the improper accumulation of its earnings, and as a form of deterrent to
the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed
to them by the corporation.
50. The touchstone of the liability is the purpose behind the accumulation of the income and not the
consequences of the accumulation. Thus, if the failure to pay dividends is due to some other causes, such
as the use of undistributed earnings and profits for the reasonable needs of the business, such purpose
would not generally make the accumulated or undistributed earnings subject to the tax. However, if there
is a determination that a corporation has accumulated income beyond the reasonable needs of the
business, the 10% improperly accumulated earnings tax shall be imposed. The term “reasonable needs of
the business” includes the reasonably anticipated needs of the business.
51. In order to determine whether profits are accumulated for the reasonable needs of the business as
to avoid the imposition of the improperly accumulated earnings tax, the controlling intention of the
taxpayer is that which is manifested at the time of accumulation, not subsequently declared intentions
which are merely the product of afterthought. A speculative and indefinite purpose will not suffice. The
mere recognition of a future problem or the discussion of possible and alternative solutions is not
sufficient. Definiteness of plan/s coupled with action/s taken towards its consummation are essential.
52. The following constitute accumulation of earnings for the reasonable needs of the business:
a) Allowance for the increase in the accumulation of earnings up to100% of the paid-up capital of
the corporation as of Balance Sheet date, inclusive of accumulations taken from other years;
b) Earnings reserved for definite corporate expansion projects or programs requiring considerable
capital expenditure as approved by the Board of Directors or equivalent body;
c) Earnings reserved for building, plants or equipment acquisition as approved by the Board of
Directors or equivalent body;
d) Earnings reserved for compliance with any loan covenant or pre-existing obligation established
under a legitimate business agreement;
e) Earnings required by law or applicable regulations to be retained by the corporation or in respect
of which there is legal prohibition against its distribution;
f) In the case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings
intended or reserved for investments within the Philippines as can be proven by corporate records
and/or relevant documentary evidence.
53. If at the end of the year, the corporation has improperly accumulated earnings, dividends must be
declared and paid or issued not later than one (1) year following the close of the taxable year, otherwise,
the IAET, if any, should be paid within fifteen (15) days thereafter. (Sec. 29 of the NIRC and Revenue
Regulations No. 2-2001 dated February 12, 2001)
Important Exclusions from Gross Income or Exempt Income
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54. Life Insurance - Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of
the insured are excluded from gross income. If the insurer, under the insurance policy, is liable to pay
interest on the proceeds, the interest payments shall be included in the gross income. (Sec. 32(B)(1) of
the NIRC)
55. Compensation for Injuries or Sickness - Amounts received, through Accident or Health Insurance or
under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amounts
of any damages received, whether by suit or agreement, on account of such injuries or sickness are
excluded from gross income. (Sec. 32(B)(4) of the NIRC)
56. Separation Pay - Any amount received by an official or employee or by his heirs from the employer as
a consequence of separation of such official or employee from the service of the employer because of
death sickness or other physical disability or for any cause beyond the control of the said official or
employee is excluded from gross income. (Sec. 32(B)(6)(b) of the NIRC)
57. Retirement Pay – Retirement pay received by an employee will be exempt from income tax if the
following requisites are complied with:
a) Under the NIRC or received under a reasonable private benefit plan:
1. The retirement plan must be approved by the BIR;

2. The retiring officials or employees must have been in the service of the same employer for at
least ten (10) years and is not less than fifty (50) years of age at the time of retirement; and,
3. The retiring official or employee shall not have previously availed of the privilege under the
retirement benefit plan of the same or another employer. (IBC vs. Amarilla, GR No. 162775 dated
October 27, 2006)
b) Under the Labor Code or in the absence of a BIR registered retirement plan:
1. Those received under existing collective bargaining agreement and other agreements are
exempt from income and withholding tax; and,
2. In the absence of a retirement plan or agreement providing for retirement benefits, the
retirement pay is exempt from income and withholding tax if:
a) The retiring officials or employees have served for at least five (5) years; and,
b) The retiring official or employee is not less than sixty (60) years of age but not more
than sixty five (65). (Sec. 32(B)(6)(a) of the NIRC)
58. Terminal Leave Pay received by Government Officials – Terminal leave pay refers to commutation of
accrued leave credits. Terminal leave payments to government officials are exempt from income tax
because they are given not only at the same time but also for the same policy considerations governing
retirement benefits. (CIR vs. CA, GR No. 96016 dated October 17, 1991)
59. Prizes and Awards for certain achievements - Prizes and awards made primarily in recognition of
religious, charitable, scientific, educational, artistic, literary, or civic achievement are exempt from income
tax but only if:
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a) The recipient was selected without any action on his part to enter the contest or proceeding; and,
b) The recipient is not required to render substantial future services as a condition to receiving the
prize or award. (Sec. 32(B)(7)(c) of the NIRC)
60. Prizes and Awards in sports Competition. - All prizes and awards granted to athletes in local and
international sports competitions and tournaments whether held in the Philippines or abroad and
sanctioned by their National Sports Associations (“NSA”). NSA shall mean those duly accredited by the
Philippine Olympic Committee (“POC”). (Sec. 32(B)(7)(d) of the NIRC) and RA No. 7549) In Antonio, Jr. vs.
CIR, the CTA held that since the Philippine Chess Federation is accredited by only by Philippine Sports
Commission and not by the POC, the prize received in the Millennium Chess Grand Prix is not excluded
from gross income.
61. 13th Month Pay and Other Benefits — Exempt from income tax to the extent of eighty-two thousand
pesos (Php82,000.00). Exemption covers only 13th month pay, Christmas bonus, loyalty award, gifts in
cash or in kind, amounts in excess of the respective de minimis benefits thresholds, and other benefits of
similar nature actually received by officials and employees of both government and private offices. The
exemption does not cover compensation income like the basic salary and allowances. (Sec. 32(B)(7)(e) of
the NIRC and Revenue Regulations No. 3-2015 dated March 9, 2015)
Fringe Benefits Tax
62. The Fringe Benefits Tax (“FBT”) is treated as a final income tax on the non-rank and file employee that
shall be withheld and paid by the employer on a calendar quarterly basis. A fringe benefit may be exempt
from FBT if the same is required by the nature of, or is necessary to the trade, business or profession of
the employer, or when the fringe benefit is for the convenience or advantage of the employer. (Sec. 33(A)
of the NIRC)
63. The following fringe benefits are not subject to the FBT:
1) Fringe benefits which are authorized and exempted from tax under special laws;
2) Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans;
3) Benefits given to the rank and file employees, whether granted under a collective bargaining
agreement or not; and,
4) De minimis benefits. (Sec. 33(C) of the NIRC)
64. De Minimis benefits that are exempt from income and FBT:
a) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during
the year and the monetized value of leave credits paid to government officials and employees;
b) Monetized value of vacation and sick leave credits paid to government officials and employees;
c) Medical cash allowance to dependents of employees not exceeding Php750 per employee per
semester or Php125 per month;
d) Rice subsidy of Php1,500 or one (1) sack of 50-kg. rice per month amounting to not more than
Php1,500;
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e) Uniform and clothing allowance not exceeding Php5,000 per annum;

f) Actual yearly medical benefits not exceeding Php10,000 per annum;
g) Laundry allowance not exceeding Php300 per month;
h) Employee achievement awards, e.g., for length of service or safety achievement, which must be
in the form of a tangible personal property other than cash or gift certificate, with an annual monetary
value not exceeding Php10,000 received by the employee under an established written plan which
does not discriminate in favor of highly paid employees;
i) Gifts given during Christmas and major anniversary celebrations not exceeding Php5,000 per
employee per annum;
j) Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic
minimum wage; and,
k) Benefits received by an employee by virtue of a collective bargaining agreement (“CBA”) and
productivity incentive schemes provided that the total annual monetary value received from both
CBA and productivity incentive schemes combined do not exceed ten thousand pesos (Php10,000.00)
per employee per taxable year.
All other benefits given not included in the enumeration above shall not be considered de minimis benefits
and shall be subject to withholding tax on compensation income. The amount of “de minimis” benefits
conforming to the ceiling prescribed above shall not be considered in determining the Php82,000.00
ceiling of “other benefits” excluded from gross income under Section 32(B)(7)(e) of the NIRC. Provided
that, the excess of the “de minimis” benefits over their respective ceilings prescribed above shall be
considered as part of “other benefits” and the employee receiving it will be subject to tax only on the
excess over the Php82,000.00 ceiling. (Revenue Regulations No. 5-2011 dated March 16, 2011, as
amended)
65. The amount paid by PAGCOR for amenities such as playing rights to golf clubs is not a fringe benefit
subject to the FBT. The membership of PAGCOR to these golf clubs and other organizations are intended
to benefit its customers and not its employees. Aside from this, the membership is under the name of
PAGCOR, and as such, cannot be considered as fringe benefits because it is the customers and not the
employees of PAGCOR who benefit from such memberships. Considering that the payments of
membership dues and fees are not borne by PAGCOR for its employees, they cannot be considered as
fringe benefits which are subject to FBT under Sec. 33 of the NIRC. (CIR vs. Secretary of Justice and
PAGCOR, GR No. 177387 dated November 9, 2016)
Capital Assets
66. The term “capital assets” means property held by the taxpayer (whether or not connected with his
trade or business), but does not include stock in trade of the taxpayer or other property of a kind which
would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or
business, or property used in the trade or business, of a character which is subject to the allowance for
depreciation provided in Sec. 34(F); or real property used in trade or business of the taxpayer. (Sec.
39(A)(1) of the NIRC)
67. The buildings, machineries and equipment of a Philippine Economic Zone Authority registered
corporation whose primary purpose is "to engage in the business of manufacturing ultra high-density
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microprocessor unit package" but did not commence business operations are capital assets. They are not
among the exclusions enumerated in Sec. 39(A)(1) of the NIRC. None of the properties were used in the
taxpayer’s trade or ordinary course of business because the taxpayer never commenced operations. They
were not part of the inventory. None of them were stocks in trade. Based on the definition of capital
assets under Sec. 39 of the NIRC, they are capital assets. (SMI-ED Technology Corporation, Inc. vs. CIR, GR
No. 175410 dated November 12, 2014)
Deductions
68. In order to be considered as a deductible business expense, the following requisites must concur: (a)
the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable
year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and, (d)
it must be supported by receipts, records or other pertinent papers. On the other hand, a sworn
declaration of loss must be filed with the BIR within forty-five (45) days from the date of occurrence in
order to substantiate a deduction for casualty loss. (H. Tambunting Pawnshop, Inc. vs. CIR, GR No. 173373
dated July 29, 2013)
69. Any amount paid or payable which is otherwise deductible from, or taken into account in computing
gross income shall be allowed as a deduction only if it is shown that the withholding tax required to be
deducted and withheld therefrom has been paid to the BIR. (Sec. 34(K) of the NIRC)
70. In general, contributions made to: (1) the Government of the Philippines or to any of its agencies or
political subdivisions, including fully-owned government corporations; (2) Certain Foreign Institutions or
International Organizations; and, (3) Nongovernment Organizations organized and operated exclusively
for scientific, research, educational, character-building and youth and sports development, health, social
welfare, cultural or charitable purposes, or a combination thereof, no part of the net income of which
inures to the benefit of any private individual, are deductible for income tax purposes. (Sec. 34(H) of the
NIRC)
71. Items that are not deductible:
a) Personal, living or family expenses;

