General Principles of Taxation Explained

I.
GENERAL PRINCIPLES OF TAXATION
1. Distinguish Tax from License Fee.
Tax License Fee

Basis Power of Taxation Police power
Purpose To generate revenue Regulatory
Limitations Inherent and constitutional limitations Limited to costs of issuing the license;
Necessary inspection or police surveillance
Effect of Non- Does not make the business illegal Makes the business illegal
payment
If the generating revenue is the primary purpose and regulation is merely incidental, the imposition is
a tax; but if regulation is the primary purpose, the fact that revenue is incidentally obtained does not
make it a tax. (Ingles, Tax Made Less Taxing, 2018, p. 4)
2. Explain why government entities, agencies and instrumentalities are generally exempt
from taxation. What is the exception to this rule?
There is no point in national and local government taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another. However, while
government instrumentalities are exempt from real property taxes, government owned or controlled
corporations are not exempt from real property taxes. (Manila International Airport Authority vs. City of
Paranaque, G.R. No. 15560, July 20, 2006)
3. What are the Constitutional Limitations on the Power of Taxation?
The following are the constitutional limitations as provided by the 1987 Constitutions:
a. Due Process (Sec.1, Art. III)

b. Equal Protection of Laws (Sec. 1, Art. III)
c. Religious Freedom (Sec. 5, Art. III)
d. Non-Impairment of Contracts (Sec. 10, Art. III)
e. Prohibition against Imprisonment for Non-payment of Poll Tax (Sec. 20, Art. III)
f. Uniformity and Equality of Taxation and Progressive System of Taxation (Sec. 28, Art. VI)
g. Delegated Authority to the President to Impose Tariff Rates [Sec. 28 (2), Art. VI]
h. Prohibition against Taxation of Real Property of Charitable Institutions, Churches, Parsonages or
Convents, Mosques and Non-profit Cemeteries [Sec. 28 (3), Art. VI]
i. Prohibition against Taxation on Non-stock Non- Profit Educational Institutions [Sec. 4(3), Art. XIV]
j. Absolute Majority Vote of Congress for Grants of Tax Exemptions [Sec. 28 (4), Art. VI]
k. Prohibition against the use of Tax Levied for Special Purpose [Sec. 29(3), Art. VI]
l. Tax Bills should originate exclusively in the House of Representatives [Sec. 24, Art. VI]
m. President’s Veto Power on Appropriation, Revenue, and Tariff Bills [Sec. 27 (2), Art. VI]
n. Judicial Power to Review Legality of Tax (Sec. 5, Art. VIII)
o. Grant of Power to Local Government Units to Create its Own Sources of Revenue (Sec. 5, Art. X)
4. What are the tax exemptions protected by the non-impairment clause?
The tax exemptions protected by the non-impairment clause are contractual tax exemptions, not
those granted by franchises or licenses. Contractual tax exemptions are: (a) those entered into by the
2019 TAXATION LAW |1

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taxing authority; (b) lawfully entered into them under enabling laws; and (c) wherein the government
acts in its private capacity and sheds its cloak of authority and immunity. (Manila Electric Co. vs. Province
of Laguna, G.R. No. 131359, May 5, 1999)
5. Distinguish “direct taxes” from “indirect taxes. Give examples of each.
Direct Taxes are demandable from the very person who, as intended, should pay the tax which cannot
shift to another; while an indirect tax is demanded in the first instance from one person with the
expectation that he can shift the burden to someone else, not as tax, but as part of purchase price.
(Maceda vs. Macaraig, Jr., G.R. No. 882891, June 8, 1993)
Examples of direct taxes are income tax, estate tax and donor’s tax. Examples of indirect tax are
value-added tax, percentage tax and excise tax on excisable articles.
6. Why is tax exemptions strictly construed against the tax payer?
Tax exemption is strictly construed against the taxpayer because such provisions are highly disfavored
and may almost be said odious to the law. (Manila Electric Co. vs. Vera, G.R. No. L-29987, October 22,
1975). The exception contained in the tax status must be strictly construed against the one claiming
the exemption because the law does not look with favor on tax exemptions, they being contrary to the
life-blood theory which is the underlying basis for taxes.
7. What are the two kinds of double taxation?
a. Double Taxation in the Strict Sense or Direct Double Taxation – same property is taxed
twice when it should be taxed only once; and that both taxes are imposed on the same property or
subject matter for the same purpose, by the same State, Government or taxing authority within
the same jurisdiction or taxing district during the same taxing period and covering the same kind of
character of tax. It violates the equal protection clause of the constitution. (Villanueva vs. City of
Iloilo, G.R. No. L-26521, December 28, 1968)
b. Double Taxation in the Broad Sense or Indirect Double Taxation – is the opposite of direct
double taxation and is not legally objectionable. This occurs when a pecuniary burden is imposed
on the same subject matter by two different taxing authorities. (Ingles, Tax Made Less Taxing, 2018,
p. 11)
8. ABC Company, a VAT registered company, religiously paid its local business tax to the City
of Manila as Wholesalers under Section 15 of the Manila Revenue Code. In the fourth
quarter of 1996, ABC Company aside from being assessed with the tax under Section 15
(Tax on Wholesalers) was imposed with taxes under Section 21 of the same Revenue
Code. Said Section 21 imposes taxes on businesses who are subject to business tax under
the National Internal Revenue Code (NIRC) such as percentage tax and Value Added
Taxes.
ABC Company was compelled to pay under protest both local taxes under Section 15 and
Section 21 in order to renew their business permit for the next year. ABC Company filed a
claim for refund and assailed the validity of Section 21 of the Manila Revenue Code on the
ground that it constitutes double taxation. Will it prosper?
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Yes. Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold
goods and services in the course of trade or business based on a certain percentage of his gross sales
or receipts in the preceding calendar year, while Section 15 and Section 17 likewise imposed the tax
on a person who sold goods and services in the course of trade or business but only identified such
person with particularity, namely, the wholesaler, distributor or dealer (Section 15), and the retailer
(Section 17), all the taxes – being imposed on the privilege of doing business in the City of Manila in
order to make the taxpayers contribute to the city’s revenues – were imposed on the same subject
matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within the
same jurisdiction in the same taxing period (i.e., per calendar year).
Thirdly, the taxes were all in the nature of local business taxes. In fine, the imposition of the tax
under Section 21 of the Revenue Code of Manila constituted double taxation, and the taxes collected
pursuant thereto must be refunded. (Nursery Care Corp. v. Anthony Acevedo & the City of Manila, GR
180651, July 30, 2014)
9. What are the usual methods of avoiding the occurrence of double taxation?
The usual methods of avoiding the occurrence of double taxation are:

a. Allowing reciprocal exemption either by law or by treaty;
b. Allowance of a tax credit for foreign taxes paid;
c. Allowance of deduction for foreign taxes paid; and,
d. Reduction of the Philippine tax rate. (Dimaampao, Tax Principles and Remedies, 2011 Edition)
10. Are taxes subject to set -off?
No. There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. (Ingles, 2015) 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 tax cannot
await the results of a lawsuit against the government. (Francia vs. Intermediate Appellate Court, G.R. No.
L-67649, June 28, 1988) The taxpayer cannot take law into its own hands, and the claim compensation
because it has pending refund with the CIR. (Philex Mining Corp. vs. CIR, G.R No. 125704, August 28, 1998)
However, when the claims of the government and the taxpayer against each other have already
become due, demandable and fully liquidated, and the amount due to the taxpayer has already been
appropriated by law, compensation will follow by operation of law. (Domingo vs. Garlitos, G.R. No. L-
18994, June 29, 1963)
11. What are the requisites for a proper taxpayer suit?
a. Public funds are disbursed by a political subdivision or instrumentality, and in doing so, a law is
violated or irregularity committed, and
b. The petitioner is directly affected by the act. (Anti-Graft League of the Philippines vs. San Juan, G.R. No.
97787, August 1, 1996).
12. What is a tax amnesty? How it is construed?

Tax amnesty is a general pardon or the intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute waiver

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by the government of its right to collect what is due it and to give tax evaders who wish to relent a
chance to start with a clean slate.
A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a tax
amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in
favor of the taxing authority. (Asia International Auctioneers, Inc. (AIA) vs. Commissioner of Internal
Revenue (CIR), G.R. No. 179115, September 26, 2012, J. Perlas-Bernabe)
13. Distinguish tax amnesty from tax exemption.
Tax amnesty is immunity from all criminal, civil and administrative liabilities arising from non-
payment of taxes, while a tax exemption is immunity from civil liability only. Tax immunity is an
immunity or privilege, a freedom from charge or burden to which others are subjected. Tax amnesty
applies only to past tax periods, hence of retroactive application while tax exemption has prospective
application. (Philippine Banking Corporation vs. CIR, G.R. No, 170574, January 30, 2009)
14. Distinguish indirect taxes as against withholding taxes.
In indirect taxes, the incidence of taxation falls on one person but the burden thereof can be shifted
or passed on to another person, such as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it.
On the other hand, in case of withholding taxes, the incidence and burden of taxation fall on the
same entity, the statutory taxpayer. The burden of taxation is not shifted to the withholding agent
who merely collects, by withholding, the tax due from income payments to entities arising from
certain transactions and remits the same to the government. (Asia International Auctioneers, Inc. (AIA)
vs. Commissioner of Internal Revenue (CIR), G.R. No. 179115, September 26, 2012, J. Perlas-Bernabe)
15. CBK Power is a domestic limited partnership engaged in the operation of hydro-electric
power plants in Laguna. It borrowed money from various foreign banks for which it
remitted interest payments and withheld final taxes from said payments which ranges
from 15%-20%. However, under the relevant tax treaties between the Philippines and
the respective countries in which each of the banks is a resident, their interest income is
subject only to a preferential tax rate of 10%. CBK Power filed a claim for refund of its
excess final withholding taxes allegedly erroneously withheld and collected.
CIR, however, alleged that an International Tax Affairs Division (ITAD) ruling must be
obtained prior to availing a preferential tax rate prescribed by Revenue Memorandum
Order (RMO) 1-2000, which is an administrative issuance that has the force and effect of
law and is just as binding as a tax treaty. Can the RMO 1-2000 deprive a taxpayer of its
right to avail of preferential tax rates based on tax treaties?
No. The obligation to comply with a tax treaty must take precedence over the objective of RMO No.
1-2000. Bearing in mind the rationale of tax treaties, the period of application for the availment of
tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief
as it would constitute a violation of the duty required by good faith in complying with a tax treaty
(pacta sunt servanda). The denial of the availment of tax relief for the failure of a taxpayer to apply
within the prescribed period under the administrative issuance would impair the value of the tax
treaty. At most, the application for a tax treaty relief from the BIR should merely operate to confirm
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the entitlement of the taxpayer to the relief. (CIR vs. CBK Power Company Ltd., G.R. No. 193383-84,
January 14, 2015, J. Perlas-Bernabe)
16. The government of Japan agreed to extend a loan, through Overseas Economic
Cooperation Fund (OECF) to the Philippines for a Thermal Power Plant Project, the
former agreed to assume all taxes imposed by the Philippines on Japanese contractors
engaged in the Thermal Power Plant Project. National Power Corporation, as the
executing government agency, entered into a contract with Mitsubishi Corp for the
construction of the Project. Mitsubishi filed with the CIR an administrative claim for
refund of P52 million, representing the alleged erroneously paid amounts of P44 million
as income tax and P8 million as Branch Profit Remittance Taxes corresponding to the
OECF-funded Project. The CIR, however, alleged that under Section 229 of NIRC, CIR
has no power to grant refund absent any tax exemption and in light of RMC No. 42-99,
Mitsubishi's proper remedy is to recover the subject taxes from NPC, and not from CIR.
a. Is Mitsubishi entitled to a refund? If in the affirmative, where should the refund be

claimed? Explain.
Yes. Section 204(C) of the NIRC grants the CIR the authority to credit or refund taxes which are
erroneously collected by the government. In this case, it is fairly apparent that the subject taxes in
the amount of P52 million was erroneously paid by Mitsubishi, considering that the obligation to pay
the same had already been assumed by the Philippine Government by virtue of its Exchange of
Notes with the Japanese Government.
The refund should be claimed from the CIR. The NIRC vests upon the CIR, being the head of the
BIR, the authority to credit or refund taxes which are erroneously collected by the government. This
specific statutory mandate cannot be overridden by averse interpretations made through mere
administrative issuances, such as RMC No. 42-99, which — as argued by the CIR –– shifts to the
executing agencies (particularly, NPC in this case) the power to refund the subject taxes. (Mitsubishi
Corp. vs. CIR, G.R. No. 175772, June 5, 2017, J. Perlas-Bernabe)
b. What is the difference between tax assumption and tax exemption?
To "assume" means to take on, become bound as another is bound or put oneself in place of
another as to an obligation or liability. This means that the obligation or liability remains, although
the same is merely passed on to a different person.
On the other hand, Tax Exemption is the " freedom from a duty, liability or other requirement" or " a
privilege given to a judgment debtor by law, allowing the debtor to retain a certain property without
liability." (Mitsubishi Corp. vs. CIR, G.R. No. 175772, June 5, 2017, J. Perlas-Bernabe)
II. NATIONAL TAXATION
A. Taxing Authority
29. What was the limitation imposed upon the power of the Commissioner of Internal
Revenue (CIR) to obtain information with regard to Cooperatives as per RA 10963 or the
TRAIN Law?

