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1. FINAL WITHOLDING TAX: CIR vs La Flor

Whether the Prescriptive Period Under Section 203 of the NIRC Applies To EWT and WTC Assessments?
Yes, the prescriptive period under Section 203 of the NIRC applies to EWT and WTC assessments.
Withholding tax assessments such as Expanded Withholding Tax (EWT) and Withholding Tax on
Compensation (WTC) clearly contemplate deficiency internal revenue taxes and which are taxes
covered by Section 203 of the NIRC applies. Their aim is to collect unpaid income taxes and not
merely to impose a penalty on the withholding agent for its failure to comply with its statutory duty.
Provisions of the NIRC itself recognize that the tax assessment for withholding tax deficiency is
different and independent from possible penalties that may be imposed for the failure of
withholding agents to withhold and remit taxes.
 The withholding agent retains a portion of the amount received by the income earner. In turn, the
said amount is credited to the total income tax payable in transactions covered by the EWT.
 In cases of income payments subject to WTC and Final Withholding Tax, the amount withheld is
already the entire tax to be paid for the particular source of income.

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding
in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided,
That in case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from
the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day. (Emphasis supplied)

2. IRREVOCABILITY RULE: Rhombus Energy, Inc. vs CIR

Whether or not Rhombus is entitled to a refund?
Considering that petitioner opted to carry-over its unutilized creditable withholding tax of Pl,500,653.00
for taxable year 2005 to the first, second and third quarters of taxable year 2006 when it had actually
carried-over said excess creditable withholding tax said excess creditable withholding tax to the first,
second and third quarters in its Quarterly Income Tax Returns for taxable year 2006, option to recover
becomes irrevocable. Section 76 of the NIRC provides that “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.”
Whether or not petitioner actually gets to apply said excess tax credit is irrelevant and would not
change the carry-over option already made.

Section 76. Final Adjusted Return. — Every corporation liable to tax under Section 27 shall file a final adjustment return
covering the total taxable income for the preceding calendar of fiscal year. If the sum of the quarterly tax payments made during
the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:
(A) Pay the balance of the tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess
amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding taxable years. 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.

COMPARE WITH: University Physicians vs CIR

It is undisputed that despite its initial option to refund its 2006 excess creditable tax, UPSI-MI
subsequently indicated in its 2007 short-period FAR that it carried over the 2006 excess creditable tax and
applied the same against its 2007 income tax due. The law does not prevent a taxpayer who originally
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opted for a refund to shift to a carry-over option. However, once carry-over option has been
exercised, the taxpayer can no longer exercise the option for a cash refund.

3. JURISDICTION: CIR vs SOJ and Metropolitan Cebu Water

Whether or not the Secretary of Justice has jurisdiction over tax disputes between the government and
government-owned and controlled corporations?
Yes, DOJ is vested by law with jurisdiction over this case. Since this case is a dispute between the CIR and
MCWD, a local water district, which is a GOCC pursuant to P.D. No. 198, also known as the Provincial Water
Utilities Act of 1973, clearly, the SOJ has jurisdiction to decide over the case. HOWEVER, CIR did not
exhaust all administrative remedies. Under the doctrine of exhaustion of administrative remedies, it is
mandated that where a remedy before an administrative body is provided by statute, relief must be sought by
exhausting this remedy prior to bringing an action in court in order to give the administrative body every
opportunity to decide a matter that comes within its jurisdiction.

PD 242 (now Chapter 14, Book IV of Executive Order No. 292), provides that only after the President
has decided the dispute between government offices and agencies can the losing party resort to the
courts, if it so desires. Otherwise, a resort to the courts would be premature for failure to exhaust
administrative remedies In the present case, there is a plain, speedy and adequate remedy in the ordinary
course of law which is available to the CIR, which is an appeal to the OP. The CIR, however, failed to
avail the same through its own fault.

(Relate with Psalm vs CIR)

PD 242 is only applicable to disputes, claims, and controversies solely between or among the departments,
bureaus, offices, agencies and instrumentalities of the National Government, including government-owned or
controlled corporations, and where no private party is involved. In other words, PD 242 will only apply
when all the parties involved are purely government offices and government-owned or controlled
corporations. Since this case is a dispute between PSALM arid NPC, both government owned and
controlled corporations, and the BIR, a National Government office, PD 242 clearly applies and the
Secretary of Justice has jurisdiction over this case.

4. SUBSTANTATION REQUIREMENT- OFFICIAL RECEIPTS: PILMICO vs CIR

It is, thus, clear that Section 29 of the 1977 NIRC does not exempt the taxpayer from substantiating claims
for deductions. While official receipts are not the only pieces of evidence which can prove deductible
expenses, if presented, they shall be subjected to examination. PMFC submitted official receipts as among its
evidence, and the CTA doubted their veracity. PMFC was, however, unable to persuasively explain and prove
through other documents the discrepancies in the said receipts. Consequently, the CTA disallowed the
deductions claimed, and in its ruling, invoked Section 238 of the 1977 NIRC considering that official receipts
are matters provided for in the said section.