b) Any amount paid out for new buildings or for permanent improvements, or betterments made to
increase the value of any property or estate. However, intangible drilling and development costs
incurred in petroleum operations are deductible under Sec. 34(G)(1) of the NIRC;
c) Any amount expended in restoring property or in making good the exhaustion thereof for which
an allowance is or has been made; and,
d) Premiums paid on any life insurance policy covering the life of any officer or employee, or of any
person financially interested in any trade or business carried on by the taxpayer, individual or
corporate, when the taxpayer is directly or indirectly a beneficiary under such policy. (Sec. 36(A)
of the NIRC)
72. Bad Debts, Interest Expense and Losses shall not be deductible covering transactions between the
following:
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a) Between members of a family. The family of an individual shall include only his brothers and
sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants; or
b) Except in the case of distributions in liquidation, between an individual and corporation more than
fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by
or for such individual; or
c) Except in the case of distributions in liquidation, between two corporations more than fifty
percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for
the same individual if either one of such corporations, with respect to the taxable year of the
corporation preceding the date of the sale of exchange was under the law applicable to such
taxable year, a personal holding company or a foreign personal holding company;
d) Between the grantor and a fiduciary of any trust; or
e) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the same
person is a grantor with respect to each trust; or
f) Between a fiduciary of a trust and beneficiary of such trust. (Sec. 36(B) of the NIRC)
Dividends
73. Cash and property dividends received by a domestic corporation and a resident foreign corporation
from a domestic corporation are exempt from income tax. On the other hand, dividends received by a
nonresident foreign corporation from a domestic corporation is subject to 30% final withholding tax.
Under the tax sparing rule, the tax is lowered to 15% if the country in which the nonresident foreign
corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation
taxes deemed to have been paid in the Philippines equivalent to 15%. (Sec. 28(B)(5)(b) of the NIRC) If the
country in which nonresident foreign corporation is domiciled does not impose any tax on dividends, the
tax sparing rule is considered satisfied. Accordingly, the dividends received by the nonresident foreign
corporation will only be subject to final withholding tax at the rate of 15%. (CIR vs. Wander Phils., Inc., GR
No. L-68375 dated April 16, 1998)
74. A stock dividend representing the transfer of surplus to the capital account shall not be subject to tax.
However, if a corporation cancels or redeems stock issued as a dividend at such time and in such manner
as to make the distribution and cancellation or redemption, in whole or in part, essentially equivalent to
the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock
shall be considered as taxable income to the extent that it represents a distribution of earnings or profits.
(Sec. 73(B) of the NIRC)
75. Where a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized
or loss sustained by the stockholder, whether individual or corporate, is a taxable income or a deductible
loss, as the case may be. Thus, Liquidating Dividends may or may not be subject to tax depending on
whether the stockholder derives a gain or loss from the transaction. The gain or loss is computed by the
following formula: fair market value of the property received or cash received as liquidating dividend less:
acquisition cost of investment or shares. If there is gain, the gain is subject to the regular income tax rates.
If there is a loss, the same is deductible as a capital loss. (Sec. 73(A) of the NIRC)
IV. Estate and Donor’s Taxation
Basic Principles in Estate and Donor’s Taxation
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76. It is a well-settled rule that estate taxation is governed by the statute in force at the time of death of
the decedent. The Estate Tax accrues as of the death of the decedent and the accrual of the tax is distinct
from obligation to pay the same. Upon death of the decedent, succession takes place and the right of the
State to tax the privilege to transmit the estate vests instantly upon death. (Revenue Regulations No. 2-
77. The estate of a nonresident alien decedent is subject to Estate Tax on properties situated in the
Philippines at the time of death. All other decedents’ estates are subject to Estate Tax on properties
wherever situated at the time of death. On the other hand, only a nonresident alien donor and a
nonresident foreign corporation are subject to Donor’s Tax for donations made covering properties
located in the Philippines. All other donors are subject to Donor’s Tax for donations made covering
properties wherever situated. (Secs. 85 and 104 of the NIRC)
78. The rule on reciprocity, which exempts the transmission of property from Estate Tax or Donor’s Tax,
applies if the following conditions are present:
a) The decedent is a nonresident alien or the Donor is a nonresident alien or nonresident foreign
corporation;
b) The subject property is intangible personal property situated in the Philippines; and,
c) The decedent at the time of his death or the donor at the time of the donation was a citizen and
resident of a foreign country which at the time of his death or donation did not impose a transfer tax
of any character, in respect of intangible personal property of citizens of the Philippines not residing
in that foreign country, or if the laws of the foreign country of which the decedent or donor was a
citizen and resident at the time of his death or donation allows a similar exemption from transfer or
death taxes of every character or description in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country. (Sec. 104 of the NIRC)
79. The valuation of the properties subject to Estate Tax or Donor’s Tax is the fair market value at the
time of the decedent’s death or at the time of donation. (Secs. 88 and 102 of the NIRC)
80. When the donee or beneficiary is a stranger, the tax payable by the donor shall be thirty percent (30%)
of the net gifts. A “stranger” is a person who is not a: (1) Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant; or (2) Relative by consanguinity in the collateral line within the
fourth degree of relationship. (Sec. 99(B) of the NIRC)
81. If the net estate is Php200,000.00 and below, the same is exempt from Estate Tax. If the donation is
between those who are not strangers, the donation is exempt from Donor’s tax if the net gifts are
Php100,000.00 and below. (Secs. 84 and 99(A) of the NIRC)
82. The deadline to pay the Estate Tax is six (6) months from the date of death of the decedent. While the
deadline to pay the Donor’s Tax is thirty (30) days from the date the donation made. The filing of the
Estate Tax Return may be extended for a maximum period of thirty (30) days in meritorious cases. On the
other hand, the payment of the Estate Tax may be extended on the ground that payment on the deadline
would impose undue hardship on the part of the heirs. The period of payment of the Estate Tax may be
extended for a period not exceeding: (a) five (5) years in case the estate is judicially settled; or (b) two (2)
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years in case the estate is extrajudicially settled. If the CIR grants extension for payment of the Estate Tax,
the prescriptive period to assess the Estate Tax is automatically suspended. In addition, the CIR may
require the posting of a surety bond in an amount not exceeding double the amount of the Estate Tax
due. (Secs. 90(C) and 91(B) of the NIRC)
Deductions from the Gross Estate
83. Judicial expenses are expenses of administration. These include all expenses "essential to the
collection of the assets, payment of debts or the distribution of the property to the persons entitled to
it." In other words, the expenses must be essential to the proper settlement of the estate. A notarial fee
paid for the extrajudicial settlement is clearly a deductible expense since such settlement effected a
distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, attorney's fees paid to an entity which
provided a detailed accounting of the decedent's property and gave advice as to the proper settlement of
the latter's estate, acts which contributed towards the collection of decedent's assets and the subsequent
settlement of the estate are also deductible judicial expenses.
84. The following expenses are not deductible for Estate Tax purposes:
a) Expenditures incurred for the individual benefit of the heirs, devisees or legatees;
b) Compensation paid to a trustee of the decedent's estate when it appears that such trustee was
appointed for the purpose of managing the decedent's real estate for the benefit of the testamentary
heir;
c) Premiums paid on the bond filed by the administrator as an expense of administration since the
giving of a bond is in the nature of a qualification for the office, and not necessary in the settlement
of the estate; and,
d) Attorney's fees incident to litigation incurred by the heirs in asserting their respective rights.
Thus, expenditures incurred for the individual benefit of the heirs, devisees or legatees are not deductible.
(CIR vs. CA and Pajonar, GR No. 123206 dated March 22, 2000)
85. Under the date of death valuation principle, the amount of deductible claims against the estate is the
amount of the obligation at the time of decedent’s death and not the amount actually paid by the heirs
to settle the obligation. Post death developments are not material for purposes of determining the
amount of deductible claims against the estate. (Dizon vs. CTA, GR No. 140944 dated April 30, 2008)
86. In order to claim Vanishing Deduction for Estate Tax purposes, the following requisites must concur:
a) The property respecting which the deduction is sought must have been received by the decedent
as a gift within five (5) years from the date of his death, or received by him by bequest, devise or
inheritance from a prior decedent who died within five (5) years from the date of the decedent’s
death;
b) The property with respect to which deduction is claimed must have formed part of the gross
estate situated in the Philippines of the prior decedent or taxable gift of the donor;
c) The property must be the same property received from the prior decedent or donor or the one
received in exchange therefor;
d) Estate Tax and Donor’s Tax on the previous transfer must have been paid; and,
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e) No vanishing deduction on the property was allowed to the prior estate. (Sec. 86(A)(2) of the NIRC)
87. The Standard Deduction of Php1,000,000.00 may be availed only by the estate of a resident or citizen
decedent without need of any substantiation. (Sec. 86(A)(5) of the NIRC)
88. The estate of a nonresident alien decedent cannot claim the following deductions:
a) Family Home;
b) Standard Deduction;
c) Medical Expenses; and,
d) Separation Pay. (Sec. 86(B) of the NIRC)
Exemption of Certain Transmissions
89. The following transfers are exempt from Estate Tax:
a) The merger of usufruct in the owner of the naked title;