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The Cooperative Development Authority shall submit to the Bureau a tax incentive report, which
shall include information on the income tax, value-added tax, and other tax incentives availed of by
cooperatives registered and enjoying incentives under Republic Act No. 6938, as amended: Provided,
That the information submitted by the Cooperative Development Authority to the Bureau shall be
submitted to the Department of Finance and shall be included in the database created under
Republic Act No. 10708, otherwise known as 'The Tax Incentives Management and Transparency Act
(TIMTA). (Section 5(b), NIRC as amended by TRAIN Law)
30. Under the TRAIN Law, is the power of the CIR to examine returns and determine tax
due subject to prior authorization of any government agency or instrumentality?
No. After a return has been filed as required under the provisions of the Tax Code, the
Commissioner or his duly authorized representative may authorize the examination of any taxpayer
and the assessment of the correct amount of tax, notwithstanding any law requiring the prior
authorization of any government agency or instrumentality: Provided, however, That failure to file a
return shall not prevent the Commissioner from authorizing the examination of any taxpayer. (Section
6(A), NIRC as amended by TRAIN Law)
31. What are the additions made by the TRAIN Law as to the Authority of the Commissioner
to Prescribe Real Property Values?
Under the TRAIN Law, the Commissioner is authorized to divide the Philippines into different zones
or areas and shall, upon mandatory consultation with competent appraisers both from the private
and public sectors, and with prior notice to affected taxpayers, determine the fair market value of
real properties located in each zone or area, subject to automatic adjustment once every three (3)
years through rules and regulations issued by the Secretary of Finance based on the current
Philippine valuation standards: Provided, That no adjustment in zonal valuation shall be valid unless
published in a newspaper of general circulation in the province, city or municipality concerned, or in
the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two (2)
other conspicuous public places therein: Provided, further, That the basis of any valuation, including
the records of consultations done, shall be public records open to the inquiry of any taxpayer.
(Section 6(E), NIRC as amended by TRAIN Law)
B. Income Tax
34. Distinguish a “capital asset” from an “ordinary asset”.
Capital Asset Ordinary Asset

Includes all property held by the taxpayer whether The following are considered ordinary assets:
or not connected with his trade or business except a. Stock in trade of the taxpayer or other property of a
those considered as ordinary asset kind which would properly be included in the
inventory of the taxpayer if on hand at the close of
the taxable year;
b. Property held by taxpayer primarily for sale to
customers in the ordinary course of trade or
business;
c. Property used in the trade or business of a character
which is subject to the allowance of depreciation
provided in Section 34 (F) of the Tax Code; and
d. Real property used in trade or business of the
taxpayer.
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35. What is the rationale for the rule prohibiting the deduction of capital losses from
ordinary gains? Explain.
It is to ensure that only cost or expenses incurred in earning the income shall be deductible for
income tax purposes consonant with the requirement of the law that only necessary expenses are
allowed as deduction from gross income. The term “necessary expenses” presupposes that in order
to be allowed as deduction, the expense must be business connected, which is not the case insofar
as capital losses is concerned. This is also the reason why all nonbusiness related expenses like
personal, living and family expenses, are not allowed as deduction from gross income. (Section
36(A)(1), NIRC)
36. Mario is a very bright computer science graduate. He was hired by SuperBright
Corporation. To entice him to accept the offer of employment, he was offered the
arrangement that part of her compensation would be an insurance policy with a face
value of Php 10 Million. The parents of Mario are beneficiaries of the insurance policy.
Will the proceeds of the insurance form part of the income of the parents and be subject
to income tax? Explain.
No. The proceeds of the life insurance policies paid to the heirs or beneficiaries upon the death of
the insured are not included as part of the gross income of the recipient. (Section 32(B)(1), NIRC) .
There is no income realized because nothing flows to Mario’s parents other than a mere return of
capital, the capital being the life of the insured.
37. Under what conditions are retirement benefits received by officials and employees of
private firms excluded from gross income and exempt from taxation?
Retirement benefits received under RA 4917 and those received by officials and employees of private
firms, whether, individual or corporate, in accordance with the employer’s reasonable private benefit
plan approved by the BIR, are excluded from gross income and exempt from income taxation if the
retiring official or employees was : (a) in service of the same employer for at least 10 years; (b) not
less than 50 years old at the time of retirement; (c) availed of the benefit of exclusion only once
(Sec.32 (B)(6)(a), NIRC); (d) the retiring official or employee should not have previously availed of the
privilege under the retirement plan of the same or another employer. (RR 2-98, Section 2.78 (B)(1), 1st
par.)
38. Under the TRAIN Law, how will the income of an individual earning income purely from
self-employment and/or practice of profession be taxed?
1. Individuals earning income purely from self-employment and/or practice of profession whose
gross sales/receipts and other non-operating income does not exceed P3 million shall have the
option to be taxed:
a. The graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended; OR
b. An eight percent (8%) tax on gross sales or receipts (net of returns and cash discounts) and
other non-operating income in excess of two hundred fifty thousand pesos (P250,000) in lieu
of the graduated income tax rates under Section 24(A) and the percentage tax under Section
116 all under the Tax Code, as amended.
2. But of the income of the purely self-employed individual exceeds P3 million, his taxable income
shall be subject to the graduated rates under Section 24(A)(2)(a) of the Tax Code.

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39. Under the TRAIN Law, how will the income of an individual earning income both from
compensation and from self-employment be taxed?
1. All Income from Compensation. – The graduated income tax rates prescribed under Section 24
(A)(2)(a), NIRC, based on taxable income.
2. All Income from Business or Practice of Profession. –
a. If Total GS/GR and Other Non-operating Income do not exceed P3 million - The graduated
income tax rates under Sec. 24(A)(2)(a), NIRC on taxable income, or 8% income tax based on
GS/GR and other non-operating income, in lieu of the graduated income tax rates under Sec.
24 (A)(2)(a), NIRC and the 3% percentage tax under Sec. 116, NIRC.
b. If Total GS/GR and Other Non-Operating Income exceeds P3 million – The graduated income
tax rates prescribed under Sec. 24(A)(2)(a), NIRC, based on the taxable income.
40. Who are not qualified for the 8% flat income tax rate option based on gross sales
and/or receipts?
a. Pure compensation income earners;

b. VAT registered taxpayers;
c. Non-VAT taxpayers whose gross receipts/sales exceed P3,000,000.00;
d. Taxpayers subject to other percentage taxes except Sec. 116;
e. Partners of General Professional Partnerships;
f. Individuals enjoying income tax exemption such as those registered with Barangay Micro
Business Enterprise since taxpayers are not allowed to avail of double or multiple tax exemptions
under different tax laws unless specifically provided by law. (RR 8-2018) (RMC 50-2018)
41. Ted Mosby, a non-VAT taxpayer, is a freelance architect. By the end of 2018, he had
gross receipts of P1,000,000.00. May Ted Mosby avail of the 8% income tax rate? How
much will be the taxable income subject to the 8% tax?
Yes. If Ted Mosby has opted to avail the 8% flat income tax rate on the 1 st quarter of the year, he
may avail of the 8% income tax regime. Section 24 of the NIRC as amended by RA 10963 and as
implemented in RR 8-2018 allows persons who are self-employed to have the option to be taxed at
8% of its Gross Sales/Receipts in excess of P250,000. Provided, such person's GS/GR does not
exceed the VAT threshold which is now at P3 Million or has not optionally registered as a VAT
registered taxpayer. The taxable income of Ted Mosby is P750,000 which is obtained from P1M
deducted by P250,000 tax exemption.
42. Barney Stinson, a non-VAT taxpayer, is a freelance engineer. His 1st to 3rd Quarter
Income Tax Returns (ITRs) for the year 2018 showed that he paid income tax based on
the graduated rates. By the end of 2018, he had gross receipts of P1,000,000.00.
a. May Barney opt to pay 8% income tax in his annual ITR for the year 2018?
No. Barney cannot opt to be taxed at 8% income tax. Taxpayer must signify his intention to avail of
the 8% income tax rate in the 1st Quarter ITR, or on the initial quarter return of the taxable year
after the commencement of a new business/practice of profession. Otherwise, taxpayer is
considered to have availed of the graduated rates. (Section 24, NIRC as amended by TRAIN Law)
b. May Barney amend his quarterly ITRs and avail of the 8% income tax?
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No. Barney cannot amend his returns to change his taxing regime from graduated tax rates to 8%
income tax rate. As per RR 8-2018, such option shall be irrevocable and cannot be subject to any
amendment for the covered taxable year.
43. Marcial, a non-VAT taxpayer, is a practicing lawyer. He is also employed as a part time
professor. During the year 2018, he had the following gross receipts:
For Practicing law – P1,000,000.00;

For being a part-time professor - P5,500,000.00
a. How much taxable income will be subject to 8% tax?
If Marcial opted to avail the 8% flat income tax rate on the income derived from his practice of
profession, his P1,000,000 income derived from practice of law will be his taxable income subject to
8% income tax rate. Taxable income of persons who has two sources of income which are earnings
coming from his trade and/or profession and compensation, such base for the 8% tax regime shall
be the gross sales or receipts from trade/profession including non-operating income without the
benefit of deducting the first Php250,000. (Section 3D(2a), RR 8-2018)
b. How much taxable income will be subject to the graduated tax rates?
The taxable income subject to graduated tax rates is P5,500,000 less mandatory deductions.
The provision under Section 24(A)(2)(b) of the Tax Code, as amended, which allows an option of
8% income tax rate on gross sales/receipts and other non-operating income in excess of
P250,000.00 is available only to purely self-employed individuals and/or professionals. The
P250,000.00 mentioned is not applicable to mixed income earners since it is already incorporated in
the first tier of the graduated income tax rates applicable to compensation income. Under the said
graduated rates' the excess of the P250,000.00 over the actual taxable compensation income is not
deductible against the taxable income from business/practice of profession under the 8%o income
tax rate option. (Section 3D(2), RR 8-2018)
44. In 2018, Joey Tribianni owns a nightclub and videoke bar, with gross sales/receipts of
P2,500,000.00. His cost of sales and operating expenses are P1,000,000.00 and
P600,000.00, respectively, and with non-operating income of P100,000.00. Is Greg
entitled to avail of the 8% income tax rate?
No. RR 8-2018 provides that persons, regardless of the amount of gross sales or receipts, who are
liable for Other Percentage Tax under Title V of the NIRC as amended shall not be entitled to the
option of availing the 8% income regime, except for those taxed under Sec. 116 of the same title.
Here, Joey's business which is a night club falls within the ambit of income taxed under Section 125
of Title V of the NIRC and not covered by the exception. Hence he is not entitled to the 8% tax
regime regardless of the fact that his gross sales/receipts including non-operating income does not
exceed the threshold.
45. Ross Geller owns a farm, with gross sales of P3,500,000.00. His cost of sales and
operating expenses are P1,000,000.00 and P600,000.00, respectively, and with non-
operating income of P100,000.00. Is Willie entitled to avail of the 8% income tax rate?