Further, revenue laws are not intended to be liberally construed. Taxes are the lifeblood of the government
and in Holmes' memorable metaphor, the price we pay for civilization; hence, laws relative thereto must be
faithfully and strictly implemented.35 While the 1977 NIRC required substantiation requirements for claimed
deductions to be allowed, PMFC insists on leniency, which is not warranted under the circumstances.

5. DIVIDENDS: CIR VS. GOODYEAR

Under Article 11(5) of the RP-US Tax Treaty, the term “dividends” should be understood according to the
taxation law of the State in which the corporation making the distribution is a resident, which, in this case,
pertains to respondent, a resident of the Philippines. Accordingly, attention should be drawn to the statutory
definition of what constitutes “dividends,” pursuant to Section 73(A) of the Tax Code which provides that “[t]he
term ‘dividends’ x x x means any distribution made by a corporation to its shareholders out of its earnings
or profits and payable to its shareholders, whether in money or in other property.”
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The Court therefore holds that the redemption price representing the amount of P97,732,314.00 received
by GTRC (GOODYEAR) could not be treated as accumulated dividends in arrears that could be subjected
to 15% FWT. Verily, respondent’s AFS covering the years 2003 to 2009 show that it did not have
unrestricted retained earnings, and in fact, operated from a position of deficit. 43 Thus, absent the
availability of unrestricted retained earnings, the board of directors of respondent had no power to
issue dividends.

As aptly pointed out by the CTA En Banc, the amount of P97,732,314.00 received by GTRC did not
represent a periodic distribution of dividend, but rather a payment by respondent for the redemption47 of
GTRC’s 3,729,216 preferred shares.

6. CTA Jurisdiction (Constitutionality): BDO vs RP

CTA has jurisdiction and may take cognizance of cases directly challenging constitutionality or
validity of a tax law, regulation or administrative issuance such as revenue order, revenue
memorandum circular, and ruling. RA 9282: appeals from the decisions of quasi-judicial agencies
on tax-related problems must be brought exclusively to the CTA.

Deposit Substitutes (Sec. 22 (Y)):

The definition of deposit substitutes in Section 22(Y) specifically defined "public" to mean "twenty (20)
or more individual or corporate lenders at any one time." Hence, if there are 20 or more lenders, the debt
instrument is considered a deposit substitute which is subject to the 20% FWT. In this case, lenders are
not more than 20. Therefore, the PEACe Bonds are not treated as deposit substitutes and are not subject
to the 20% final withholding tax.

7. REFUND of FINAL WITHHOLDING TAX: Metropolitan Bank and Trust Company vs CIR
Whether or not Metrobank’s claim for refund has already prescribed?

Section 229 of the NIRC provides for the proper procedure in order to claim for refunds, to wit:
Section 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained
in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of
any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund
or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether
or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where
on the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid.

Final withholding taxes are considered as full and final payment of the income tax due, and
thus, are not subject to any adjustments. Thus, the two (2)-year prescriptive period commences to
run from the time the refund is ascertained, i.e., the date such tax was paid, and not upon
the discovery by the taxpayer of the erroneous or excessive payment of taxes. In the case at bar,
it is undisputed that Metrobank’s final withholding tax liability in March 2001 was remitted to the
BIR on April 25, 2001. As such, it only had until April 25, 2003 to file its administrative and
judicial claims for refund. However, while Metrobank’s administrative claim was filed on
December 27, 2002, its corresponding judicial claim was only filed on September 10, 2003.
Therefore, Metrobank’s claim for refund had clearly prescribed.
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8. LETTER OF AUTHORITY(LOA) VS LN (Definition) – MEDICARD

Unless authorized by the CIR himself or by his duly authorized representative, through an LOA, an
examination of the taxpayer cannot ordinarily be undertaken. The circumstances contemplated under Section
6 where the taxpayer may be assessed through best-evidence obtainable, inventory- taking, or surveillance among
others has nothing to do with the LOA. These are simply methods of examining the taxpayer in order to arrive at
the correct amount of taxes. Hence, unless undertaken by the CIR himself or his duly authorized representatives,
other tax agents may not validly conduct any of these kinds of examinations without prior authority.

An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It
empowers or enables said revenue officer to examine the books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax.