b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;
c) The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and,
d) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions,
no part of the net income of which insures to the benefit of any individual: Provided, however, That
not more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be used
by such institutions for administration purposes. (Sec. 87 of the NIRC)
90. The following are exempt from Donor’s Tax:
1) Dowries or gifts made on account of marriage and before its celebration or within one year
thereafter by parents to each of their legitimate, recognized natural, or adopted children to the extent
of the first Ten thousand pesos (Php10,000.00) - applicable only to resident or citizen donors;
2) Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political subdivision of the said Government -
applicable to all kinds of donors; and,
3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthrophic organization or research
institution or organization: Provided, however, that not more than thirty percent (30%) of said gifts
shall be used by such donee for administration purposes. For the purpose of the exemption, a 'non-
profit educational and/or charitable corporation, institution, accredited nongovernment
organization, trust or philanthrophic organization and/or research institution or organization' is a
school, college or university and/or charitable corporation, accredited nongovernment organization,
trust or philanthrophic organization and/or research institution or organization, incorporated as a
nonstock entity, paying no dividends, governed by trustees who receive no compensation, and
devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of
philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of
Incorporation – applicable to all kinds of donors.
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Release of Decedent’s Bank Deposit
91. If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or
jointly with another, it shall not allow any withdrawal from the said deposit account, unless the CIR has
certified that the Estate Tax has been paid. However, the administrator of the estate or any one of the
heirs of the decedent may, upon authorization by the CIR, withdraw an amount not exceeding Twenty
thousand pesos (P20,000.00) without certification that the Estate tax has been paid. (Sec. 97 of the NIRC)
Transfer for Insufficient Consideration
92. If property, whether real or personal, is sold below its fair market value, the difference between the
fair market value and the selling price is considered a donation subject to Donor’s tax. The only exception
would be the sale of real property subject to the 6% capital gains tax. (Sec. 100 of the NIRC)
93. If a person sells property below its fair market value, except for real property subject to the 6% capital
gains tax, even if there is no actual donation, the difference between the fair market value and the selling
price is considered a donation by fiction of law. (Philamlife Company vs. SOF, GR No. 210987 dated
November 24, 2014)
Rules on Political Contributions
94. Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign
purposes, provided the same is duly reported to the COMELEC, is exempt from Donor’s tax. (Sec. 99(C) of
the NIRC in relation to Sec. 13 of RA No. 7166)
95. Unutilized/excess campaign funds, that is, campaign contributions net of the candidate’s campaign
expenditures, shall be considered as subject to income tax. Corollary thereto, failure to submit statement
of expenditures to the COMELEC subjects the entire contributions to income tax. Since, the candidate will
be precluded from claiming expenditures as “deductions” from his campaign contributions. (Revenue
Regulations No. 7-2011 dated February 16, 2011)
96. Political contributions which are not utilized during the campaign period is subject to Donor’s tax.
Also, political contributions made by a corporation is subject to Donor’s tax. (Revenue Memorandum
Circular No. 30-2016 dated March 14, 2016)
Rules on Renunciation of the Conjugal/Community Share and Share in the Inheritance
97. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of marriage in favor of the heirs of the deceased spouse or any other
person is subject to Donor’s Tax.
98. General Renunciation by an heir, including the surviving spouse, of his/her share in the hereditary
estate is not subject to Donor’s tax, unless specifically and categorically done in favor of identified heir/s
to the exclusion or disadvantage of the other co-heirs in the hereditary estate. (Revenue Regulations No.
2-2003 dated December 16, 2002)
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V. Value-added Tax
Destination Principle and Cross Border Doctrine
99. The Destination Principle provides that goods and services are taxed only in the country where these
are consumed. In connection with the said principle, the Cross Border Doctrine mandates that no VAT shall
be imposed to form part of the cost of the goods destined for consumption outside the territorial border
of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign
country must be free of VAT, while those destined for use or consumption within the Philippines shall be
imposed with 12% VAT. Export processing zones are to be managed as a separate customs territory from
the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For
this reason, sales by persons from the Philippine customs territory to those inside the export processing
zones are taxed as exports. (Atlas Consolidated Mining and Development Corporation, GR Nos. 141104
and 148763 dated June 8, 2007)
100. Under the Cross Border Doctrine and Destination Principle, the sale of goods by a VAT-registered
person located outside the Economic Zone (“ECOZONE”) to a taxpayer located inside the ECOZONE is
subject to zero-percent (0%) VAT. Since the transaction does not result to input VAT on the part of the
buyer, the buyer is not entitled to a claim for refund. The buyer’s remedy is to go after the seller for the
erroneously passed on VAT. (Coral Bay Nickel Corporation vs. CIR, GR No. 190506 dated June 13, 2016)
Persons Liable for VAT
101. In order to be subject to VAT, there must be a sale, barter, exchange, lease of goods or rendition of
services in the course of trade or business, or importation of goods. The phrase “in the course of trade or
business” means the regular conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not the person engaged therein
is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether
or not it sells exclusively to members or their guests), or government entity. The rule of regularity, to the
contrary notwithstanding, services rendered in the Philippines by nonresident foreign persons shall be
considered as being in the course of trade or business. (Sec. 105 of the NIRC)
102. As long as an entity renders services in the Philippines for a fee, its services are subject to VAT. It is
immaterial whether profit is derived from rendering the service. Thus, an entity which renders service in
the Philippines to its affiliates on a reimbursement-of-cost basis is liable to VAT on its sale of services. (CIR
vs. CA and COMASERCO, GR No. 125355 dated March 30, 2000)
103. Subsidized advertising expenses paid for by a parent company for a subsidiary which was treated as
income by the subsidiary for income tax purposes is not subject to VAT. Under Sec. 105 of the NIRC, there
must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there
was no such sale, barter or exchange in the subsidy given by the parent company to the subsidiary. It was
but a dole out by the parent company and not in payment for goods or properties sold, bartered or
exchanged by the subsidiary. (CIR vs. Sony Philippines, Inc., GR No. 178697 dated November 17, 2010)
104. The following persons are mandatorily required to register for VAT:
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a) Those whose gross sales or receipts for the past twelve (12) months, other than those that are
exempt under Sec. 109 (1)(A) to (V) of the NIRC, have exceeded One Million Nine Hundred Nineteen
Thousand Five Hundred Pesos (Php1,919,500.00); or
b) If there are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt under Sec. 109 (1)(A) to (V) of the NIRC, will exceed One
Million Nine Hundred Nineteen Thousand Five Hundred Pesos (Php1,919,500.00); or
c) Franchise grantees of radio and television broadcasting, whose gross annual receipts for the
preceding calendar year exceeded Php10,000,000.00.
If the taxpayer fails to register as a VAT-registered taxpayer, he shall be liable to pay VAT as if he were a
VAT-registered person, but without the benefit of input tax credits for the period in which he was not
properly registered. (Secs. 236(G) and 119 of the NIRC)
VAT on Sale of Real Property
105. The sale of real property located in the Philippines is generally subject to VAT. The VAT base on the
sale of real property is the gross selling price or fair market value, whichever is higher. Note that even if
real property is not primarily held for sale to customers or held for lease in the ordinary course of trade
or business but the same is used in the trade or business of the seller, the sale thereof shall be subject to
VAT being a transaction incidental to the taxpayer's main business. (Revenue Regulations No. 4-2007
dated February 7, 2007) However, the following sale of real property, among others, shall not be subject
to the 12% VAT:
a) Sale of real property considered as a capital asset. It is not subject to VAT because the sale is not
made in the ordinary course of trade or business; (Sec. 105 of the NIRC)
b) Sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five Hundred Pesos
(Php1,919,500.00) and below;
c) Sale of residential house and lot and other residential dwellings valued at Three Million One
Hundred Ninety-Nine Thousand Two Hundred Pesos (Php3,199,200.00) and below. Note that
condominium units excluding parking lots are covered in the phrase “other residential dwellings.”
(Sec. 109(P) of the NIRC)
VAT on Services
106. In order to be liable to VAT on services, it is important that: (a) the service must be performed in the
Philippines; and, (b) there must be actual or constructive receipt of the consideration because the VAT on
services is based on the amount of gross receipts. Otherwise, the transaction is not subject to VAT. (Sec.
108 of the NIRC)
107. A cursory reading of Sec. 108 of the NIRC clearly shows that the enumeration of the sale or exchange
of services subject to VAT is not exhaustive. The words, “including,” “similar services,” and “shall likewise
include,” indicate that the enumeration is by way of example only. (CIR vs. SM Prime Holdings, Inc., GR
No. 183505 dated February 26, 2010)
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108. Amounts earmarked and eventually paid by HMOs (like MEDICARD) to medical service providers do
not form part of gross receipts for VAT purposes. The definition of gross receipts of HMOs under RR No.
16-2005 merely presumed that the amount received by an HMO as membership fee is the HMO's
compensation for their services. As a mere presumption, an HMO is, thus, allowed to establish that a
portion of the amount it received as membership fee does not actually compensate it but some other
person, which in this case are the medical service providers themselves.
109. Under RR No. 4-2007, “Gross receipts” refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, xxx and deposits applied as payments for
services rendered and advance payments actually or constructively received during the taxable period for
the services performed or to be performed for another person, excluding the VAT, except those amounts
earmarked for payment to unrelated third (3rd) party or received as reimbursement for advance payment
on behalf of another which do not redound to the benefit of the payor.
110. An HMO per se does not render medical services. However, if the HMO has laboratory facilities, its
fees received for laboratory and diagnostic services is exempt from VAT under Sec. 109(1)(G) of the NIRC.
Sec. 109(1)(G) of the NIRC provides that medical, dental, hospital and veterinary services except those
rendered by professionals are exempt from VAT. (MEDICARD Phils., Inc. vs, CIR, GR No. 222743 dated April
5, 2017)
VAT Exemption
111. Under Sec. 109(1)(A) of the NIRC, the sale of agricultural food products in their original state is
exempt from VAT. Agricultural food products that have undergone simple processes of preparation or
preservation for the market are nevertheless considered to be in their original state. Sugar is an
agricultural food product. For internal revenue purposes, the sale of raw cane sugar is exempt from VAT
because it is considered to be in its original state. On the other hand, refined sugar is an agricultural
product that can no longer be considered to be in its original state because it has undergone the refining
process, its sale is thus subject to VAT.
112. Although the sale of refined sugar is generally subject to VAT, such transaction may nevertheless
qualify as a VAT-exempt transaction if the sale is made by a cooperative. Under Sec. 109(1)(L) of the NIRC,
sales by agricultural cooperatives are exempt from VAT provided the following conditions concur: (1) the
seller must be an agricultural cooperative duly registered with the Cooperative Development Authority
(“CDA”); and, (2) the cooperative must sell either: (a) exclusively to its members; or (b) to both members
and non-members, its produce, whether in its original state or processed form.
The second requisite differentiates cooperatives according to its customers. If the cooperative transacts
only with members, all its sales are VAT-exempt, regardless of what it sells. On the other hand, if it
transacts with both members and non-members, the product sold must be the cooperative's own produce
in order to be VAT-exempt. Stated differently, if the cooperative only sells its produce or goods that it
manufactures on its own, its entire sales is VAT-exempt. (CIR vs. United Cadiz Sugar Farmers Association
Multi Purpose Cooperative, GR No. 209776 dated December 7, 2016)
113. The lease of a residential unit with a monthly rental not exceeding Twelve Thousand Eight Hundred
pesos (Php12,800.00) is exempt from VAT. (Sec. 109(1)(Q) of the NIRC)
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Transitional Input VAT
114. A person who becomes liable to VAT or any person who elects to be a VAT-registered person shall,
subject to the filing of an inventory, be allowed a transitional input tax on his beginning inventory of goods,
materials and supplies equivalent to two percent (2%) of the value of such inventory or the actual value-
added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable
against the output tax. (Sec. 111(A) of the NIRC)
115. Under RR No. 16-2005, the following taxpayers may claim transitional input VAT under Sec. 111(A)
of the NIRC: (a) Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of
Php1,919,500.00 in any 12-month period, or (b) Taxpayers who voluntarily register even if their turnover
does not exceed Php1,919,500.00 (except franchise grantees of radio and television broadcasting whose
threshold is Php10,000,000.00).
Rules on Claim for Refund under Sec. 112 of the NIRC
116. Rules on Administrative claim for refund under Sec. 112(A) of the NIRC: The period to file a claim for
refund with the BIR for excess input VAT attributable to a zero-rated transaction is two (2) years counted
from the close of the taxable quarter when the zero-rated sales are made. As an exception to the said
rule, from June 8, 2007 up to September 12, 2008, the 2-year period to file the administrative claim for
refund may be reckoned from the filing of the quarterly VAT return.
117. Rules on Judicial claim for refund under Sec. 112(C) of the NIRC: There is premature filing if the
taxpayer files an appeal to the CTA during the 120-day period counted from complete submission of
documents without a decision on the part of the BIR. As an exception to the said rule, premature filing is
allowed under BIR Ruling No. DA-489-03 from December 10, 2003 and October 5, 2010. There is late filing
if the taxpayer files an appeal with the CTA beyond thirty (30) days from the lapse of the 120-day period.
There is no exception to the rule on late filing.
In addition, the judicial claim for refund or appeal with the CTA under Sec. 112(C) need not be filed within
the 2-year period under Sec. 112(A). The 2-year period only applies to the administrative claim for refund
with the BIR. (CIR vs. San Roque Power Corporation, GR No. 187485 dated February 12, 2013)
118. Starting June 11, 2014, the reckoning of the 120-day period is from the filing of the administrative
claim for refund under Sec. 112(A). Under Revenue Memorandum Circular (“RMC”) No. 54-2014 dated
June 11, 2014, the application for VAT refund/tax credit with the BIR must be accompanied by complete
supporting documents. In addition, the taxpayer shall attach a statement under oath attesting to the
completeness of the submitted documents. The affidavit shall further state that the said documents are
the only documents which the taxpayer will present to support the claim.
119. Prior to June 11, 2014, the taxpayer determines completeness of documents for purposes of the
running of the 120-day period. Whatever documents a taxpayer intends to file to support his claim must
be completed within the two-year period under Sec. 112(A) of the NIRC. (Pilipinas Total Gas, Inc. vs. CIR,
GR No. 207112 dated December 8, 2015)
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120. A taxpayer cannot claim the unutilized input VAT credits as an expense for income tax purposes. The
unutilized creditable input tax related to zero-rated sales can only be recovered through the application
for refund or tax credit. Nowhere in the NIRC can we find a specific provision expressly providing for
another mode for recovering unapplied input taxes, particularly that unapplied input taxes may be treated
outright as deductible expense for income tax purposes. (Revenue Memorandum Circular No. 57-2013
dated August 23, 2013)
VI. Remedies under the NIRC
Letter of Authority
121. A Letter of Authority or 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 taxpayer for the purpose of collecting the correct amount of
tax. The statutory basis for the requirement of a Letter of Authority is Sec. 6(A) of the NIRC particularly
the phrase: “xxx the CIR or his duly authorized representative may authorize the examination of any
taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return
shall not prevent the CIR from authorizing the examination of any taxpayer.”
122. The BIR cannot issue an assessment for the year 1998 if the Letter of Authority granted to the BIR
examiners covers only the year 1997. Under Sec. 6(A) of the NIRC, 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. (CIR vs. Sony Phils., Inc., GR No. 178697 dated November 17,