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No. Since Gross Sales or Gross Receipts and Other Non-operating Income of Ross from the farm
(self-employment) exceeded the P3 Million Value-added Tax (VAT) threshold, he is not entitled to
the 8% tax rate. (Section 3C, RR 8-2018)
46. Determine the changes made by the TRAIN Law regarding Income Tax with the
following:
a. Graduated Tax Rates;

b. Basic Allowed Personal Exemption and Additional Personal Exemptions;
c. Premium Payment on Health and/or Hospitalization Insurance for Individuals;
d. 13th Month Pay and Other Benefits;
e. Fringe Benefit Tax;
f. Corporate Income Tax of Government owned or controlled corporations, agencies or
instrumentalities;
g. Passive income on interest from Expanded Foreign Currency Deposit ;
h. Capital gains from sale of shares of stock not traded in the local stock exchange of domestic
corporations;
i. Stock Transaction Tax on Listed Shares of a Domestic Corporation;
j. PCSO and Lotto Winnings;
k. Creditable Withholding Tax Rates.
As to: NIRC of 1997 TRAIN LAW

Graduated Tax Rates 5-32% 0-35%
Basic Allowed Personal Exemption Basic Personal P50,000; Additional Repealed; no longer considered as
and Additional Personal Personal P25,000 each child not Allowable Deductions
Exemptions exceeding four (4)
Premium Payment on Health P2,400 per annum Repealed; no longer considered as
and/or Hospitalization Insurance Allowable Deductions
for Individuals
13th Month Pay and Other Benefits P82,000 per annum P90,000 per annum (Sec.
32(B)(7)(e), NIRC as amended by
TRAIN Law)
Fringe Benefit Tax 15%;25%;32% 35% (Sec. 33(A), NIRC as amended
by TRAIN Law)
Corporate Income Tax of The following are exempt from Income tax exemption of the
Government Owned or Controlled corporate income tax: following was removed:
Corporations, Agencies or 1. Government Service Insurance 1. PCSO
Instrumentalities System (GSIS);
2. Social Security System (SSS);
3. Philippine Health Insurance
Corporation (PHIC);
4. Local Water Districts; and
5. Philippine Charity Sweepstakes
Office (PCSO).
a.
Passive income on interest from Final tax of 7.5% (Sec. 27(D)(1) Final tax of 15% for Resident Citizen,
Expanded Foreign Currency of NIRC of 1997) Resident Alien and Domestic
Deposit Corporation
Capital gains from sale of shares Capital Gains Tax of: Capital Gains Tax of 15% flat rate for
of stock not traded in the local 5% on the first P100,000; and all individuals and Domestic
stock exchange of domestic 10% in excess of P100,000 (Sec. Corporation
corporations 27(D)(2) of NIRC of 1997)
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Stock Transaction Tax on Listed Income tax rate of ½ of 1% 6/10 of1% (Sec. 127, NIRC as
Shares of a Domestic Corporation amended by TRAIN Law)
PCSO and Lotto Winnings Exempt Exemption is limited only to P10,000
or less
Creditable Withholding Tax (CWT) CWT rate is not less than one 1% Beginning Jan 1, 2019, CWT shall not
Rates but not more than 32% of the be less than 1% but not more than
income payment 15% of the income payment (Sec.
57(B), NIRC as amended by TRAIN
Law)
47. What are the information required in Individual Income Tax Return in accordance with
R.A. 10963 or TRAIN Law?
The income tax return (ITR) shall consist of a maximum of four (4) pages in paper form or electronic
form, and shall only contain the following information:
a. Personal profile and information;
b. Total gross sales, receipts or income from compensation for services rendered, conduct of trade
or business or the exercise of a profession, except income subject to final tax as provided under
this Code;
c. Allowable deductions under this Code;
d. Taxable income as defined in Section 31 of this Code; and
e. Income tax due and payable. (Sec. 51(A)(5), NIRC as amended by TRAIN Law)
48. What is Substituted Filing of Income Tax Return as per TRAIN Law?
Individual taxpayers receiving pure compensation income, regardless of amount, from only one
employer in the Philippines for the calendar year, the income tax of which has been withheld
correctly by the said employer (tax due equals tax withheld) shall not be required to file an annual
income tax return. The certificate of withholding filed by the respective employers, duly stamped
“received‟ by the BIR, shall be tantamount to the substituted filing of income tax returns by said
employees. (Sec. 51-A, NIRC as amended by TRAIN Law)
49. On September 24, 2008, Revenue Regulations No. 10-2008 was issued which provided
in Sections 1 and 3 thereof that MWEs who receive other benefits in excess of P30,000
limit (now P90,000 as per TRAIN Law) shall no longer be entitled to income tax
exemption. Are the two mentioned provisions of RR 10-2008 valid?
No. Sections 1 and 3 of RR No. 10-2008 add a requirement not found in the law by effectively
declaring that an MWE who receives other benefits in excess of the statutory limit of ₱30,000.00
(now ₱90,000.00) (and other compensation in addition to the statutory minimum wage) is no longer
entitled to the exemption provided by R.A. 9504. Nowhere in the provisions of R.A. 9504 would one
find the qualifications prescribed by the assailed provisions of RR No. 10-2008. The provisions of the
law are clear and precise; they leave no room for interpretation - they do not provide or require any
other qualification as to who are MWEs.
The amendment is silent on whether compensation-related benefits exceeding the ₱30,000 (now
₱90,000.00) threshold would make an MWE lose exemption. R.A. 9504 has given definite criteria for
what constitutes an MWE and that is a worker who is paid the SMW and is exempt from tax on that
income as well as on the associated statutory payments for Holiday Pay, Hazard Pay, Overtime Pay
and Night Shift Differential Pay, and R.R. 10-2008 cannot change this. An administrative agency may

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not enlarge, alter or restrict a provision of law. It cannot add to the requirements provided by law.
To do so, would constitute law-making, which is generally reserved for Congress. (Soriano vs.
Secretary of Finance, GR No. 184450, January 24, 2017)
50. What are the new rules with regard to MWEs receiving 13th month pay and other
benefits?
a. Statutory Minimum Wage (SMW), Holiday Pay, Overtime Pay, Night Differential Pay and Hazard
Pay are exempt from income and withholding tax.
b. Additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of
the allowable statutory amount of P90,000.00, taxable allowances, and other taxable income
given to MWE by the same employer other than those which are expressly exempt from income
tax shall be subject to income tax and withholding tax.
c. MWEs receiving other income from other sources in addition to compensation income, such as
income from other concurrent employers, from the conduct of trade, business or practice of
profession, except income subject to final tax, are subject to income tax only to the extent of
income other than SMW, holiday pay, overtime pay, night shift differential pay, and
hazard pay earned during the taxable year.
d. Any reduction or diminution of wages for purposes of exemption from income tax shall constitute
misrepresentation and therefore, shall result to the automatic disallowance of expense, i.e.
compensation and benefits account, on the part of the employer. The offenders may be criminally
prosecuted under existing laws. (RR 11-2018)
51. Give examples of De Minimis Benefits under the TRAIN Law.
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 P1,500.00 per employee per
semester or P250.00 per month;
d. Rice subsidy of P2,000.00 or one (1) sack of 50-kg. rice per month amounting to not more than
P2,000.00;
e. Uniform and clothing allowance not exceeding P6,000.00 per annum;
f. actual yearly medical benefits not exceeding P10,000.00 per annum;
g. Laundry allowance not exceeding P300.00 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 P10,000.00 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 P5,000.00 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
(P10,000.00) per employee per taxable year. (RR 11-2018)
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52. What is the rule on excess De Minimis Benefits?
The benefits given in excess of the maximum amount allowed as "de minimis" benefits shall be
included as part of "other benefits" which is subject to the P90,000.00 ceiling. Any amount in excess
of the P90,000.00 shall be subject to income tax, and consequently, to the withholding tax on
compensation. (RMC 50-2018)
53. What is Improperly Accumulated Taxable Income?
Section 29 (D) of the NIRC provides that the term 'improperly accumulated taxable income' means
taxable income adjusted by:
a. Income exempt from tax;
b. Income excluded from gross income;
c. Income subject to final tax; and
d. The amount of net operating loss carry-over deducted;
And reduced by the sum of:

a. Dividends actually or constructively paid; and
b. Income tax paid for the taxable year.
54. What are the distinctions between regular corporate income tax and minimum corporate
income tax?
As to: Regular Corporate Income Tax Minimum Corporate Income Tax

(RCIT) (MCIT)
Taxpayer All corporate taxpayers Domestic corporations and resident foreign
corporations
Rate 30% 2%
Tax Base Based on net taxable income except Based on Gross income
non-resident foreign corporation which
is based on gross income
Period of Applicable once the corporation Applicable beginning on the fourth taxable
applicability commenced its operation year immediately following the year of
commencement of business operation.
55. Joshua is a Filipino citizen residing in the Philippines. In 2019, he received P10,000,000
cash dividends from his investment in Maligaya Insurance Corporation, a Domestic
Insurance Corporation. When should Joshua file the final withholding tax return?
Joshua will not file the FWT Return, but rather it is the corporation which us obliged to file the
return. The return for both final and creditable withholding taxes shall be filed and the payment
made not later than the last day of the month following the close of the quarter during which the
withholding was made. (Section 58, NIRC as amended by TRAIN Law)
56. Air Canada filed a claim for refund for more than P5 million. It claims that there was
overpayment, saying that the applicable tax rate against it is 2.5% under the law on tax
on Resident Foreign Corporations (RFCs) for international carriers. It argues that, as
an international carrier doing business in the Philippines, it is not subject to tax at the
regular rate of 32%. The CIR, however, claims that Air Canada should be taxed as a
resident foreign corporation at the regular rate of 32% because it was engaged in

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business in the Philippines through a local agent that sells airline tickets on its behalf.
Provided there is also an RP-Canada Tax Treaty granting international carriers of 1 ½ %
tax rate upon gross revenues, what rate shall apply?
If there is an applicable tax treaty, the same must be taken into consideration to determine the
proper tax rate. Under the RP-Canada Tax Treaty, an international air carrier could only be taxed at
a maximum of 1½% of gross revenues (Air Canada vs. CIR, GR No. 169507, January 11, 2016).
57. Kadenang Guinto Philippines Inc. (Kadenang Guinto) is a domestic corporation

organized under the Philippine Law and registered with BIR. All of its preferred shares
were subscribed by Golden Chain Inc. (Golden Chain), a foreign company organized
under US law. Although Kadenang Guinto did not have unrestricted retained earnings
and in operating deficit, the board of directors authorized the redemption of Golden
Chain’s preferred shares. It withheld and remitted 15% FWT to BIR on November 3,
2008. Thereafter, Kadenang Guinto applied for relief from double taxation on the ground
that the redemption was not subject to Philippine income under the RP-US Treaty. On
October 21, 2010, Kadenang Guinto filed an administrative claim for refund and on
November 3, 2010, it filed a judicial claim before the CTA. The CIR contended that the
judicial claim must be dismissed because of non-exhaustion of administrative remedies
since the administrative claim is still pending.
a. Is the contention of the CIR correct?
No. Sec. 229 of the Tax Code states that judicial claims for refund must be filed within 2 years from
the date of payment of the tax or penalty, providing further that the same may not be maintained
until a claim for refund or credit has been duly filed with the CIR. Sec. 229 of the Tax Code however
does not mean that the taxpayer must await the final resolution of its administrative claim for
refund, since doing so would be tantamount to the taxpayer’s forfeiture of its right to seek judicial
recourse should the two-year prescriptive period expire without the appropriate judicial claim being
filed. In this case, both the administrative and judicial claims for refund for its erroneous withholding
and remittance were indubitably filed within the two-year prescriptive period. Kadenang Guinto could
not be faulted for resorting to court action, considering that the prescriptive period stated therein
was about to expire. (CIR vs. Goodyear Philippines Inc., G.R. No. 216130, August 3, 2016, J. Perlas-Bernabe)
b. Should the redemption price be treated as accumulated dividends in arrears subject

to 15% FWT?
No. Section 73(A) of the Tax Code provides that “the term ‘dividends’ 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.” Records show that Kadenang Guinto did not have
unrestricted retained earnings, and in fact, operated from a position of deficit. Thus, absent the
availability of unrestricted retained earnings, the board of directors of Kadenang Guinto had no
power to issue dividends. Therefore, the redemption price received by Golden Chain could not be
treated as accumulated dividends in arrears that could be subjected to 15% FWT. (CIR vs. Goodyear
Philippines Inc. G.R. No. 216130, August 3, 2016, J. Perlas-Bernabe)
58. Eskwelahan is a non-stock, non-profit educational institution. Eskwelahan leases portion