The following differences between an LOA and LN are crucial.

a. First, an LOA addressed to a revenue officer is specifically required under the NIRC before an examination
of a taxpayer may be had while an LN is not found in the NIRC and is only for the purpose of notifying the
taxpayer that a discrepancy is found based on the BIR’s RELIEF System.
b. Second, an LOA is valid only for 30 days from date of issue while an LN has no such limitation.
c. Third, an LOA gives the revenue officer only a period of 120 days from receipt of LOA to conduct his
examination of the taxpayer whereas an LN does not contain such a limitation.31 Simply put, LN is entirely
different and serves a different purpose than an LOA.
The LN cannot replace the LOA required under the law even if the same was issued by the CIR
himself. Under RR No. 12-2002, LN is issued to a person found to have underreported sales/receipts
per data generated under the RELIEF system. Upon receipt of the LN, a taxpayer may avail of the
BIR's Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the
said program, the BIR may avail of administrative and criminal remedies, particularly closure,
criminal action, or audit and investigation. Since the law specifically requires an LOA and RMO
No. 32-2005 requires the conversion of the previously issued LN to an LOA, the absence thereof
cannot be simply swept under the rug, as the CIR would have it. In fact, Revenue Memorandum
Circular No. 40-2003 considers an LN as a notice of audit or investigation only for the purpose of
disqualifying the taxpayer from amending his returns.

9. TAX ACCOUNTING vs BUSINESS ACCOUNTING – Which will Prevail?

CIR VS LANCASTER
Noticeably, the records of this case are rife with terms and concepts in accounting. As a science, accounting
pervades many aspects of financial planning, forecasting, and decision making in business. Its reach, however, has
also permeated tax practice. To put it into perspective, although the foundations of accounting were built principally
to analyze finances and assist businesses, many of its principles have since been adopted for purposes of taxation.
In our jurisdiction, the concepts in business accounting, including certain generally accepted accounting
principles (GAAP), embedded in the NIRC comprise the rules on tax accounting.

Provisions of the Tax Code Shall Prevail. All returns required to be filed by the Tax Code shall be
prepared always in conformity with the provisions of the Tax Code, and the rules and regulations
implementing said Tax Code. Taxability of income and deductibility of expenses shall be determined
strictly in accordance with the provisions of the Tax Code and the rules and regulations issued
implementing said Tax Code. In case of difference between the provisions of the Tax Code and the rules
and regulations implementing the Tax Code, on one hand, and the generally accepted accounting
principles (GAAP) and the generally accepted accounting standards (GAAS), on the other hand, the
provisions of the Tax Code and the rules and regulations issued implementing said Tax Code shall prevail.
(italics supplied)

10. WAIVER OF STATUS OF LIMITATIONS: CIR vs. Philippine Daily Inquirer

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Under Section 203 of the NIRC, the prescriptive period to assess is set at three years. This rule is subject
to the exceptions provided under Section 222 of the NIRC. The CIR invokes Section 222(a) which
provides: SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.—(a)
In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may
be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any
time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance
of in the civil or criminal action for the collection thereof.

While the filing of a fraudulent return necessarily implies that the act of the taxpayer was intentional and
done with intent to evade the taxes due, the filing of a false return can be intentional or due to honest
mistake. In CIR v. B.F. Goodrich Phils., Inc., 303 SCRA 546 (1999), the Court stated that the entry of
wrong information due to mistake, carelessness, or ignorance, without intent to evade tax, does not
constitute a false return. In this case, we do not find enough evidence to prove fraud or intentional falsity
on the part of PDI. Since the case does not fall under the exceptions, Section 203 of the NIRC should
apply. It provides: SEC. 203. Period of Limitation Upon Assessment and Collection.—Except as provided
in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed
by law for the filing of the return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. Provided, That in a case where a return is filed
beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day. Indeed, the Waivers executed by the BIR and PDI
were meant to extend the three-year prescriptive period, and would have extended such period were it not
for the defects found by the CTA. This further shows that at the outset, the BIR did not find any ground
that would make the assessment fall under the exceptions.

11. Macario Lim Gaw-*Tax Evasion

While it is true that according to the aforesaid Section 4, of Republic Act No. 8249, the institution of the
criminal action automatically carries with it the institution of the civil action for the recovery of civil
liability, however, in the case at bar, the civil case for the collection of unpaid customs duties and taxes
cannot be simultaneously instituted and determined in the same proceedings as the criminal cases before
the Sandiganbayan, as it cannot be made the civil aspect of the criminal cases filed before it. It should be
borne in mind that the tax and the obligation to pay the same are all created by statute; so are its collection
and payment governed by statute. The payment of taxes is a duty which the law requires to be paid.
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. Hence, the payment and collection of customs duties and
taxes in itself creates civil liability on the part of the taxpayer. Such 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.

Under Sections 254 and 255 of the NIRC, the government can file a criminal case for tax evasion against
any taxpayer who willfully attempts in any manner to evade or defeat any tax imposed in the tax code or
the payment thereof. The crime of tax evasion is committed by the mere fact that the taxpayer
knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the
tax. It is therefore not required that a tax deficiency assessment must first be issued for a criminal
prosecution for tax evasion to prosper.