2010)
123. Sec. C of RMO No. 43-90 dated September 20, 1990, provides that: “A Letter of Authority should
cover a taxable period not exceeding one taxable year. The practice of issuing L/As covering audit of
"unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more than one taxable
period, the other periods or years shall be specifically indicated in the L/A.”
124. A Letter of Authority whose covered period provides: “Fiscal Year Ending 2003 and Unverified Prior
Years” does not strictly comply with RMO No. 43-90 but it is not entirely void. The LOA covering the year
2003 is valid. What RMO No. 43-90 clearly prohibits is the practice of issuing LOAs covering audit of
unverified prior years but it does not say that an LOA which contains unverified prior years is void.
RMO No. 43-90 requires that if the audit includes more than one taxable period, the other periods or
years must be specified. The provision read as a whole requires that if a taxpayer is audited for more than
one taxable year, the BIR must specify each taxable year or taxable period on separate LOAs. This is to
inform the taxpayer of the extent of the audit and scope of the revenue officer’s authority.Without this
rule, a revenue officer can unduly burden the taxpayer by demanding random accounting records from
random unverified years, which may include documents from as far back as 10 years in cases of a fraud
audit.
125. If the BIR issues assessments for the years 2001, 2002 and 2003 pursuant to an LOA whose covered
period provides: “Fiscal Year Ending 2003 and Unverified Prior Years”, the assessment for year 2003 is
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valid because this taxable period was specified in the LOA. The taxpayer was fully apprised that it was
being audited for taxable year 2003. On the other hand, the assessments for taxable years 2001 and 2002
are void for having been unspecified on separate LOAs as required under RMO No. 43-90. (CIR vs. De La
Salle University, GR No. 196596 dated November 9, 2016)
126. An assessment based on a mere Letter Notice or computerized matching of the taxpayers’ records
without an LOA is null and void. An LOA cannot be dispensed with just because none of the financial books
or records being physically kept by the taxpayer was examined. Sec. 6(A) of the NIRC requires an authority
from the CIR or from his duly authorized representatives before an examination "of a taxpayer" may be
made. The requirement of authorization is therefore not dependent on whether the taxpayer may be
required to physically open his books and financial records but only on whether a taxpayer is being subject
to examination. (MEDICARD Phils., Inc. vs, CIR, GR No. 222743 dated April 5, 2017)
Assessment
127. An assessment contains not only a computation of tax liabilities, but also a demand for payment
within a prescribed period. It also signals the time when penalties and protests begin to accrue against
the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must
be served on and received by the taxpayer. Thus, a complaint-affidavit for tax evasion filed with the
Department of Justice is not an assessment even if it contains a computation of taxes. The complaint-
affidavit does not contain a demand to pay. (CIR vs. Pascor Realty, GR No. 128315 dated June 29, 1999)
128. A FAN which states that the amount of deficiency tax is adjustable depending on when the taxpayer
pays is not a valid assessment. It lacks the definite amount of tax liability for which the taxpayer is
accountable. It does not purport to be a demand for payment of tax due, which a FAN should supposedly
be. Although the assessment provides for the computations of the taxpayer’s tax liability, the amount
remains indefinite. It only provides that the tax due is still subject to modification, depending on the date
of payment.
129. A FAN which does not contain a due date for payment is also not valid. If there are no due dates on
the FAN, this negates the BIR's demand for payment. (CIR vs. Fitness By Design, GR No. 215957 dated
November 9, 2016)
Prescriptive Period to Assess and Collect
130. As a general rule, the BIR has three (3) years counted from: (a) the actual date of filing of the return
or (b) the deadline for filing of the return, whichever comes later, to make a deficiency tax assessment.
(Sec. 203 of the NIRC) As an exception to said rule, the prescriptive period to assess is extended to ten (10)
years if there is an omission to file a return, there is filing of a false return or a fraudulent return with
intent to evade taxes. The 10-year period starts to run from the discovery of the omission, falsity or fraud.
(Secs. 222(a) of the NIRC)
131. As a general rule, the BIR has five (5) years from the date of receipt or sending of the FAN to collect
a deficiency tax liability. (Sec. 222(c) of the NIRC) As an exception to the general rule, the BIR may
administratively collect a deficiency tax liability without an assessment within ten (10) years if there is an
omission to file a return, there is filing of a false return or a fraudulent return with intent to evade taxes.
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The 10-year period starts to run from the discovery of the omission, falsity or fraud. (Secs. 222(a) of the
NIRC)
132. If the BIR alleges that the taxpayer filed a fraudulent return with intent to evade tax in order to avail
of the 10-year prescriptive period to assess, it is indispensable for the CIR to include the basis for its
allegations of fraud in the assessment notice. (CIR vs. Fitness By Design, GR No. 215957 dated November
9, 2016)
133. Under Sec. 248(B) of the NIRC, failure to report sales, receipts or income in an amount exceeding
thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding thirty
(30%) of actual deductions, shall constitute prima facie evidence of a false or fraudulent return.
134. A prima facie evidence is one which that will establish a fact or sustain a judgment unless
contradictory evidence is produced. In other words, when there is a showing that a taxpayer has
substantially underdeclared its sales, receipt or income, there is a presumption that it has filed a false
return. As such, the CIR need not immediately present evidence to support the falsity of the return, unless
the taxpayer fails to overcome the presumption against it. Failure of the taxpayer to refute the
presumption warrants the application of the application of the ten (10)-year prescriptive period for
assessment under Sec. 222(a) of the NIRC. (CIR vs. Asalus Corporation, GR No. 221590 dated February 22,
2017)
135. The prescriptive period to assess and/or collect is suspended under Sec. 223 of the NIRC:
a) For the period during which the Commissioner is prohibited from making an assessment or
beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter;
b) When the taxpayer requests for a reinvestigation which is granted by the Commissioner;
c) When the taxpayer cannot be located in the address given by him in the return filed upon which
a tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any
change in address, the running of the Statute of Limitations will not be suspended;
d) When the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could be
located; and,
e) When the taxpayer is out of the Philippines.
136. If the taxpayer fails to notify the BIR in writing of a change in its address, the prescriptive period to
assess and/or collect shall only be suspended if the BIR is unaware of the whereabouts of the taxpayer. If
the BIR knows the actual whereabouts of the taxpayer but still sends the assessment notices to the
taxpayer’s old address, the prescriptive period to collect is not suspended. (CIR vs. BASF Coating + Inks
Phils., GR No. 198677 dated November 26, 2014)
137. A protest against an assessment may be in the form of a request for reconsideration or request for
reinvestigation. A request for reconsideration refers to a plea for a re-evaluation of an assessment on the
basis of existing records without need of additional evidence. On the other a request for reinvestigation
refers to a plea for re-evaluation of an assessment on the basis of newly-discovered or additional
evidence that a taxpayer intends to present in the reinvestigation. It must be emphasized that the act of
filing a request for reinvestigation alone does not suspend the prescriptive period. Such request must be
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granted. A request for reconsideration even if granted, does not suspend the prescriptive period. (BPI vs.
CIR, GR No. 139736 dated October 17, 2005)
Waiver of the Statute of Limitations
138. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of
prescription. It is an agreement between the taxpayer and the BIR that the period to issue an assessment
and collect the taxes due is extended to a date certain. (Philippine Journalists, Inc. vs. CIR, GR No. 162852
dated December 16, 2004)
139. On April 4, 2016, the BIR issued RMO No. 14-2016 amending the requirements of a valid waiver of
the statute of limitations under the NIRC. Currently, a valid waiver must comply with the following
requirements:
a) the waiver must be executed by the taxpayer and accepted by the BIR before the expiration of
the period to assess or collect taxes (or before the lapse of the period agreed upon in case a
subsequent agreement is executed);
b) the waiver must be signed by the taxpayer himself or his duly authorized representative. In the
case of a corporation, the waiver must be signed by any of its responsible officials;
c) the expiry date of the period agreed upon to assess/collect the tax after the regular three-year
period of prescription should be indicated;
d) the waiver of the prescriptive period to collect must indicate the particular taxes assessed. The
waiver of prescriptive period to assess may simply state “all internal revenue taxes;” and,
e) two material dates must appear on the waiver: (1) the date of execution; and, (2) the expiry date
of the period the taxpayer waives the statute of limitations.
140. As a general rule, estoppel will not validate a defective waiver. However, in two (2) cases, the
Supreme Court declared valid a defective waiver on the ground of estoppel:
1) Partial payment of an assessment which is covered by a defective waiver. RCBC, through its partial
payment of the assessment impliedly admitted the validity of the waiver. Had RCBC truly believed
that the waiver was invalid and that the assessment was issued beyond the prescriptive period, then
it should not have paid the reduced amount of taxes in the revised assessment. RCBC’s subsequent
action effectively belies its insistence that the waiver is invalid. (RCBC vs. CIR, GR No. 170257 dated
September 7, 2011); and,
2) When the application of estoppel would promote the administration of the law, prevent injustice
and avert the accomplishment of a wrong and undue advantage. In this case, the taxpayer executed
five (5) waivers and delivered them to the BIR, one after the other when the signatory of the waiver
was not authorized to sign the same. It allowed the BIR to rely on them and did not raise any objection
against their validity until the BIR assessed taxes and penalties against it. Moreover, the application
of estoppel is necessary to prevent the undue injury that the government would suffer because of the
cancellation of petitioner's assessment of respondent's tax liabilities. (CIR vs. Next Mobile, Inc., GR No.
Submission of Documents During the 60-day period
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141. Failure to submit relevant supporting documents in support of a request for reinvestigation does not
render the assessment final and executory. For failure to submit documents, the request for
reinvestigation will be denied with the issuance of a Final Decision on a Disputed Assessment (“FDDA”).
Moreover, the term "relevant supporting documents" means documents necessary to support the legal
basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer
to submit additional documents. The BIR cannot demand what type of supporting documents should be
submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of
documents that a taxpayer cannot submit. The sixty (60) day period to submit documents only applies to
a request for reinvestigation. (CIR vs. First Express Pawnshop, GR Nos. 172045-06 dated June 16, 2009 and
RR No. 18-2013)
Remedies of the Taxpayer
142. The CTA has jurisdiction covering decisions on disputed assessments. In order for the FAN to be
disputed it must be protested within thirty (30) days from receipt thereof. The BIR has one hundred eighty
(180) days to decide the protest counted from: (a) the filing of the protest, in case of a request for
reconsideration; or (b) submission of documents during the 60-day period, in case of a request for
reinvestigation. (Sec. 228 and RR No. 18-2013)
143. In case of inaction of the BIR during the 180-day period, the taxpayer has two (2) options: (1) file a
petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await the
final decision of the CIR on the disputed assessment and appeal such final decision to the CTA within 30
days from receipt of a copy of such decision. These options are mutually exclusive and resort to one bars
the application of the other. (Lascona Land vs. CIR, GR No. 171251 dated March 5, 2012; RCBC vs. CIR, GR
No. 168498 dated April 24, 2007)
144. As a rule, in case the BIR issues an FDDA on the pending protest, the taxpayer has thirty (30) days to
appeal the FDDA to the CTA. (Sec. 228 of the NIRC) If the FDDA is issued by the CIR’s duly authorized
representative, the taxpayer may appeal the FDDA with the CIR within thirty (30) days from receipt of the
FDDA. The administrative appeal with the CIR is only limited to a request for reconsideration. No new
issues shall be entertained by the CIR. The CIR’s decision on the administrative appeal may be appealed
to the CTA within thirty (30) days from receipt thereof. (RR No. 12-99 as amended by RR No. 18-2013)
145. To summarize, Sec. 228 and the regulations of the BIR gives a protesting taxpayer only three options:
1) If the protest is wholly or partially denied by the CIR or his authorized representative, then the
taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the
protest;
2) If the protest is wholly or partially denied by the CIR's authorized representative, then the
taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the
protest; and,
3) If the CIR or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA within
30 days from the lapse of the 180-day period.
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To further clarify the three options: A whole or partial denial by the CIR's authorized representative may
be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The
CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. There is no mention
of an appeal to the CIR from the failure to act by the CIR's authorized representative. (PAGCOR vs. BIR, GR
No. 208731 dated January 27, 2016)
146. An FDDA must state the facts and law on which it is based to provide the taxpayer the opportunity
to file an intelligent appeal. An FDDA which contains a taxpayer’s supposed tax liabilities, without
providing any details on the specific transactions which gave rise to its supposed tax deficiencies is void.
The FDDA differs from the FAN. The nullity of the FDDA does not extend to the FAN. (CIR vs. Liquigaz Phils.
Corporation, GR No. 215534 dated April 18, 2016)
Court of Tax Appeals
147. Mere appeal to the CTA contesting the validity of an assessment does not suspend collection of the
deficiency taxes. The taxpayer should file a motion to suspend collection on the ground that collection
will jeopardize the interests of the taxpayer. If granted, the CTA will require the taxpayer to post a cash
bond in an amount equivalent to the basic assessed tax or a surety bond equivalent to not more than
double the basic assessed tax. The bond requirement should be dispensed with if: (a) prescription has set
in; or, (b) whenever it is determined by the courts that the method employed by the CIR in the collection
of tax is not sanctioned by law. (Spouses Pacquiao vs. The CTA, GR No. 213394 dated April 6, 2016.)
148. The CTA has exclusive original jurisdiction over all criminal offenses arising from violations of the
NIRC or the Tariff and Customs Code (now the CMTA) and other laws administered by the BIR or the
Bureau of Customs: Where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is One million pesos (Php1,000,000.00) or more. (Sec. 7 of RA No. 9282)
149. The following cases are directly appealable to the CTA En Banc:
a) Decisions by the Central Board of Assessment Appeals in Real Property Tax Cases;
b) Decisions by the Regional Trial Court in the exercise of its appellate jurisdiction in local tax cases;
c) Decisions by the Regional Trial Court in the exercise of its appellate jurisdiction in tax collection
cases; and,
d) Decisions by the Regional Trial Court in the exercise of its appellate jurisdiction in criminal cases.
(Sec. 7 of RA No. 9282)
Refunds in General
150. The taxpayer must file a written claim for refund with the CIR prior to filing a judicial claim for refund
with the CTA. (Sec. 204(C) of the NIRC) Both the administrative claim for refund with the CIR and the
judicial claim for refund with the CTA must be filed within 2 years from the date of payment regardless of
any supervening event. (Sec. 204(C) and Sec. 229 of the NIRC) Take note that the said rules applies to
refunds that do not involve a refund of excess input VAT which is covered by Sec. 112 of the NIRC.
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151. A written claim for refund is not necessary if: (a) the tax return filed shows an overpayment; (Sec.
204(C) of the NIRC; or (b) the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid. (Sec. 229 of the NIRC)
152. The period to file a claim for refund under Sec. 229 is two (2) years counted from the date of payment
regardless of any supervening event and not from the date of discovery of the erroneous payment. In the
case of erroneously paid withholding taxes, the six (6) year prescriptive period under Art. 1145 of the Civil
Code on solutio indebiti is not applicable because the first requisite of solutio indebiti is not present, i.e.,
payment is made when there exists no binding relation between the payor, who has no duty to pay, and
the person who received the payment. Here, there is a binding relation between the BIR as the taxing
authority and MERALCO which is bound under the law to act as a withholding agent of the principal
taxpayer. Also, the provisions of the NIRC, being a special law prevails over the provisions of the Civil Code,
being a general law. (CIR vs. Meralco, GR No. 181459 dated June 9, 2014)
Proper Party to File the Claim for Refund
153. In indirect taxation, as a general rule, it is the statutory taxpayer who is the proper party to file a