of its school building to a bookstore and cafeteria. BIR assessed Eskwelahan deficiency
taxes on rental income tax for the leased portion of school building. Eskwelahan filed a
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protest but CIR did not act upon the protest. Eskwelahan filed a petition for review
before CTA. CTA found that Eskwelahan borrowed P100 Million which was used to build
the university’s Sport Complex and that the rental income from its concessionaires were
indeed transmitted and used for the payment of the said loan. CTA found that
Eskwelahan substantially proved that the rental income was used to pay the said loan.
Should the rental income from its concessionaire be exempt from income tax?
Yes. When a non-stock, nonprofit educational institution proves that it uses its revenues actually,
directly, and exclusively for educational purposes, it shall be exempted from income tax, VAT, and
LBT. On the other hand, when it also shows that it uses its assets in the form of real property for
educational purposes, it shall be exempted from RPT. Parenthetically, assets and revenues of non-
stock, nonprofit educational institution not used actually, directly and exclusively for educational
purposes are not exempt from duties and taxes. To avail of the exemption, the taxpayer
must factually prove that it used actually, directly and exclusively for educational purposes the
revenues or income sought to be exempted. (CIR vs. DLSU, G.R. No. 196596, Nov. 9, 2016)
59. A group of philanthropists organized a non-stock, non-profit hospital for charitable

purposes to provide medical services to the poor. However, the hospital also accepted
paying patients although none of its income accrued to any private individual and all
income plowed back to the hospital use and not more than 30% of the funds were used
for administration purposes.
a. Is the hospital subject to tax on its income? If it is, at what rate?
For a nonstock nonprofit hospital to be completely exempt from income tax, Sec. 30(E) and (G) of
the 1997 NIRC requires that said institution should operate exclusively for charitable or social
welfare purposes. But in case that non-stock non-profit hospital earns income from its for-profit
activities, the subject hospital shall only be subject to income tax insofar as the income derived from
its for-profit activities are concerned since it does not operate exclusively for charitable or
social welfare purposes. Accordingly, it will be exempt from income tax on the income derived by
it as such nonstock nonprofit charitable and social welfare institution, but its income from for-profit
activities, such as the income it derived from its paying patients, will be subject to income tax, but
only at the preferential income tax rate of 10% based on its taxable income, regardless of the
disposition made of such income, pursuant to Sec. 27(B), in relation to the last paragraph of Sec.
30 of the Tax Code.
b. Is it subject to the real property tax? Explain.
No. For real property taxes purposes, the incidental generation of income is permissible because the
test of exemption is the USE OF PROPERTY. Art. VI, Sec. 28(3) of the Constitution provides that
'charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-
profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively
USED for religious, charitable, or educational purposes shall be exempt from taxation.' The test
requires that the institution use the property in a certain way, i.e., in this case, for a charitable
purpose. This Constitutional exemption is reiterated in Sec. 234(b) of the Local Government Code.
(CIR vs. St. Luke’s Medical Center, G.R. No. 20-3514, Feb. 13, 2017)
60. Forty-one (41) non-life insurance domestic corporations entered into a Quota Share
Reinsurance Treaty and a Surplus Reinsurance Treaty with Munich, a nonresident

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foreign insurance corporation. The reinsurance treaties required them to form a pool.
Accordingly, a pool composed of 41 non-life insurance domestic corporation was formed.
The pool of machinery insurers submitted a financial statement and filed an Information
Return of Organization Exempt from Income Tax. CIR assessed them for deficiency in
corporate taxes and withholding taxes on dividends paid. According to the CIR, the pool
of machinery insurers was a partnership taxable as a corporation and that the latter’s
collection of premiums on behalf of its members, the ceding companies, was taxable
income.
a. Was CIR correct in ruling that the pool is taxable as corporation?
Yes. The ceding companies entered into a Pool Agreement or an association that would handle all
the insurance businesses covered under their quota-share reinsurance treaty and surplus
reinsurance treaty with Munich. The following unmistakably indicates a partnership or an association
covered by Section 24 of the NIRC: (1) The pool has a common fund, consisting of money and other
valuables that are deposited in the name and credit of the pool. This common fund pays for the
administration and operation expenses of the pool. (2) The pool functions through an executive
board, which resembles the board of directors of a corporation, composed of one representative for
each of the ceding companies. (3) True, the pool itself is not a reinsurer and does not issue any
insurance policy; however, its work is indispensable, beneficial and economically useful to the
business of the ceding companies and Munich, because without it they would not have received their
premiums. The ceding companies share “in the business ceded to the pool” and in the “expenses”
according to a “Rules of Distribution” annexed to the Pool Agreement. Profit motive or business is,
therefore, the primordial reason for the pool’s formation. (AFISCO Insurance Corporation vs. CA, G.R. No.
112675, January 25, 1999)
b. Was there a double taxation?
No. The pool is a taxable entity distinct from the individual corporate entities of the ceding
companies. The tax on its income is obviously different from the tax on the dividends received by
the said companies. Clearly, there is no double taxation here. (AFISCO Insurance Corporation vs. CA,
G.R. No. 112675, January 25, 1999)
61. Vank Bank was registered with the BIR in 1961, however in 1987, it was found insolvent
by the Monetary Board of BSP and was placed under receivership. After 12 years, or on
January 21, 1999, it registered with the BIR. Then it filed with SEC its Articles of
Incorporation which was approved on June 22, 1999. On June 23, 1999, BSP issued to
Vank Bank Certificate of Authority to Operate as a thrift bank. Vank bank paid minimum
corporate income tax for taxable year of 1999 in the amount of P33 Million. Vank Bank
later on sent a letter to BIR asking if it was entitled to the 4 years grace period, since it
reopened in 1999. Is Vank Bank entitled to the 4 years grace period?
Yes. The date of commencement of operations of thrift banks is the date of the particular thrift bank
was registered with SEC of the date Certificate of Authority to Operate was issued to it by the
Monetary Board of BSP, whichever comes later. Thus Vank Bank is entitled to grace period of 4
years counted from June 23, 1999 when it was authorized by the BSP to operate as a thrift bank.
Consequently, it should only pay its MCIT after 4 years from 1999. The intent of Congress relative to
the minimum corporate income tax is to grant a four (4)-year suspension of tax payment to newly
formed corporations. Corporations still starting their business operations have to stabilize their
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venture in order to obtain a stronghold in the industry. (Manila Banking Corporation vs. CIR, G.R. No.
168118, August 28, 2006)
62. Is the Minimum Corporate Income Tax (MCIT) an additional tax imposition?
MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only
if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net
income tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the
base the corporation’s gross income. The primary purpose of any legitimate business is to earn a
profit. Continued and repeated losses after operations of a corporation or consistent reports of
minimal net income render its financial statements and its tax payments suspect. For sure, certain
tax avoidance schemes resorted to by corporations are allowed in our jurisdiction. The MCIT serves
to put a cap on such tax shelters. As a tax on gross income, it prevents tax evasion and minimizes
tax avoidance schemes achieved through sophisticated and artful manipulations of deductions and
other stratagems. Since the tax base was broader, the tax rate was lowered. (CREBA vs. Romulo, G.R.
No. 160756, March 9, 2010)
63. Company A, with the assistance of its financial advisors, Company B, C and D, requested
an approval from the Department of Finance for the issuance by the Bureau of Treasury
of 10-year zero-coupon Treasury Certificates (T-notes). The T-notes would initially be
purchased by a special purpose vehicle on behalf of CODE-NGO, repackaged and sold at
a premium to investors as the PEACe Bonds.
As per the BIR Ruling, the PEACe Bonds will not be considered as "deposit substitutes"
since it will only be issued only to one entity (CODE-NGO). Hence, the withholding tax
on deposit substitutes will not apply. A zero-coupon bond is a bond bought at a price
substantially lower than its face value (or at a deep discount), with the face value repaid
at the time of maturity. It does not make periodic interest payments, or have so called
"coupons," hence the term zero-coupon bond. However, the discount to face value
constitutes the return to the bondholder. Are interest income and gains from sale or
redemption the same?
No. The term "gain" as used in Section 32(B)(7)(g) of the 1997 Tax Code does not include interest,
which represents forbearance for the use of money. Gains from sale or exchange or retirement of
bonds or other certificate of indebtedness fall within the general category of "gains derived from
dealings in property" under Section 32(A)(3), while interest from bonds or other certificate of
indebtedness falls within the category of "interests" under Section 32(A)(4).
The use of the term "gains from sale" in Section 32(B)(7)(g) shows the intent of Congress not to
include interest as referred under Sections 24, 25, 27, and 28 in the exemption.
Hence, the "gains" contemplated in Section 32(B)(7)(g) refers to:

a. gain realized from the trading of the bonds before their maturity date, which is the difference
between the selling price of the bonds in the secondary market and the price at which the bonds
were purchased by the seller; and
b. gain realized by the last holder of the bonds when the bonds are redeemed at maturity, which is
the difference between the proceeds from the retirement of the bonds and the price at which
such last holder acquired the bonds.

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For discounted instruments, like the zero-coupon bonds, the trading gain shall be the excess of the
selling price over the book value or accreted value (original issue price plus accumulated discount
from the time of purchase up to the time of sale) of the instruments (BDO v. Republic of the Philippines,
G.R. No. 198756, January 13, 2015).
64. The Republic of the Philippines, as represented by DPWH, filed a complaint before RTC
for the expropriation of certain parcel of land owned by Sps. Salvador, for the
construction of C-5 Road Project from NLEX to McArthur Highway. The RTC rendered
judgment in favor of the Republic but it directed the Republic to pay Sps. Salvador
consequential damages equivalent to the value of capital gains tax (CGT) and other
taxes necessary for the transfer of the subject property in the Republic’s name.
Is the RTC correct in directing the Republic the payment of CGT (on transfer of the
expropriated property) as consequential damages in favor of Sps. Salvador?
No. It is settled that the transfer of property through expropriation proceedings is a sale or exchange
within the meaning of Sections 24(D) and 56(A) (3) of the National Internal Revenue Code, and
profit from the transaction constitutes capital gain. Since capital gains tax is a tax on passive
income, it is the seller, or Sps. Salvador in this case, who are liable to shoulder the tax and not the
Republic.
In fact, the BIR has constituted the DPWH as a withholding agent tasked to withhold the 6% final
withholding tax in the expropriation of real property for infrastructure projects. Thus, as far as the
government is concerned, the CGT in expropriation proceedings remains a liability of the seller, as it
is a tax on the seller's gain from the sale of real property.
Besides, consequential damages are only awarded if as a result of the expropriation, the remaining
property of the owner suffers from an impairment or decrease in value. In this case, no evidence
was submitted to prove any impairment or decrease in value of the subject property as a result of
the expropriation. Given that the payment of capital gains tax on the transfer of the subject property
has no effect on the increase or decrease in value of the remaining property, it can hardly be
considered as consequential damages that may be awarded to Sps. Salvador. (Republic of the
Philippines vs. Spouses Salvador, G.R. No. 205428, June 7, 2017)
65. Philippine Amusement and Gaming Corporation (PAGCOR) has operated under a
legislative franchise granted by Presidential Decree No. 1869 (P.O. No. 1869), its
Charter whose Section 13(2) provides that no tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether National or
Local, shall be assessed and collected under this Franchise from the Corporation; nor
shall any form of tax or charge attach in any way to the earnings of the Corporation,
except a Franchise Tax of five percent (5%) of the gross revenue or earnings derived by
the Corporation from its operation under this Franchise. Such tax shall be due and
payable quarterly to the National Government and shall be in lieu of all kinds of taxes,
levies, fees or assessments of any kind, nature or description, levied, established or
collected by any municipal, provincial or national government authority.
Notwithstanding the aforesaid 5% franchise tax imposed, the Bureau of Internal

Revenue (BIR) issued an assessment for deficiency final withholding taxes on fringe
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benefits related to the car plan granted by PAGCOR to its employees and for its payment
of membership dues and fees.
a. Is PAGCOR liable for final withholding tax on fringe benefits on the car plan?
Yes. FBT is treated as a final income tax on the employee that shall be withheld and paid by the
employer on a calendar quarterly basis. As such, PAGCOR is a mere withholding agent inasmuch as
the FBT is imposed on PAGCOR's employees who receive the fringe benefit. PAGCOR's liability as a
withholding agent is not covered by the tax exemptions under its Charter.
The car plan extended by PAGCOR to its qualified officers is evidently considered a fringe benefit as
defined under Section 33 of the NIRC. To avoid the imposition of the FBT on the benefit received by
the employee, and, consequently, to avoid the withholding of the payment thereof by the employer,
PAGCOR must sufficiently establish that the fringe benefit 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. (CIR vs. Secretary of Justice & PAGCOR, G.R. No. 177387,
November 9, 2016)
b. Is PAGCOR liable for final withholding tax on fringe benefits on the membership dues
and fees?
No. 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 Section 33
of the NIRC. Hence, PAGCOR is not liable to withhold FBT from its employees. (CIR vs. Secretary of
Justice & PAGCOR, G.R. No. 177387, November 9, 2016)
C. Transfer Taxes
66. What are the four factors to determine gross estate?
The gross estate is determined by four factors:

a. identity of the decedent being a resident alien, citizen, or a non-resident alien;
b. situs of the property;
c. inclusions under Sec. 85 of the NIRC, as amended, and
d. exclusions under Sec. 87 of the NIRC, as amended.
67. In case the decedent is a non-resident alien, how would you determine the value of
intangible properties?
Intangible personal properties with situs in the Philippines of a non-resident alien decedent are
valued at the time of death subject to the rule of reciprocity provided for under Section 104 of the
NIRC. (Sec. 4.2, RR 12-2018)
68. Maria’s father died on March 14, 2019 leaving behind a gross estate of P3.0 million.
a. When should Maria file her father’s estate tax return?
The estate tax return shall be filed within one (1) year from the decedent’s death. (Sec. 9.1, RR 12-
2018)

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b. Should the estate tax return of Maria’s father be supported by a statement duly
certified to by a Certified Public Accountant?
No. Under RA 10963 (TRAIN law), only estate tax returns showing a gross value exceeding five
million pesos (P5 million) shall be supported with a statement duly certified to by a Certified Public
Accountant. (Sec. 9.1, RR 12-2018)
c. On March 20, 2020, Maria went to ABC Bank where her father maintained a savings
account. She wanted to withdraw money from the said savings account. Should ABC
Bank allow Maria’s withdrawal transaction?
No. If a bank has knowledge of the death of a person, who maintained a bank deposit account
alone, or jointly with another, it shall allow the withdrawal from the said deposit account, subject to
a final withholding tax of six percent (6%) of the amount to be withdrawn, provided that the
withdrawal shall only be made within one year from the date of the decedent’s death. Here, one
year had already lapsed since the death of Maria’s father. Thus, the withdrawal can no longer be
allowed. (Sec. 10, RR 12-2018)
d. Maria incurred P1 million as funeral expenses for her father’s wake. How much of this
may be allowed as deduction from her father’s gross estate in the determination of the
total estate tax due?
None. RA 10963 (TRAIN law) removed the allowable deduction for funeral, judicial, and medical
expenses.
69. In case of insufficiency of cash for immediate payment of the total estate tax due, what
are the options given to the estate?
The estate may be allowed to pay the estate tax due through the following options:
a. Cash installment; or
b. Partial disposition of estate and application of its proceeds to the estate tax due. (Sec. 9.6,
RR 12-2018)
70. What are the conditions for the allowance of family home as deduction against the gross
estate of the decedent?
a. The family home must be the actual residential home of the decedent and his family at the time
of his death, as certified by the Barangay Captain of the locality where the family home is
situated;
b. The total value of the family home must be included as part of the gross estate of the decedent;
and
c. Allowable deductions must be in an amount equivalent to the fair market value of the family
home as declared or included in the gross estate, or the extent of the decedent’s interest
(whether conjugal/community or exclusive property), whichever is lower, but not exceeding P10
million. (Sec. 6[7.2], RR 12-2018)
71. Considering that an overseas Filipino worker (OFW) is considered as a non-resident

citizen of the Philippines, may his estate claim a deduction for family home?
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Yes. Actual occupancy of the house or house and lot as the family residence shall not be considered
interrupted or abandoned in such cases as the temporary absence from the constituted family home
due to travel or studies or work abroad. (Sec. 6[7.1], RR 12-2018)
72. Are non-resident alien decedents entitled to standard deductions against their gross
estates?
Yes. RA 10963 (TRAIN law) provides that non-resident alien decedents are entitled to a standard
deduction of P500,000.00. (Sec. 86(B)(1), NIRC as amended by TRAIN Law)
73. What are the requisites before transfers for social welfare, cultural and charitable
institutions may be considered as deductions from gross estate?
a. No part of the net income of which inures to the benefit of any individual; and
b. Not more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be
used by such institutions for administration purposes. (Sec. 101(A)(2), NIRC as amended by TRAIN Law)
74. Are real properties valued at the time of death of the decedent always based on the fair
market value in the latest tax declaration?
No. Real properties are valued at the time of death of the decedent based on whichever is higher
between the fair market value:
a. As determined by the Commissioner of the BIR (zonal value); or

b. As shown in the schedule of values fixed by the provincial and city assessors.
If there is no zonal value, the fair market value based on the latest tax declaration may be used. (RR
12-2018)
75. What are the requisites for a vanishing deduction?
a. The present decedent died within 5 years from receipt of the property from a prior decedent or
donor;
b. The property must be located in the Philippines;
c. The property must have formed part of the taxable estate of the prior decedent, or of taxable gift
of the donor;
d. The previous Estate tax or Donor’s tax must have been previously paid;
e. The property must be identified as the one received from the prior decedent or donor, or
something acquired in exchange therefore; and
f. No vanishing deduction on the property was allowable to the estate of the prior decedent. (Ingles,
Tax Made Less Taxing, 2018, p. 275)
76. Sometime in May 2019, Carmela Santos and her siblings discovered that their father,
who died in March 2019, maintained a premium savings account with ABC Bank with an
outstanding balance of P1.8 million. Carmela went to the bank to withdraw the money
from their father’s deposit account. The Branch Manager of ABC Bank told Carmela that
she could not allow the withdrawal from her father’s deposit account unless she can
provide a certification from the Commissioner of the Internal Revenue (CIR) that all
taxes imposed on her father’s estate have been paid. By October 2019, Carmela and her
siblings had already obtained the necessary documents so they tried to withdraw the

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deposit. However, the Branch Manager informed them that the deposit had already been
released to a certain Bernardo Mambo.
a. Was the Branch Manager correct in disallowing the withdrawal from Carmela’s
father’s deposit account in the absence of the certification from the CIR?
No. If a bank has knowledge of the death of a person, who maintained a bank deposit account
alone, or jointly with another, it shall allow any withdrawal from the said deposit account, subject to
a final withholding tax of six percent (6%). For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under oath by the said depositors . (Section
97, NIRC, as amended)
b. Assume that Carmela tried to withdraw from her father’s deposit account in June
2020, should the Branch Manager still allow such withdrawal?
No. Withdrawal must be made within one (1) year from the date of death of the decedent subject to
a 6% final withholding tax. (RMC No. 62-2018) (RR No. 12-2018)
77. Maria’s father died on March 16, 2019 who left behind parcels of land and personal
properties amounting to P6.5 million. Maria, as the named administrator of the estate of
her father, found out that the estate’s cash is not sufficient to pay for the total estate
tax due.
a. What remedy is available to Maria?
Maria may opt for payment of the estate tax due by installment which shall be allowed within two
(2) years from the statutory date for its payment without civil penalty and interest. The frequency
(i.e. monthly, quarterly, semi-annually or annually), deadline and the amount of each installment
shall be indicated in the estate tax return, subject to the prior approval by the BIR. (Section 91, NIRC,
as amended)
b. Suppose Maria failed to pay the entire estate tax due after the lapse of two (2) years,
what will happen to the remaining balance thereof?
In case of the lapse of two (2) years without the payment of the entire tax due, the remaining
balance thereof shall be due and demandable subject to penalties and interest reckoned from the
prescribed deadline for filing of the return and payment of the estate tax. (Section 9.6., RR 12-2018)
78. Richard Montero died on August 16, 2019. Hershey, Richard’s only heir, applied before
the CIR an extension of time to pay the estate tax due on the ground that such payment
will impose undue hardship upon her.
a. Should the CIR accept such application, until what time can the extension be
granted?
When the Commissioner finds that the payment of the estate tax or of any part thereof would
impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of
such tax or any part thereof not to exceed five (5) years in case the estate is settled through the
courts, or two (2) years in case the estate is settled extra-judicially. In such case, the amount in
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respect of which the extension is granted shall be paid on or before the date of the expiration of the
period of the extension, and the running of the statute of limitations for deficiency assessment shall
be suspended for the period of any such extension. (Section 9.5, RR 12-2018)
b. What are the grounds for the disallowance of such extension for payment of estate
taxes due?
When the request for extension is by reason of negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner.
(Section 9.5, RR 12-2018)
79. Paulo Sandoval, a Filipino citizen residing and working as a nurse in London, died on
May 14, 2019. His wife approached you and asked for your opinion on where the
administrator of her husband’s estate should file the return and pay the corresponding
tax. What will you tell her?
In case of a non-resident decedent, whether non-resident citizen or non-resident alien, with executor
or administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate
shall be secured from the Revenue District Office (RDO) where such executor or administrator is
registered. Provided, however, that in case the executor or administrator is not registered, the estate
tax return shall be filed with and the TIN of the estate shall be secured from the RDO having
jurisdiction over the executor or administrator’s legal residence. Nonetheless, in case the non-
resident decedent does not have an executor or administrator in the Philippines, the estate tax
return shall be filed and the TIN of the estate shall be secured from the Office of the Commissioner
through RDO No. 39-South Quezon City. (Section 9.8, RR 12-2018)
80. Sam Wisely is the sole heir of his grandfather’s estate with a gross value of P15 million.
While his grandfather’s last will and testament was the subject of a probate, the CIR
assessed an estate tax on his grandfather’s estate. Sam refused to pay such estate tax
due contending that it is the probate court that should approve the assessment and
collection of the estate tax. Is Sam correct?
No. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity
of the probate or estate settlement court's approval of the state's claim for estate taxes, before the
same can be enforced and collected. On the contrary, under Section 94 of the NIRC, it is the probate
or settlement court which is bidden not to authorize the executor or judicial administrator of the
decedent's estate to deliver any distributive share to any party interested in the estate, unless it is
shown a Certification by the CIR that the estate taxes have been paid. This provision disproves
Sam’s contention that it is the probate court which approves the assessment and collection of the
estate tax. (Marcos II vs. Court of Appeals, G.R. No. 120880, June 5, 1997)
81. What deductions may be allowed against the gross estate of a non-resident alien
decedent?
The following are the deductions entitled to a non-resident alien decedent:

a. Standard deduction of P500,000;
b. Claims against the estate;
c. Claims against insolvent person;
d. Unpaid mortgages, taxes and casualty losses;
e. Vanishing deduction;