claim for refund. However, if the law confers an exemption from both direct or indirect taxes, a claimant
is entitled to a tax refund even if it only bears the economic burden of the applicable tax. (CIR vs. Philippine
Associated Smelting and Refining Corporation, GR No. 186223 dated October 1, 2014)
154. If the employee alleges that the employer over-withheld and over-remitted withholding tax on
compensation income, the employee has no cause of action for a tax refund against the employer. The
claim for refund should be filed with the BIR. (Honda Cars Philippines, Inc. vs. Honda Cars Technical
Specialist Supervisors Union, GR No. 204142 dated November 19, 2014)
Irrevocability Rule under Sec. 76 of the NIRC
155. Sec. 76 of the NIRC provides: “Once the option to carry-over and apply the excess quarterly income
tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such
option shall be considered irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor.” The phrase "for that taxable period" under
Sec. 76 merely identifies the excess income tax, subject of the option, by referring to the taxable period
when it was acquired by the taxpayer. It is not a prescriptive period for the irrevocability rule.
156. A denial of a claim for refund on ground that the irrevocability rule under Sec. 76 was violated does
not amount to unjust enrichment on the part of the government. There would be no unjust enrichment
in the event of denial of the claim for refund, because there would be no forfeiture of any amount in favor
of the government. The amount being claimed as a refund would remain in the account of the taxpayer
until utilized in succeeding taxable years, as provided in Sec. 76 of the NIRC. (CIR vs. BPI, GR No. 178490
dated July 7, 2009)
157. Once the taxpayer opts to carry-over its unutilized CWT to the succeeding taxable quarters or years,
the option to carry-over could no longer be converted into a claim for tax refund because of the
irrevocability rule provided in Sec. 76 of the NIRC. The taxpayer is barred from claiming a refund. Despite
the irrevocable choice, the taxpayer remains entitled to utilize the CWT as a tax credit in the succeeding
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taxable years until fully exhausted. In this regard, prescription does not bar the taxpayer from applying
the amount as a tax credit considering that there is no prescriptive period for the carrying over of the
amount as a tax credit in the subsequent taxable years. (CIR vs. PL Management International Philippines,
Inc., GR No. 160949 dated April 4, 2011)
158. Presentation by the taxpayer of the quarterly Income Tax Returns (“ITRs”) of the succeeding taxable
year is not necessary to prove non-carry over. What Sec. 76 of the NIRC requires, just like in all civil cases,
is to prove the prima facie entitlement to a claim, including the fact of not having carried over the excess
credits to the subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding
quarterly ITRs are absolutely needed. (Winebrenner & Inigo Insurance Brokers, Inc. vs. CIR, GR No. 206526
dated January 28, 2015) The BIR should present the quarterly ITRs as rebuttal evidence in order to shift
the burden of evidence back to the taxpayer. (Republic vs. Team (Phils.) Energy Corporation, GR No.
188016 dated January 14, 2015)
159. Where, however, the corporation permanently ceases its operations before full utilization of the tax
credits it opted to carry over, it may then be allowed to claim the refund of the remaining tax credits. In
such a case, the remaining tax credits can no longer be carried over and the irrevocability rule ceases to
apply. (Systra Phils. Inc. vs. CIR, GR No. 176290, September 21, 2007)
Offenses under the NIRC
160. Payment of the tax due after apprehension shall not constitute a valid defense in any prosecution
for violation of any provision of the NIRC. (Sec. 253(a) of the NIRC)
161. Acquittal in the criminal case for violation of the NIRC does not automatically extinguish the
taxpayer’s liability for payment of tax (civil liability). Under the Revised Penal Code (“RPC”), civil liability is
incurred by reason of the offender's criminal act. Stated differently, the criminal liability gives birth to the
civil obligation such that generally, if one is not criminally liable under the RPC, he cannot become civilly
liable thereunder. The situation under the income tax law is the exact opposite. Civil liability to pay taxes
arises from the fact, for instance, that one has engaged himself in business, and not because of any
criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil
obligation. The acquittal in a criminal case cannot operate to discharge the taxpayer from the duty of
paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and
independently of any attempts by the taxpayer to evade payment. Said obligation is not a consequence
of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from crime
that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. (Republic
vs. Patanao, GR No. L-22356 dated July 21, 1967)
162. All violations of any provision under the NIRC shall prescribe after five (5) years. The information for
the violation of the NIRC must be filed in the proper court before the expiration of the 5-year period:
a) If the offense is known – the prescriptive period or deadline to file the information starts to run
from the day of the commission of the violation of the law; or
b) If the offense if unknown - the prescriptive period or deadline to file the information starts to run
from the discovery of the offense and referral of the complaint for the conduct of preliminary
investigation.
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The prescriptive period shall not run when the offender is absent from the Philippines. (Sec. 281 of the
NIRC and Lim vs. CA, GR Nos. L-48134-37 dated October 18, 1990)
VII. Other Taxes under the NIRC
Percentage Tax
163. The sale of goods and services are subject to the 3% percentage tax under Sec. 116 of the NIRC only
if the sale of the goods and services are exempt from VAT under Sec. 109(1)(W) of the NIRC.
164. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other
non-bank financial intermediaries are subject to percentage tax, such as money changers and pawnshops.
(Secs. 121 and 122 of the NIRC)
165. Services subject to percentage tax under Title V of the NIRC are exempt from VAT. (Sec. 109(1)(E) of
the NIRC)
Documentary Stamp Tax
166. DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or property incident thereto. A DST is actually an excise
tax because it is imposed on the transaction rather than on the document. A DST is also levied on the
exercise by person of certain privileges conferred by law for the creation, revision or termination of
specific legal relationships through the execution of specific instruments. Hence, in imposing the DST, the
Supreme Court considers not only the document but also the nature and character of the transaction.
(Philippine Banking Corporation vs. CIR, GR No. 170574 dated January 30, 2009)
167. DST is imposed on the exercise of (these) privileges through the execution of specific instruments,
independently of the legal status of the transactions giving rise thereto. The DST must be paid upon
issuance of these instruments, without regard to whether the contracts which gave rise to them are
rescissible, void, voidable, or unenforceable. (CIR vs. Manila Bankers’ Life Insurance Corporation, GR No.
169103 dated March 16, 2011)
168. As a general rule, any of the parties to a transaction shall be liable for the full amount of the DST due,
unless they agree among themselves on who shall be liable for the same. (Republic vs. Soriano, GR No.
211666 dated February 25, 2015) Should (any of) these parties be exempted from paying tax, the other
party who is not exempt would then be liable. (Philacor Credit Corporation vs. CIR, GR No. 169899 dated
February 6, 2013)
169. Bank deposit accounts without a fixed term or maturity are exempt from DST (Sec. 199(k) of the
NIRC). An example of this is a regular savings account evidenced by a passbook. Peso time deposit
accounts are not covered by the exemption.
Excise Tax
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170. Petroleum products sold to the following are exempt from Excise Tax:
a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored
in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to
be prescribed by the Secretary of Finance, upon recommendation of the Commissioner;
b) Exempt entities or agencies covered by tax treaties, conventions and other international
agreements for their use of consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar taxes petroleum products
sold to Philippine carriers, entities or agencies; and,
c) Entities which are by law exempt from direct and indirect taxes. (Sec. 135 of the NIRC)
171. Excise tax on petroleum products is essentially a tax on property, the direct liability for which pertains
to the statutory taxpayer (i.e., manufacturer, producer or importer). Any excise tax paid by the statutory
taxpayer on petroleum products sold to any of the entities or agencies named in Sec. 135 of the NIRC
exempt from excise tax is deemed illegal or erroneous, and should be credited or refunded to the payor
pursuant to Sec. 204 of the NIRC. This is because the exemption granted under Sec. 135 of the NIRC must
be construed in favor of the property itself, that is, the petroleum products. (Chevron Philippines, Inc. vs.
CIR, GR No. 210836 dated September 1, 2015)
VII. Local and Real Property Taxation
Basic Principles
172. The power to tax of Local Government Units (“LGUs”) is guaranteed by the Constitution. Congress,
by law, cannot withdraw the taxing powers granted by the Constitution. It may limit but it cannot
absolutely withdraw the LGUs’ taxing powers. Each LGU shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments. (Sec. 5 Art. X of the Constitution)
173. A law which provides that the amusement tax levied by LGUs be given to the Film Development
Council of the Philippines (“FDCP”) violates the local fiscal autonomy provision of the Constitution because
the taxes, fees and charges levied by the LGUs should accrue exclusively to them. What Congress did in
this instance was not to exclude the authority to levy amusement taxes from the taxing power of the
covered LGUs, but to earmark, if not altogether confiscate, the income to be received by the LGU from
the taxpayers in favor of and for transmittal to FDCP, instead of the taxing authority. (Film Development
Council of the Philippines vs. Colon Heritage Realty Corporation, GR No. 203754 dated June 16, 2015)
Common Limitations under Sec. 133 of the Local Government Code (“LGC”)
174. Preemption in the matter of taxation simply refers to an instance where the national government
elects to tax a particular area, impliedly withholding from the local government the delegated power to
tax the same field. This doctrine primarily rests upon the intention of Congress. Conversely, should
Congress allow municipal corporations to cover fields of taxation it already occupies, then the doctrine of
preemption will not apply. (Victorias Milling Co., Inc. vs. Municipality Victorias, GR No. L-21183 dated
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September 27, 1968) Thus, there is no prohibition for LGUs to tax a field or subject matter already taxed
by the national government. There is no prohibited double taxation in this case because the taxes are
imposed by different taxing authorities. If Congress, based on intention and through a law, decides that it
will not allow LGUs to tax a particular field or subject matter, then there is preemption. Take note that
under the Constitution, Congress may provide limitations on the taxing powers of LGUs. An example
where there is preemption, in general, are the taxes enumerated under Sec. 133 of the Local Government
Code.
175. In general, the following taxes, fees and charges cannot be imposed by LGUs:
a) Income tax, except when levied on banks and other financial institutions;
b) Documentary stamp tax;
c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa;
d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by
the local government unit concerned;
e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for wharfage,
tolls for bridges or otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods
or merchandise;
f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer
for a period of six (6) and four (4) years, respectively from the date of registration;
h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
i) percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services;
j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water, except
franchise tax on common carriers enjoying a local franchise;
k) Taxes on premiums paid by way or reinsurance or retrocession;
l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;
m) Taxes, fees, or other charges on Philippine products actually exported;
n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under the Cooperative Code of the Philippines; and,
o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities,
and local government units. (Sec. 133 of the LGC)
176. By express mandate of the LGC, LGUs cannot impose any kind of tax on the national government
instrumentalities. LGUs are devoid of power to tax the national government, its agencies and
instrumentalities. The only exception referred to under the saving clause - "unless otherwise provided in
this Code" of Section 133, is real property tax on real property owned by the Republic of the Philippines
or any of its political subdivisions when the beneficial use thereof has been granted to a taxable person.
(MIAA vs. CA, GR No. 155650 dated July 20, 2006)
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177. An LGU cannot impose business tax on the sale of petroleum products. Sec. 133(h) of the LGC
provides that the taxing powers of LGUs shall not extend to taxes fees and charges on petroleum products.
(Petron Corp. vs. Tiangco, GR No. 158881 dated April 16, 2008)
178. An LGU cannot impose business tax on common carriers. Sec. 133(j) of the LGC provides that the
taxing powers of LGUs shall not extend to taxes on gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire and common carriers. (City of
Manila vs. Colet, GR No. 120051 dated December 10, 2014)
179. An LGU cannot impose real property tax on a cooperative duly registered with the Cooperative Code
of the Philippines. Sec. 133(n) of the LGC provides that an LGU cannot impose taxes, fees and charges on
cooperatives registered under the Cooperative Code. (Provincial Assessor of Agusan del Sur vs. Filipinas
Palm Oil Plantation, Inc., GR No. 183416 dated October 5, 2016)
Amusement Tax
180. The province or a city may levy an amusement tax to be collected from the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at
a rate of not more than ten percent (10%) of the gross receipts from admission fees. (Sec. 140(a) of the
LGC, as amended)
181. An LGU cannot impose amusement tax on an operator of a resort. In order to be subject to
amusement tax, the venue must be an amusement place where one seeks admission to entertain oneself
by seeing or viewing a show or performance. It must be a venue primarily used to stage spectacles or hold
public shows, exhibitions, performances, and other events meant to be viewed by an audience. (Pelizloy
Realty Corporation vs. Province of Benguet, GR No. 183137 dated April 10, 2013)
182. An LGU cannot impose amusement tax on an operator of a golf course. In order to be subject to
amusement tax, the venue must be an amusement place where one seeks admission to entertain oneself
by seeing or viewing a show or performance. People do not enter a golf course to see or view a show or
performance. The proprietor or operator of the golf course does not actively display, stage, or present a
show or performance. People go to a golf course to engage themselves in a physical sport activity, i.e., to
play golf. (Alta Vista Golf and Country Club vs. The City of Cebu, GR No. 180235 dated January 20, 2016)
Business Tax
183. If a business is already paying business tax as a retailer under Sec. 143(a) of the LGC, it is no longer
liable to pay business tax on businesses subject to VAT and Percentage Tax under Sec. 143(h) of the LGC.
Sec. 143(h) of the LGC may invoked by the Local Government Unit if the business is not otherwise specified
in the preceding paragraphs (Secs. 143(a) to (g) of the LGC). (Nursery Care Corporation vs. Acevedo, GR
No. 180651 dated July 30, 2014)
Constitutionality or Validity of a Tax Ordinance
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184. Sec. 187 of the LGC, which requires that the constitutionality of an ordinance be questioned before
the Secretary of Justice, only applies to a tax ordinance and does not apply to an ordinance which imposes
a regulatory fee. (Smart vs. Municipality of Malvar, Batangas, GR No. 204429 dated February 18, 2014)
Basic Principles in Real Property Taxation
185. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other improvement not specifically
exempted under the provisions of the LGC. (Sec. 232 of the LGC)
186. An “Improvement” for real property tax purposes is a valuable addition made to a property or an
amelioration in its condition, amounting to more than a mere repair or replacement of parts involving
capital expenditures and labor, which is intended to enhance its value, beauty or utility or to adapt it for
new or further purposes. (Sec. 199(m) of the LGC)
187. “Machinery” for real property tax purposes embraces machines, equipment, mechanical
contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or
temporarily, to the real property. It includes the physical facilities for production, the installations and
appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not
permanently attached to the real property which are actually, directly, and exclusively used to meet the
needs of the particular industry, business or activity and which by their very nature and purpose are
designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural
purposes. (Sec. 199(o) of the LGC)
188. Machines and equipment consisting of underground tanks, elevated tank, elevated water tanks,
water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air
compressors and tireflators installed by Caltex in its gasoline stations on a leased land are considered
“machineries” and “improvements” for real property tax purposes and are subject to real property tax.
The said fixtures are necessary to the operation of the gas station, for without them the gas station would
be useless, and which have been attached or affixed permanently to the gas station site or embedded
therein. The fact that the machines and equipment are placed on a leased land is immaterial for real
property tax purposes. The rule that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of the