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f. Transfers for public use; and
g. Net share of the surviving spouse. (Section 86[B] of the NIRC, as amended)
82. Ms. Rhea is a new CPA board exam passer. Upon learning that her friend’s father passed
away two (2) weeks ago, she presented her services to her friend’s family. She insisted
that a certification from a CPA is always required to support the estate tax return of the
decedent. Is Rhea correct?
No. A statement duly certified by a Certified Public Accountant to support the estate tax return is
only required if the gross value of the estate exceeds P5 million. (Section 90 of the NIRC, as amended)
83. What are the elements of donation for tax purposes?
Donation has the following elements:

a. There must be a donor who must have the capacity to donate at the time of making the donation
b. There must be a done who should accept it
c. There must be an intent to do an act of liberality or animus donandi
d. The donation must be in writing fully executed in favor of the done
e. There must be an actual or constructive delivery of the gift to the done to someone else for him
(Abello vs. CIR , G.R. No. 120721, February 23, 2005)
84. Is the provision for “strangers” in payment of donor’s tax under the old Tax Code still
applicable with the advent of RA 10963?
No. Upon the passage of the TRAIN law, the latter repealed the provision of the old Tax Code
mandating a 30% tax rates for donors and donees who are not related. As such, a flat rate of 6% on
the excess of P250,000.00 of net gifts per calendar year shall be applicable. (Section 99, NIRC as
amended by the TRAIN law)
85. What is the rule on political donations or contributions?
Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election Code, as amended (Section 99(b), NIRC as
amended by the TRAIN law) which provides that said contributions should be exempt from donor’s tax
provided that the recipient candidates and political parties comply with the requirements of filing of
returns contributions with the COMELEC.
86. Under RA 10963 (TRAIN), what are the gifts that are exempted from the payment of
donor’s tax made by a resident?
a. 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;
and
b. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic 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 this exemption, a ‘non-
profit educational and/or charitable corporation, institution, accredited nongovernment organization,
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trust or philanthropic organization and/or research institution or organization’ is a school, college or
university and/or charitable corporation, accredited nongovernment organization, trust or
philanthropic 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. (Section
101 (a), NIRC as amended by TRAIN Law)
87. Are all gifts made by a resident to an educational and/or charitable, religious, cultural or
social welfare corporation, institution, accredited nongovernment organization, trust or
philanthropic organization or research institution or organization, exempted from the
payment of donor’s tax?
No. Under Section 101(a)(2) of RA 10963, it provides that to be exempted for the payment of
donor’s tax, not more than thirty percent (30%) of such gifts shall be used by the donee for
administration purposes.
88. What are the requisites to avail the exemption of Section 101(a)(2) of the Tax Code?
a. The gift is given to a:

i. School, college, or university, and/or charitable organization; or
ii. Accredited non-government organization; or
iii. Trust or philanthropic organization and/or research institution or organization;
b. Such organization is incorporated as a non-stock non-profit entity that:

i. Pays no dividends;
ii. Governed by trustees who receive no compensation; and
iii. It devotes all its income to the accomplishment and promotion of the purposes enumerated in
its Articles of Incorporation; and
c. Not more than thirty percent (30%) of the gifts shall be used by the donee for administration
purposes.
89. Does a transfer of a property, other than real property considered as capital assets, be
deemed as a gift if the same was made in the ordinary course of business?
No. Sale, exchange, or other transfer of property made in the ordinary course of business (a
transaction which is a bona fide, at arm’s length, and free from any donative intent), will be
considered as made for an adequate and full consideration in money or money’s worth. Thus, it shall
not be deemed as a gift subject to donor’s tax. (Sec. 100, NIRC as amended by TRAIN Law)
90. Pursuant to various Supreme Court decisions, AAA Bank shares issued in the names of
various corporate stockholders were sequestered by the Philippine Government for
being purchased out of coco levy funds. As ordered by the Supreme Court, the shares
issued were cancelled and new shares were issued in favor of the Philippine
Government. Is the transfer of shares subject to donor’s tax?
No. The donor’s tax under Section 98 of the Tax Code is generally imposed on the transfer by any
person of property by gift. Here, there is no intention to donate as the transfer was only made in

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compliance with the Supreme Court decisions. The transfer of legal titles to the Philippine
Government is only a confirmation of its ownership over said shares. (SGV Tax Bulletin June 2018, citing
BIR Ruling 824-18 dated May 17, 2018)
91. The Film Development Council of the Philippines (FDCP), a government agency under
the Office of the President, whose activities are not conducted for profit, is the lead
government agency for the preservation and protection of Filipino films. It receives
various donations to aid its operation as a film archive. Are the donations made to FDCP
exempt from donor’s tax?
Yes. Under Sections 101(A)(1) of the Tax Code, as amended by TRAIN law, donations made to or
for 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 Government, are exempt from donor’s tax.
Moreover, Section 17 of RA 9167, the law creating FDCP, exempts from taxes any donation,
contribution, subsidy or financial aide made to FDCP, and allows these donations to be deducted in
full from the income of the donors for income tax purposes. (SGV Tax Bulletin September 2014, citing
BIR Ruling 316-14 dated August 11, 2014)
92. A Co. and B. Co. are both non-stock, non-profit religious corporations organized as
corporation soles. In 2019, A Co. donated a parcel of land in favor of B Co. Is the
donation exempt from donor’s tax? Will there be any taxes on the subsequent transfer
of the donated property of B Co.?
As to the first question, yes. Under Section 101(A)(2) of the Tax Code, as amended by TRAIN law,
gifts in favor of a religious corporation are exempt from donor’s tax, subject to the condition that not
more than 30% of the gifts shall be used by the donee for administrative purposes. For donations of
real property, the Registry of Deeds shall annotate the condition at the back of the Transfer
Certificate of Title covering the land, because failure to do so shall be a ground for the revocation of
the donation.
As to the second question, it depends. Where the property was acquired by donation is subsequently
conveyed by way of sale or exchange, the same will be subject to corporate income tax on the gain,
which is determined by deducting from the gross selling price the historical cost, or the adjusted
basis thereof, as it would be in the hands of the donor. On the other hand, where the subsequent
transfer is by way of donation to a non-exempt donee, the donor shall be subject to donor’s tax.
(SGV Tax Bulletin June 2013, citing BIR Ruling 232-13 dated June 13, 2013)
93. Mr. Acebedo, is wealthy man who invested all his money into shares of stock of different
companies which are not listed in the local stock exchange. However, because of the
recent events that happened in 2018, he wanted to leave the country quickly. As he has
no plans of coming back to the Philippines, he wanted to sell his shares in the company
to which his money is invested. However, he had a hard time selling the shares, and due
to desperation he asked his friend, Don Paquito to buy the shares of the Company S, T,
and Z. To entice his friend, he gave him a discount, selling the shares of Company S, T
and Z which have a combined fair value of shares of Php 10M for only 5M. Don Paquito
was very interested however was worrisome as he thinks he might be liable for donor’s
tax on the difference. He comes to you for advice on what defense he has if the BIR
assesses him for donor’s tax on the difference.
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I would advise Don Paquito that upon BIR’s assessment for donor’s tax he could invoke Section 100
of the NIRC, as amended by TRAIN Law and Section 16 of Revenue Regulation (RR) 12-2018 which
states that a sale, exchange, or other transfer of property made in the ordinary course of business
will be treated as made for an adequate and full consideration in money or money’s worth. The RR
further expounded that such is made in the ordinary course of business when it is bona fide, at
arm’s length and free from donative intent. Here, such transaction was really intended to be a sale
and thus bona fide, at arm’s length and free from any donative intent making such transaction
exempt from donor’s tax. (Sec. 100, NIRC as amended by TRAIN Law) (RR 12-2018)
94. Sps. Santos has real properties under their name which they sold to their three minor
children for P5.4 million. As proof of such sale, a Certificate Authorizing Registration
(CAR) was issued under the names of their children. The BIR, having knowledge of the
transaction examined the records and assessed the Sps. Santos with deficiency tax on
donor’s tax. Is the BIR correct in assessing Sps. Santos for deficiency donor’s tax?
Yes. Section 98 of the Tax Code of 1997 provides that the transfer of property by gift is taxable,
whether the same is direct or indirect, real or personal, tangible or intangible. The true intention of
the parties is ascertained to determine whether or not there is a donation. True, children can save
money from their allowances and would be able to purchase properties from their savings; however,
the three minor children would not be able to save such substantial amount, even if they were
receiving enormous allowances from their parents. Thus, without a source of income or an
acceptable form of acquisition of a substantial amount to purchase the properties, the inclusion of
the names of the minor children in the CARs was deemed a donation and subject to donor’s tax.
(Sps. Evono vs. Department of Finance, CTA EB Case 705, June 4, 2012)
95. Oscar Tomagan, one of the heirs of Julio Tomagan, expressly renounced his share to the
estate without identifying any other heir who could take his place in the inheritance. Is
the renunciation or waiver subject to donor’s tax?
No. General renunciation by an heir including the surviving spouse, of his/her share in the hereditary
estate left by the decedent is NOT subject to donor’s tax, unless specifically and categorically done
in favor of identified heir/s to the exclusion or disadvantage of other co – heirs in the hereditary
estate. (Section 12, RR 2- 2018)
96. Mrs. Sy, being critically ill in her deathbed called his husband and told him that because
of the advance stage of her illness she will leave all her properties to him. True enough
after the call, Mrs. Sy died leaving all her properties to his husband. Mr. Sy without any
living heir, however, renounced his share of the net estate coming from the
conjugal/absolute community to his longtime trusted driver Mr. Tan. Is the renunciation
of the share of the conjugal property / absolute community made by Mr. Sy subject to
donor’s tax?
Yes. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any
other person/s is subject to donor’s tax. (Section 12, RR 12-2018)
97. What is the law that governs the imposition of donor’s tax?

Pre-week Notes
It is the law at the time of the perfection and/or completion that will govern the imposition of the
donor’s tax. The gift is perfected from the moment of acceptance by the donee, and it is completed
at the time of delivery. The delivery can either be constructive or actual.
A gift that is incomplete because of reserved powers become complete when either:
a. The donor renounces the power; or
b. His right to exercise ceased because of the happening of some event or contingency or the
fulfillment of some condition, other than the death of the donor. (RR No. 02-03)
98. What transfer may be considered as donations?
The following transfers may be treated as donations:

a. Debt condoned or remitted (in which case the amount of the debt is a gift from the creditor to
the debtor and need not be included in the latter’s gross income). (Sec. 50, RR No. 02-40)
b. Transfers made in trust for another person; and
c. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or
any other person.
With regard to item (c) above, note that a general renunciation by an heir, including the surviving
spouse, of his/her share in the hereditary estate left by the decedent is not subject to donor’s tax,
unless the renunciation is specifically and categorically done in favor of identified heir’s to the
exclusion or disadvantage of the other co-heirs in the hereditary estate. (RR No. 02-03)
D. Value-Added Tax (VAT)
99. When is amortization of Input Vat on Capital Goods available?

Purchase or importation of capital goods, which are depreciable assets for income tax purposes, the
aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds P1 Million,
regardless of the acquisition cost of each capital good:
a. If the estimated useful life of a capital good is five (5) years or more — The input tax shall be
spread evenly over a period of sixty (60) months;
b. If the estimated useful life of a capital good is less than five (5) years — The input tax shall be
spread evenly on a monthly basis by dividing the input tax by the actual number of months
comprising the estimated useful life of a capital good.
Provided, further, That the amortization of the input VAT shall only be allowed until December 31,
2021 after which taxpayers with unutilized input VAT on capital goods purchased or imported shall
be allowed to apply the same as scheduled until fully utilized. (Sec. 110(A)(2), NIRC as amended by
TRAIN)
100. Enumerate the additional VAT exempt transactions pursuant to TRAIN.
a. Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended; (Sec. 109 (1)(X), NIRC
as amended by TRAIN)
b. Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations; (Sec.109 (1)(Y), NIRC as amended by
TRAIN)
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c. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
beginning January 1, 2019; (Sec.109 (1)(AA), NIRC as amended by TRAIN)
d. Sale of Gold to BSP. Deleted as zero-rated transaction. Now an exempt transaction; (Sec.
109(1)(Z), NIRC as amended by TRAIN)
e. Sale of goods or services, leases which gross annual sales or receipts do not exceed P3 million.
(Sec.109 (1)(BB), NIRC as amended by TRAIN)
101. When is Mandatory VAT Registration applicable?
Any person who, in the course of trade or business, sells, barters or exchanges goods or properties,
or engages in the sale or exchange of services, shall be liable to register for value-added tax if:
a. His gross sales or receipts for the past twelve (12) months, other than those that are exempt
under Section 109(A) to (BB), have exceeded Three million pesos (₱3,000,000); or
b. 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 Section 109(A) to (BB), will exceed Three million
pesos (₱3,000,000). (Sec. 236(G), NIRC as amended by TRAIN Law)
102. What is the VAT rate for the sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport operations?
Under Sec. 106(A)(2)(a)(6) of NIRC as amended by TRAIN, the transaction is zero-rated provided
that the goods, supplies, equipment and fuel shall be used exclusively for international shipping or
air transport operations.
103. What is the period within which an administrative claim for tax refund of input taxes
shall be made?
In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety
(90) days from the date of submission of the official receipts or invoices and other documents in
support of the application filed: Provided, That should the Commissioner find that the grant of
refund is not proper, the Commissioner must state in writing the legal and factual basis for the
denial. (Sec. 112(C) of NIRC as amended by TRAIN)
104. For the 1st Quarter of 2018, Vincent purchased P10,000.00 (VAT exclusive) worth of
goods and subsequently sold the same for P30,000.00 (VAT exclusive). When is the
deadline for the filing and payment of quarterly VAT return of Vincent?
Filing of Quarterly VAT Return is within 25 days following the close of each taxable quarter,
however, payment for VAT-registered persons is on a monthly basis. Beginning January 1, 2023,
the filing and payment shall be done within 25 days after the close of each taxable quarter. (Sec.
114(A), NIRC as amended by TRAIN)
105. ES-EM Phil Inc. is a VAT and PEZA registered corporation engaged in the manufacture
and export of ready-to-wear items. It claimed to have an aggregate sum of P8 Million
as excess input VAT in 1999 which was directly attributable to its zero-rated export
sales. CIR did not act upon the application which led ES-EM to file a petition for review
before the CTA. The CTA denied the claim for input VAT on the ground that (a) all of its
export sales invoice does not have BIR Permit to Print, (b) it did not contain TIN-VAT;
and (c) the word “zero-rated” was not imprinted thereon. Is the CTA correct? Explain.