owner, is relevant only for civil law purposes and not for real property tax purposes. (Caltex Philippines,
Inc. vs. CBAA, GR No. 50466 dated May 31, 1982)
189. Two (2) oil storage tanks installed by Meralco on a leased land are considered “improvements” for
real property tax purposes and are subject to real property tax. While the storage tanks are not embedded
in the land, they may, nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two (2) tanks have been installed with some
degree of permanence as receptacles for the considerable quantities of oil needed by Meralco for its
operations. (Manila Electric Co. vs. CBAA, GR No. L-47943 dated May 31, 1982)
190. Transformers, electric posts, transmission lines, insulators and electric meters owned and used by
Meralco may be considered as machineries subject to real property tax. Under Sec. 199 (o) of the LGC,
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machinery, to be deemed real property subject to real property tax, need no longer be annexed to the
land or building as these "may or may not be attached, permanently or temporarily to the real property,"
and in fact, such machinery may even be "mobile."The same provision requires that the machinery: (a)
must be actually, directly, and exclusively used to meet the needs of the particular industry, business, or
activity; and (b) by their very nature and purpose, are designed for, or necessary for manufacturing,
mining, logging, commercial, industrial, or agricultural purposes. In determining whether machinery is real
property subject to real property tax, the definition and requirements under the LGC (not the Civil Code)
are controlling. (Meralco vs. The City Assessor and City Treasurer of Lucena City, GR No. 166102 dated
August 5, 2015)
191. Submarine or undersea communications cables are akin to electric transmission lines and are
considered as machinery subject to real property tax. There is no reason to distinguish between
submarine cables used for communications and aerial or underground wires or lines used for electric
transmission, so that both pieces of property do not merit a different treatment in the aspect of real
property taxation. (Capitol Wireless, Inc. vs. The Provincial Treasurer of Batangas, GR No. 180110 dated
May 30, 2016)
192. The road equipment and mini haulers owned and used by Filipinas Palm Oil in its Palm Oil business
are real properties subject to real property tax. Sec. 199(o) of the LGC provides that “Machinery" includes
the physical facilities for production, the installations and appurtenant service facilities, those which are
mobile, self-powered or self-propelled, and those not permanently attached to the real property which
are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity
and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining,
logging, commercial, industrial or agricultural purposes.
The phrase pertaining to “physical facilities for production” is comprehensive enough to include the road
equipment and mini haulers as actually, directly, and exclusively used by Filipinas Pam Oil to meet the
needs of its operations in palm oil production. Moreover, "mini-haulers are farm tractors pulling attached
trailers used in the hauling of seedlings during planting season and in transferring fresh palm fruits from
the farm or field to the processing plant within the plantation area." The indispensability of the road
equipment and mini haulers in transportation makes it actually, directly, and exclusively used in the
operation of respondent's business. (Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil Plantation,
Inc., GR No. 183416 dated October 5, 2016)
Notice of Assessment
193. Sec. 223 of the LGC provides that when real property is assessed for the first time or when an existing
assessment is increased or decreased, the assessor shall within thirty (30) days give written notice of such
new or revised assessment to the person in whose name the property is declared.
194. If in relation to Sec. 223, the LGU issues a notice of collection instead of a notice of assessment, the
same is not valid. A notice of collection is not the same as a notice of assessment. For failure to issue the
notice of assessment, the appraisal and assessment of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO not being in compliance with the LGC, are attempts at
deprivation of property without due process of law and, therefore, null and void. (Meralco vs. The City
Assessor and City Treasurer of Lucena City, GR No. 166102 dated August 5, 2015)
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Exemption from Real Property Tax
195. The following are real property exempt from real property tax:
a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-
profit or religious cemeteries and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and,
e) Machinery and equipment used for pollution control and environmental protection. (Sec. 234 of
the LGC)
196. The airport lands and buildings being administered by MIAA, an instrumentality, is exempt from real
property tax under Sec. 234(a) of the LGC. The airport is considered owned by the Republic since it is
property of public dominion under Art. 420 of the Civil Code. MIAA, an instrumentality of the national
government is also exempt from the payment of the real property tax pursuant to Sec. 133(o) of the LGC.
Under Sec. 133(o) of the LGC, LGUs are prohibited from imposing taxes, fees and charges on the national
government, its agencies, instrumentalities and local government units. However, the portion of the
airport leased to commercial establishments are taxable since the beneficial use has been granted to a
taxable person for consideration. (MIAA vs. CA, GR No. 155650 dated July 20, 2006)
197. In order to be exempt from execution sales, the property owned by the Republic must be considered
property of public dominion. Thus, sequestered real property which is now owned by the Republic but is
used as a commercial establishment cannot be considered as property of public dominion under Art. 420
of the Civil Code. In case of real property tax delinquency, notwithstanding being owned by the Republic,
the same can be sold at public auction. (City of Pasig vs. Republic, GR No. 185023 dated August 24, 2011)
198. If a university leases a portion of its school building to a bookstore or cafeteria, the leased portion is
not actually, directly and exclusively used for educational purposes, even if the bookstore or canteen
caters only to university students, faculty and staff. The leased portion of the building may be subject to
real property tax, as held in Abra Valley College, Inc. v. Aquino. The Supreme Court ruled in that case that
the test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.
The Supreme Court also held that the exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes. In concrete terms, the lease of a
portion of a school building for commercial purposes, removes such asset from the property tax
exemption granted under the Constitution. There is no exemption because the asset is not used actually,
directly and exclusively for educational purposes. The commercial use of the property is also not incidental
to and reasonably necessary for the accomplishment of the main purpose of a university, which is to
educate its students. (CIR vs. De La Salle University, GR No. 196596 dated November 9, 2016)
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199. To successfully claim exemption under Sec. 234(c) of the LGC, the claimant must prove two elements:
(a) the machineries and equipment are actually, directly, and exclusively used by local water districts and
government-owned or controlled corporations; and (b) the local water districts and government-owned
and controlled corporations claiming exemption must be engaged in the supply and distribution of water
and/or the generation and transmission of electric power. (NPC vs. Province of Quezon, GR No. 171586
dated July 15, 2009)
200. Sec. 234(d) of the LGC exempts all real property owned by cooperatives without distinction. Nothing
in the law suggests that the real property tax exemption only applies when the property is used by the
cooperative itself. Similarly, the instance that the real property is leased to either an individual or
corporation is not a ground for withdrawal of tax exemption. The basis of exemption under Sec. 234(d) is
ownership and not use. (Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil Plantation, Inc., GR No.
183416 dated October 5, 2016)
Remedies on Real Property Tax Assessments
201. An erroneous assessment for real property tax “presupposes that the taxpayer is subject to the tax
but is disputing the correctness of the amount assessed.” To contest the erroneous assessment, taxpayer
must exhaust administrative remedies before resorting to judicial action: Payment under Protest – Filing
of Protest – Local Board of Assessment Appeals – Central Board of Assessment Appeals – CTA En Banc –
Supreme Court.
202. On the other hand, an assessment for real property tax is illegal if it was made without authority
under the law. In case of an illegal assessment, the taxpayer may directly resort to judicial action without
paying under protest the assessed tax and filing an appeal with the Local and Central Board of Assessment
Appeals. Thus, the illegal assessment is contested, as follows: Regional Trial Court – CTA Division – CTA En
Banc – Supreme Court. (City of Lapu-Lapu vs. PEZA, GR No. 184203 dated November 26, 2014)
203. The CTA Division has jurisdiction over real property tax cases (illegal assessments) decided by the
RTC. Basis is: “Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or
resolved by them in the exercise of their original jurisdiction.” The term "local taxes" in the
aforementioned provision should be considered in its general and comprehensive sense, which embraces
real property tax assessments. (NPC vs. Municipal Government of Navotas, GR No. 192300 dated
November 24, 2014)
204. Sec. 226 of the LGC lists down the two (2) entities vested with the personality to contest an
assessment: (1) the owner and, (2) the person with legal interest in the property. A person legally
burdened with the obligation to pay for the tax imposed on a property has legal interest in the property
and the personality to protest a tax assessment on the property.
205. On liability for taxes, the NPC indeed assumed responsibility for the taxes due on the power plant
and its machineries, specifically, "all real estate taxes and assessments, rates and other charges in respect
of the site, the buildings and improvements thereon and the power plant." At first blush, this contractual
provision would appear to make the NPC liable and give it standing to protest the assessment. The tax
liability referred above, however, is the liability arising from law that the LGU can rightfully and
successfully enforce, not the contractual liability that is enforceable between the parties to a contract as
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discussed below. By law, the tax liability rests on Mirant based on its ownership, use, and possession of
the plant and its machineries.
Contractual stipulation to assume payment of the real property tax does not clothe the party legal interest
for purposes of contesting an assessment. Corollary thereto, the local government units can neither be
compelled to recognize the protest of a tax assessment from an entity against whom it cannot enforce
the tax liability. (NPC vs. Quezon, GR No. 171586 dated July 15, 2009 and January 25, 2010)
IX. Customs Modernization and Tariff Act (“CMTA”)
206. Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with
intention to unload therein. It is clear from the provision of the law that mere intent to unload is sufficient
to commence an importation. (Feeder International Line, Pte., Ltd. vs. CA, GR No. 94262 dated May 31,
1991)
207. Importation is deemed terminated when:
a) The duties, taxes and other charges due upon the goods have been paid or secured to be paid at
the port of entry unless the goods are from duties, taxes and other charges and legal permit for
withdrawal has been granted; or
b) In case the goods are deemed free of duties, taxes and other charges, the goods have legally left
the jurisdiction of the Bureau of Customs. (Sec. 103 of the CMTA)
208. As long as the importation has not been terminated, the imported goods remain under the
jurisdiction of the Bureau of Customs. Importation is deemed terminated only upon the payment of the
duties, taxes and other charges upon the articles, or secured to be paid, at the port of entry and the legal
permit for withdrawal shall have been granted. The payment of the duties, taxes, fees and other charges
must be in full. (Papa vs. Mago, GR No. L-27360 dated February 28, 1968)
209. Under the Flexible Tariff Clause, the President, in the interest of the general welfare and national
security, and, upon the recommendation of the NEDA, is empowered to:
a) Increase, reduce or remove existing rates of import duty including any necessary change in
classification. Limitation: rate of increase shall not be higher than a maximum of 100% ad valorem;
b) Establish import quotas or ban imports of any commodity;
c) Impose an additional duty on all imports not exceeding 10% ad valorem; and,
d) Modify the form of duty.
The President’s power under the Flexible Tariff Clause may only be exercised when Congress is not in
session. The power given to the President may also be withdrawn or terminated by Congress through a
joint resolution. (Sec. 1608 of the CMTA)
210. A dwelling house may be entered and searched only upon warrant issued by a Judge of a competent
court, the sworn application thereon showing probable cause and particularly describing the place to be
searched and the goods to be seized may be entered and searched only upon warrant issued by a judge
or justice of the peace, upon sworn application showing probable case and particularly describing the
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place to be searched and person or thing to be seized. When a security personnel or any other employee
lives in the warehouse, store, or any building, structure or enclosure that is used for storage of goods, it
shall not be considered as a dwelling house. (Secs. 219 and 220 of the CMTA)
211. The Secretary of the Department of Trade and Industry (“DTI”) in the case of non-agricultural
products or the Secretary of the Department of Agriculture in the case of agricultural products shall apply
a general safeguard measure upon a positive final determination of the Tariff Commission that a product
is being imported into the country in increased quantities, whether absolute or relative to the domestic
production, as to be a substantial cause of serious injury or threat thereof to the domestic industry.
However, in the case of non-agricultural products, the Secretary shall first establish that the application
of such safeguard measure will be in the public interest. (Republic Act No. 8800 – “Safeguard Measures
Act”)
212. The DTI Secretary cannot impose a general safeguard measure in the absence of a positive final
determination by the Tariff Commission. The plain meaning of Section 5 of Republic Act No. 8800 shows
that it is the Tariff Commission that has the power to make a "positive final determination." This power
lodged in the Tariff Commission, must be distinguished from the power to impose the general safeguard
measure which is properly vested on the DTI Secretary. All in all, there are two condition precedents that
must be satisfied before the DTI Secretary may impose a general safeguard measure on grey Portland
cement. First, there must be a positive final determination by the Tariff Commission that a product is
being imported into the country in increased quantities (whether absolute or relative to domestic
production), as to be a substantial cause of serious injury or threat to the domestic industry. Second, in
the case of non-agricultural products the Secretary must establish that the application of such safeguard
measures is in the public interest. (Southern Cross Cement Corporation vs. Philippine Cement
Manufacturers Corporation, GR No. 158540 dated July 8, 2004)
213. Goods such as food, medicine, equipment and materials for shelter, donated or leased to
government institutions and accredited private entities for free distribution to or use of victims of
calamities shall be treated and entered as relief consignment. Relief consignment imported during a state
of calamity and intended for a specific calamity area for the use of the calamity victims therein, shall be
exempt from duties and taxes. (Secs. 120 and 121 of the CMTA)
214. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to
hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional
Trial Courts are precluded from assuming cognizance over such matters even through petitions of
certiorari, prohibition or mandamus. The rule that Regional Trial Courts have no review powers over such
proceedings is anchored upon the policy of placing no unnecessary hindrance on the government's drive,
not only to prevent smuggling and other frauds upon Customs, but more importantly, to render effective
and efficient the collection of import and export duties due the State, which enables the government to
carry out the functions it has been instituted to perform. (Jao vs. CA, GR No. 104604 dated October 6,
1995)
215. Any vehicle, vessel or aircraft, including cargo, which shall be used unlawfully in the importation or
exportation of goods or in conveying or transporting smuggled goods in commercial quantities into or
from any Philippine port or place shall be subject to seizure and forfeiture. The mere carrying or holding
on board of smuggled goods in commercial quantities shall subject such vehicle, vessel, aircraft, or any
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other craft to forfeiture: Provided, That the vehicle, vessel, aircraft or any other craft is not used as a
common carrier which has been chartered or leased for purposes of conveying or transporting persons or
cargo. (Sec. 1113(a) of the CMTA)
216. No duties and taxes shall be collected on importations with a value of ten thousand pesos
(Php10,000.00) or below. (Sec. 423 of the CMTA)
217. Non-resident Filipinos, Overseas Filipino Workers (“OFWs”) and Returning Residents while abroad
are allowed to send to their families or relatives in the Philippines or bring with them, Balikbayan Boxes
which shall be exempt from the payment of duties and taxes, up to three (3) times in a calendar year with
a total value of one hundred fifty thousand pesos (Php150,000.00). (Sec. 800 of the CMTA and CAO 5-2016
dated December 2, 2016)
218. In general, personal and household effects belonging to returning residents who have stayed abroad
for at least six (6) months shall be exempt from customs duties provided that:
a) It shall not be in commercial quantities;

b) It is not intended for barter, sale or for hire; and,
c) Amount of exemption (FCA or FOB value of Php150,000.00 to Php350,000.00) shall depend on
length of stay abroad. (Sec. 800 of the CMTA)
219. In addition to the tax-exempt privileges enjoyed by returning residents, OFWs shall have the privilege
to bring in tax and duty free home appliances and other durables limited to one (1) of every kind once
every calendar year accompanying them on their return or arriving within a period not exceeding sixty
(60) days after the OFW’s return with a value not exceeding One hundred fifty thousand pesos
(Php150,000.00). Durables refer to goods, as household appliances, machinery or sports equipment that
may be used repeatedly or continuously over a period of a year or more, assuming a normal or average
rate of physical usage. (Sec. 800 of the CMTA and CAO 6-2016 dated December 2, 2016)
220. The following customs law related decisions are appealable to the CTA Division within 30 days from
receipt:
a) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or
other money charges, seizure, detention or release of property affected, fines, forfeitures of other
penalties in relation thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;
b) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review
from decisions of the Commissioner of Customs adverse to the Government under Section 2315 of
the Tariff and Customs Code (now Sec. 1104 of the CMTA by analogy in relation to Secs. 1127 and
1128); and,
c) Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product,
commodity or article, and the Secretary of Agriculture, in the case of agricultural product, commodity
or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the
Tariff and Customs Code (now Secs. 711 and 713 of the CMTA), and safeguard measures under
Republic Act No. 8800 (now Sec. 712 of the CMTA), where either party may appeal the decision to
impose or not to impose said duties;
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221. There is an express abandonment when the owner, importer or consignee signifies with the Collector
of Customs in writing his intention to abandon his importation in favor of the government.
222. There is an implied abandonment when:
1) The importer, owner, consignee or interested party after due notice, fails to file a goods
declaration for the importation within a period of fifteen (15) days from the date of the discharge of
the last package from the vessel or aircraft. The period to file the goods declaration may, upon
request, be extended on valid grounds for another fifteen (15) days;
2) Having filed an entry for shipment, an interested party fails to pay the assessed duties, taxes and
other charges thereon, or if the regulated goods failed to comply with Sec. 117 of the CMTA, within
fifteen (15) days from the date of final assessment: Provided, That if such regulated goods are subject
of an alert order and the assessed duties, taxes and other charges thereof are not paid within fifteen
(15) days from notification by the Bureau of Customs of the resolution of the alert order, the same
shall also be deemed abandoned claim his importation within a non-extendible period of fifteen (15)
days from the date of posting of the notice to claim such importation;
3) Having paid the assessed duties, taxes and other charges, the owner, importer or consignee or
interested party after due notice, fails to claim the goods within thirty (30) days from payment; and,
4) When the owner or importer fails to claim goods in customs bonded warehouses within the
prescribed period. (Sec. 1129 of the CMTA)
223. Expressly abandoned goods shall be ipso facto be deemed the property of the government and to be
disposed of in accordance with the CMTA. If the Bureau of Customs has not disposed of the abandoned
goods, the owner or importer of goods impliedly abandoned may, at any time within thirty (30) days after
the lapse of the prescribed period to file the declaration, reclaim the goods provided that all legal
requirements have been complied with and the corresponding duties, taxes and other charges, without
prejudice to charges and fees due to the port or terminal operator, as well as expenses incurred have
been paid before the release of the goods from customs custody. When the Bureau of Customs sells goods
which have been impliedly abandoned, although no offense has been discovered, the proceeds of the sale,
after deduction of any duty and tax and all other charges and expenses incurred as provided in Sec. 1143
of the CMTA, shall be turned over to those persons entitled to receive them or, when this is not possible,
held at their disposal for a specified period. After the lapse of the specified period, the balance shall be
transferred to the forfeiture fund as provided in Sec. 1151 of the CMTA. (Sec. 1130 of the CMTA)
************Good Luck and God Bless************
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rd