Pre-week Notes
Yes. Case law dictates that in a claim for tax refund or tax credit, the applicant must prove not only
entitlement to the claim but also compliance with all the documentary and evidentiary
requirements therefor. Section 110(A)(1) of the NIRC provides that creditable input taxes must be
evidenced by a VAT invoice or official receipt, which must, in turn, comply with Sections 237 and
238 of the same law, as well as Section 4.108.1 of now RR 16-2005, as amended. The foregoing
provisions require, inter alia, that an invoice must reflect, as required by law: (a) the BIR Permit to
Print; (b) the TIN-V of the purchaser; and (c) the word “zero-rated” imprinted thereon. In this
case, all of the export sales invoices presented by ES-EM not only lack the word “zero-rated” but
also failed to reflect its BIR Permit to Print as well as its TIN-V. Thus, it cannot be gainsaid that it
failed to comply with the above-stated invoicing requirements, thereby rendering improper its claim
for tax refund. (J.R.A. Philippines, Inc. vs. CIR, G.R. No. 171307, August 28, 2013, J. Perlas-Bernabe)
106. What are the requisites for a claim for refund or tax credit for unutilized input VAT?
A claim for refund or tax credit for unutilized input VAT may be allowed only if the following
requisites concur, namely:
a. the taxpayer is VAT-registered;

b. the taxpayer is engaged in zero-rated or effectively zero-rated sales;
c. the input taxes are due or paid;
d. the input taxes are not transitional input taxes;
e. the input taxes have not been applied against output taxes during and in the succeeding
quarters;
f. the input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
g. for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds have been duly accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas;
h. where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and
the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes
shall be proportionately allocated on the basis of sales volume; and
i. the claim is filed within two years after the close of the taxable quarter when such sales were
made. (Luzon Hydro Corporation vs. CIR, G.R. No.188260, November 13, 2013)
107. Discuss the proper procedure and applicable time periods for filing administrative and
judicial claims for refund of unutilized excess input VAT under the TRAIN Law.
I. Administrative Claim
a. What must be filed?

i. A written claim for VAT refund
ii. Proof of VAT zero rated sales and input tax to be refunded:
1. Sales invoices or receipts with the word zero rated imprinted on it. (Microsoft
Philippines, Inc. v. CIR, G.R. 180173, April 6,2011)
2. Purchase invoices or receipts from another VAT registered taxpayer. (Microsoft
Philippines, Inc. v. CIR, G.R. 180173, April 6,2011). Invoices or receipts must be compliant
to the invoicing requirements as prescribed in Section 113 of NIRC.
3. Evidence of actual receipt of Goods.
4. Import entry documents and confirmation receipt on imported goods, if any.
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5. Proof of a valid zero -rated sales. PEZA, BOI or other certifications showing that buyer
is not exempt from being passed on VAT.
b. When must the claim be filed?

c. Within two (2) years from the close of the taxable quarter were the zero – rated sales were
made.
d. Time Frame to process VAT refund claim?
 The 90 day period prescribed under Section 112 (C) of the Tax Code, as amended, shall
start from the actual date of filing of application with complete documents duly
received by the processing officer. (RMC 17-2018, March 8, 2018)
 The 90 day period shall be applied prospectively. (RMC 17-2018)
e. Remedy in case of denial:
f. Filing of Judicial Claim
g. The effectivity of the 1997 NIRC on 1 January 1998, the procedure has always been definite:
the 120-day (now 90 days) period is mandatory and jurisdictional. Accordingly, a
taxpayer can file a judicial claim (1) only within thirty days from the receipt of
the decision of the Commissioner partially or fully denying the claim within the
120-day period (now 90 days).
108. Differentiate Automatic and Effectively Zero-Rated Sales.
Zero-rated transactions (Automatic) Effectively Zero-rated Transactions

Generally refer to the export sale of goods and Refer to the local sale of goods or supply of services
supply of services. to persons (made by a VAT-registered person) or
entities whose exemption under special laws or
international agreements to which the Philippines is
a signatory effectively subjects such transactions to
a zero rate.
Primarily intended to be enjoyed by the seller who is Intended to benefit the purchaser who, not being
directly and legally liable for the VAT, making such directly and legally liable for the payment of the
seller internationally competitive by allowing the VAT, will ultimately bear the burden of the tax
refund or credit of input taxes that are attributable shifted by the suppliers.
to export sales.
(CIR vs. Seagate Technology (Philippines), GR No. 153866 dated February 11, 2005)
109. What is the difference between Section 112 and Section 229 of the Tax Code, as
amended, which both set for two-year prescriptive period in claiming for refund?
As to Section 112 Section 229

Reckoning Period Reckoned from the close of the Reckoned from the date of payment of
taxable quarter when the relevant the tax or penalty
sales or transactions were made or
reckoned close of taxable quarter
when the importation or purchase
was made in case of capital goods.
Object Refund of creditable input tax Refund of erroneous payment or illegal
collection of internal revenue taxes
Type of claim Refers only to administrative claim Includes the judicial claims (i.e. CTA).
When to elevate to CA Needs to wait for CIR’s decision. CIR’s Only requires that an administrative
inaction to decide within 90 days is claim should first be filed to the BIR.
punishable.

Pre-week Notes
110. On March 29, 2005, CBK Power filed before the Bureau of Internal Revenue (BIR) an
administrative claim for the issuance of a tax credit certificate for a total amount of
₱295,994,518.00, representing unutilized input VAT on its purchase of capital goods,
as well as unutilized input VAT on its local purchase of goods and services other than
capital goods, all for the calendar year 2003. Thereafter, on April 18, 2005, CBK Power
filed its judicial claim for tax refund/credit before the CTA.
Should the CTA dismiss the claim for CBK’s failure to observe the mandatory and
jurisdictional 120-day period provided under Section 112(D) of the NIRC?
No. Reconciling the pronouncements in the Aichi and San Roque cases, the Court held in Taganito
Mining Corp. vs. CIR that the rule must be that during the period December 10, 2003 (when
BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case was
promulgated), taxpayers-claimants need not observe the 120-day period before it could file a
judicial claim for refund of excess input VAT before the CTA. Before and after the aforementioned
period (i.e., December 10, 2003 to October 6, 2010), the observance of the 120-day period is
mandatory and jurisdictional to the filing of such claim.
In this case, CBK Power filed its administrative and judicial claims for issuance of tax credits on
March 29, 2005 and April 18, 2005, respectively or during the period when BIR Ruling No. DA-489-
03 was in place, i.e., from December 10, 2003 to October 6, 2010. As such, it need not wait for the
expiration of the 120-day period before filing its judicial claim before the CTA, which was timely
filed. (CBK Power Company Limited vs. CIR, G.R. No. 198928, December 3, 2014, J. Perlas-Bernabe)
111. Kiko filed an administrative claim for refund for excess input VAT attributable to his
export sale of goods to Japan. The claim for refund was filed on April 10, 2018. On June
10, 2018, Kiko filed an appeal with the Court of Tax Appeals (“CTA”) without waiting
for the BIR’s decision on his pending claim for refund. Does the CTA have jurisdiction
over Kiko’s appeal?
No. Kiko’s appeal filed with the CTA was premature. Sec. 112(C) of the NIRC, as amended by the
TRAIN Law, provides that the taxpayer has 30 days to appeal to the CTA from receipt of a decision
on his claim for refund. Here, there was no decision yet on his claim for refund. This also cannot
be construed as inaction since the 90-day period, counted from the filing of the administrative
claim for refund, within which to decide has not yet lapsed.
112. FBDC purchased from the national government a portion of the Fort Bonifacio
reservation (now Fort Bonifacio Global City). FBDC claimed that it is entitled to a
transitional input tax credit of ₱5.6 million pursuant to Section 105 of the old NIRC.
FBDC started selling Global city lots to interested buyers and generated a total amount
of ₱3.6 billion from its sales and lease of lots, on which the output VAT payable was
₱360 million. FBDC paid the output VAT by making cash payments to and crediting its
unutilized input tax credit. Realizing that its transitional input tax credit was not
applied in computing its output VAT, FBDC filed with the BIR a claim for refund of the
amount of ₱360 million erroneously paid as output VAT for the said period. Due to
inaction by the BIR, FBDC elevated the matter to the CTA. The petition for refund was
denied.
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According to the CTA, "the benefit of transitional input tax credit comes with the
condition that business taxes should have been paid first." In this case, since FBDC
acquired the Global City property under a VAT-free sale transaction, it cannot avail of
the transitional input tax credit. Is the CTA correct that prior payment of taxes is
required for a taxpayer to avail of the transitional input tax?
No. There is nothing in Section 105 (now Section 111(A)) of the NIRC which indicates that prior
payment of taxes is necessary for the availment of the 8% (now 2%) transitional input tax credit.
All that is required is for the taxpayer to file a beginning inventory with the BIR.
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. Tax credit is not synonymous to tax refund. Tax
refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing
authority. Tax credit, on the other hand, is an amount subtracted directly from one’s total tax
liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage
investment. Thus, unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a tax
credit.
Thus, FBDC is entitled to the 8% (now 2%) transitional input tax credit provided in Section 105
now Section 111(A)) of the NIRC. The fact that it acquired the Global City property under a tax-
free transaction makes no difference as prior payment of taxes is not a pre-requisite. (FBDC vs. CIR,
G.R. No. 173425, September 4, 2012)
113. Z Company, a domestic corporation, rendered services on a no mark-up and

reimbursement of cost basis to A Company, also a domestic corporation. Alleging that
since there is no profit element in its transaction, Z Company did not pay and remit the
applicable VAT. Is the assertion of Z Company correct?
No. The sale of services on a reimbursement-on/of-cost basis is subject to VAT. VAT is a tax on
transactions, imposed at every stage of the distribution process on the sale, barter, exchange of
goods or property, and on the performance of services, even in the absence of profit attributable
thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a
commercial or an economic activity, regardless of whether or not the entity is profit-oriented.
In fact, even if such corporation was organized without any intention of realizing profit, any income
or profit generated by the entity in the conduct of its activities was subject to income tax. Hence, it
is immaterial whether the primary purpose of a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit,
for purposes of determining liability for VAT on services rendered. As long as the entity provides
service for a fee, remuneration or consideration, then the service rendered is subject to VAT. Thus,
Z Company is liable to the payment of the 12% VAT. (CIR vs. CA and COMASERCO, G.R. No. 125355,
March 30, 2000)
However, there is a need to consider the VAT threshold (during that time was P1.5 million but now
P3 million) since it was not mentioned that Z Company is VAT-registered.
114. ABC Law Office, a general professional partnership in the Philippines, received a query
through electronic mail from DEF Corporation, a corporation organized under the laws
of Delaware. DEF Corporation has no office in the Philippines and is not engaged to do
business in the Philippines. Upon ABC Law Office’s reply to the query, it billed DEF

Pre-week Notes
Corporation US$1,500. Within 15 days, the latter remitted its payment through
Citibank which converted the amount to peso and deposited the converted amount in
the account of ABC Law Offices. What is the VAT implication of the payment to ABC
Law Office by DEF Corporation?
Payment to ABC Law Office is subject to 0% VAT. As provided for under the law, services other
than processing, manufacturing or repacking rendered in the Philippines to a person engaged in
business conducted outside the Philippines or to a non-resident person not engaged in business
who is outside the Philippines when the services are performed, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations
of the BSP shall be subject to 0% VAT. (Section 108(B)(2) of the Tax Code)
115. What are the Destination Principle and the Cross Border Doctrine in relation to the
VAT?
Sales to export processing zones are subjected to special tax treatment. The PEZA law establishes
such tax treatment of goods or merchandise, brought into the export processing zones, to be only
consistent with the Destination Principle and Cross Border Doctrine to which the Philippine VAT
system adheres. According to the Destination Principle, goods and services are taxed only in the
country where these are consumed. In connection with the said principle, the Cross Border
Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined for
consumption outside the territorial border of the taxing authority. Hence, actual export of goods
and services from the Philippines to a foreign country must be free of VAT, while those destined for
use or consumption within the Philippines shall be imposed with 10% (now 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 already taxed as exports. (Atlas Consolidated Mining and Development Corp. vs. CIR , G.R. Nos.
141104 & 148763, June 8, 2007)
116. X Corporation is primarily engaged in the business of conversion of steam to electricity.