3 Floor, Philippine Nurses Association, TAXATION LAW

I. J. Del Castillo Cases

2. For a taxpayer’s suit to prosper, two (2) requisites must be met:

1) A non-stock corporation or association;

3) Operated exclusively for charitable purposes; and,

7. The legislature never intended operators or proprietors of cinema/theater houses to be covered by

II. General Principles

29. Contesting a tax ruling:

Important Constitutional Provisions

Compromise and Abatement

36. The taxpayer may compromise a tax liability by:

39. The CIR may abate or cancel a tax liability when:

a) the tax or any portion thereof appears to be unjustly or excessively assessed; or

CIR’s Power to Interpret the Provisions of the NIRC

III. Income Tax

41. Tax rules and doctrines for the following entities:

Entity Taxation of Income Received Other Important Matters

Entity Taxation of Income Received Other Important Matters

Entity Taxation of Income Received Other Important Matters

2.b. However, since a non-stock, non-

2.c. Thus, even if the charitable

Minimum Wage Earners

Deposits and Deposit Substitutes

Capital Gains Tax

Gross Philippine Billings Tax

Branch Profits Remittance Tax

Improperly Accumulated Earnings Tax

Important Exclusions from Gross Income or Exempt Income

a) Under the NIRC or received under a reasonable private benefit plan:

1. The retirement plan must be approved by the BIR;

Fringe Benefits Tax

e) Uniform and clothing allowance not exceeding Php5,000 per annum;

71. Items that are not deductible:

a) Personal, living or family expenses;

IV. Estate and Donor’s Taxation

Basic Principles in Estate and Donor’s Taxation

Deductions from the Gross Estate

Exemption of Certain Transmissions

89. The following transfers are exempt from Estate Tax:

a) The merger of usufruct in the owner of the naked title;

90. The following are exempt from Donor’s Tax:

Release of Decedent’s Bank Deposit

Transfer for Insufficient Consideration

Rules on Political Contributions

Rules on Renunciation of the Conjugal/Community Share and Share in the Inheritance

Destination Principle and Cross Border Doctrine

Persons Liable for VAT

VAT on Sale of Real Property

Transitional Input VAT

Rules on Claim for Refund under Sec. 112 of the NIRC

VI. Remedies under the NIRC

Prescriptive Period to Assess and Collect

Waiver of the Statute of Limitations

Submission of Documents During the 60-day period

Remedies of the Taxpayer

Court of Tax Appeals

Proper Party to File the Claim for Refund

Irrevocability Rule under Sec. 76 of the NIRC

Offenses under the NIRC

VII. Other Taxes under the NIRC

Documentary Stamp Tax

VII. Local and Real Property Taxation

Good Luck and God Bless