Its property, plant and equipment account includes a fully depreciated patrol cars used
by the Corporation. To get rid of the fully depreciated car, the Corporation decided to
sell them to a related party. Is the sale of the car subject to VAT?
Yes, the sale is subject to 12% VAT. A reading of Section 105 of the Tax Code would show that a
transaction “in the course of trade or business” includes “transactions incidental thereto”.
In this case, since the patrol cars are part of the Corporation’s property, plant and equipment, the
sale of the patrol car is an incidental transaction made in the course of trade or business. Thus, the
transaction should be subject to VAT. (Mindanao Geothermal vs. CIR, G.R. No. 193301, March 11, 2013)
117. The CIR issued a Letter Notice (LN) dated September 20, 2007 against Medicard for
the taxable year 2006. The BIR issued PAN against MEDICARD for deficiency VAT.
According to the BIR, the taxable base of HMOs for VAT purposes is its gross receipts
without any deduction under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-
2005. The CIR argued that since MEDICARD does not actually provide medical and/or
hospital services, but merely arranges for the same, its services are not VAT exempt.
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Is the contention of BIR that the amounts earmarked and eventually paid to the
medical service providers form part of the HMO’s gross receipts for VAT purposes?
No. The VAT is a tax on the value added by the performance of the service by the taxpayer. It is,
thus, this service and the value charged thereof by the taxpayer that is taxable under the NIRC. It
is notable that the term gross receipts as mentioned as the tax base under the NIRC does not
contain any specific definition. Therefore, absent a statutory definition, the Supreme Court has
construed the term gross receipts in its plain and ordinary meaning, that is, gross receipts is
understood as comprising the entire receipts without any deduction. Thus, the amounts earmarked
and actually spent for medical utilization of its members should not be included in the computation
of the gross receipts of Medicard. (Medicard Phils., Inc. vs CIR, GR. No. 222743, April 5, 2017)
118. CBNC is a PEZA-registered corporation registered on December 27, 2002. It is located

in the Rio Tuba Export Processing Zone. As a domestic corporation, CBNC is engaged in
the manufacture of nickel and/or cobalt mixed sulfide. It is a VAT entity registered
with the BIR. On August 5, 2003, CNBC filed its Amended VAT Return declaring
unutilized input tax from its domestic purchases of capital goods, other than capital
goods and services, for its third and fourth quarters of 2002 totaling ₱50,124,086.75.
Subsequently, it filed with Revenue District Office No. 36 in Palawan its Application for
Tax Credits/Refund together with supporting documents. Is CBNC entitled to refund of
its unutilized input taxes incurred before it became a PEZA-registered entity?
No. Following the Cross-Border Doctrine and Destination Principle, purchases of goods and services
that were destined for consumption within the ECOZONE (as a separate customs territory) should
be free of VAT; hence, no input VAT should then be paid on such purchases. If input VAT was
actually paid on such purchases, the purchaser’s proper recourse was not against the Government
but against the seller who had shifted to it the output VAT. (Coral Bay Nickel Corporation vs. CIR, G.R.
No. 190506, June 13, 2016)
119. SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation
(First Asia) are domestic corporations engaged in the business of operating cinema
houses. The BIR sent SM Prime and First Asia a Preliminary Assessment Notice (PAN)
for value added tax (VAT) deficiency on cinema ticket sales. In response, SM Prime and
First Asia filed a protest which was denied by the BIR. Is the denial of the BIR correct?
No. The gross receipts derived from admission tickets by cinema/theater operators or proprietors
are not subject to VAT but rather to the 10% amusement tax under Section 140 of the Local
Government Code. Section 108 (A) (7) of the Tax Code provides that only the lease of motion
picture films, films, tapes and discs is subject to VAT.
This, however, is not the same as the showing or exhibition of motion pictures or films. When the
VAT law was implemented, it exempted persons subject to amusement tax under the NIRC from
the coverage of VAT. Moreover, subsequent amendments to the VAT law have been consistent in
exempting persons subject to amusement tax under the NIRC from the coverage of VAT. Only
lessors or distributors of cinematographic films are included in the coverage of VAT. (CIR vs. SM
Prime Holdings Inc. and First Asia Realty Development Corporation, G.R. No. 183505, February 26, 2010)

Pre-week Notes
120. What is the enhanced VAT refund system?
It grants refunds of creditable input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the effectivity of the enhanced VAT
refund system, all applications filed from January 1, 2018 shall be processed and must be decided
within ninety (90) days from the filing of the VAT refund application; and,
All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31,
2019.
Provided, That the Department of Finance shall establish a VAT refund center in the Bureau of
Internal Revenue (BIR) and in the Bureau of Customs (BOC) that will handle the processing and
granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total VAT collection of the BIR and the BOC from
the immediately preceding year shall be automatically appropriated annually and shall be treated
as a special account in the General Fund or as trust receipts for the purpose of funding claims for
VAT refund: Provided, That any unused fund, at the end of the year shall revert to the General
Fund.
Provided, further, That the BIR and the BOC shall be required to submit to the Congressional
Oversight Committee on the Comprehensive Tax Reform Program (COCCTRP) a quarterly report of
all pending claims for refund and any unused fund. (Sec. 106(B)(1) of the NIRC)
121. Tay Swift, a residence of Sucat, was hired as call center agent in Makati. On her first
day of work, she decided to use the express way to arrive early and impress her
supervisor. However, she got into an argument with the toll operator at the toll gate.
She refused to pay the VAT imposed on the toll fees on the ground that toll fees are
taxes and to impose VAT on toll fees would be imposing a tax on a tax. Is her argument
that the VAT on tolls fees would be a “tax on tax” correct? Are Toll Fees collected by
Tollway Operators subject to VAT?
No. Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense.
A tax is imposed under the taxing power of the government principally for the purpose of raising
revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the construction, maintenance
and operation of the tollways, as well as to assure them a reasonable margin of income. Although
toll fees are charged for the use of public facilities, therefore, they are not government exactions
that can be properly treated as a tax. Taxes may be imposed only by the government under its
sovereign authority, toll fees may be demanded by either the government or private individuals or
entities, as an attribute of ownership.
VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect
tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the
tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the seller’s liability
but merely the burden of the VAT. Consequently, VAT on tollway operations is not really a tax on
the tollway user, but on the tollway operator. (Diaz vs. SOF, G.R. No. 193007, July 19, 2011)
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122. Differentiate Exempt Transaction and Exempt Party.
An exempt transaction involves goods or services which, by their nature, are specifically listed in
and expressly exempted from the VAT under the Tax Code, without regard to the tax status —
VAT-exempt or not — of the party to the transaction. Indeed, such transaction is not subject to the
VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax
Code, a special law or an international agreement to which the Philippines is a signatory, and by
virtue of which its taxable transactions become exempt from the VAT. Such party is also not
subject to the VAT, but may be allowed a tax refund of or credit for input taxes paid, depending on
its registration as a VAT or non-VAT taxpayer. (CIR vs. Seagate Technology (Philippines), G.R. No.
153866, February 11, 2005)
123. Mr. Valdez owns a row of residential apartments which he puts out on lease. 3 out of
his 5 apartments are being leased out for Php 10,000 per month while the remaining 2
apartments are leased out for 25,000 per month. Is Mr. Valdez’s business subject to
VAT?
No. RR 16 -2005 as amended by RR 13-2018, prescribes the rule on VAT on leases which are as
follows:
Lease of residential units with a monthly rental per unit of not exceeding 15,000 is not subject to
VAT. In cases where a lessor has several residential units for lease, some are leased out for a
monthly rental of less than 15,000 and some are leased out for more than 15,000 are as follows:
1. The gross receipts from rentals not exceeding P15,000.00 per month per unit shall be exempt
from VAT regardless of the aggregate annual gross receipts. It is also exempt from the 3%
percentage tax.
2. The gross receipts from rentals exceeding P15,000.00 per month per unit shall be subject to
VAT if the aggregate annual gross receipts from said units only exceeds P3,000,000.00.
Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the
Tax Code.
Here, Mr. Valdez although having some apartments being leased out for more than the VAT
threshold of Php 15,000, its business is still not subject to VAT since the annual gross receipts
coming from the two (2) apartments being rented for Php 50,000 still did not exceed the VAT
threshold of more than Php 3,000,000 annual gross receipts. (RR 13-2008)
E. Tax Remedies under NIRC
145. What are the differences between Letter of Authority (LOA) and Letter Notice (LN)?
As to LOA LN
Purpose and basis Required under NIRC before an Not found in NIRC and is only for the
examination of taxpayer may be had. purpose of notifying the taxpayer that
a discrepancy is found based on the
BIR’s RELIEF System (computerized
matching of 3rd party information).
Validity Valid only for 30 days from the date No limitation.
of issue.

Pre-week Notes
Limitation as to the Revenue officer only has a period of No limitation.
revenue officer 120 days from receipt of LOA to
conduct his examination of taxpayer.
Simply put, LN is entirely different and serves a different purpose than a LOA. Due process
demands that after a LN has served its purpose, the revenue officer should have properly secured
an LOA before proceeding with the further examination and assessment of the taxpayer.
(MEDICARD vs CIR, G.R. No. 222743, April 5, 2017)
146. Discuss the assessment process.
Effect of inaction of
Stage of Revenue Action to be taken by
Description taxpayer or action
Assessment Issuance taxpayer
by TP is denied
Notice of RR 7-2018, RR Discussion shall be Should the TP disagree If it is found that
Informal 12-99 made between the with the findings. The the taxpayer is still
Conference taxpayer (TP) and TP shall within 30 days liable for deficiency tax
(NIC) the revenue officer present reconciliations or taxes after
(RO) handling the and present presenting his
audit to show his documentary evidence side, and the taxpayer
findings to which will in order for the TP to is not amenable, the
be the amount present his case. Revenue District Officer
assessed as or the
deficiency tax or Chief of the Special
taxes. In no case Investigation Division
that the NIC extend of the Revenue
beyond 30 days. Regional Office,
or the Chief of Division
in the National Office,
as the case may be,
shall
endorse the case
within seven (7) days
from the conclusion of
the NIC to the
Assessment Division of
the Revenue Regional
Office or to the
Commissioner or his
duly authorized
representative for
issuance of a deficiency
tax assessment.
Preliminary RMO 26-2016, A PAN* will be If TP accepts the A Formal Letter of
Assessment RR 18-2013, issued if after review deficiency TP shall pay Demand/ Formal
Notice (PAN) RMC 11-2014, and evaluation of the amount assessed Assessment Notice
RR 12-99 the Commissioner or which will terminate the shall be issued 15
its duly authorized audit days from the date
representative that of receipt PAN
there exists If the TP disagrees with whether the same is
sufficient basis to the findings, TP may at protested or not.
assess the TP PAN his option make a reply
shall show in detail within 15 days from
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the facts and law, date of receipt of PAN to
jurisprudence, refute the findings made
revenue issuance by the RO by presenting
such assessment reconciliations,
was based jurisprudence, laws to
present his case.
Protest/Reply is not
mandatory (RMO 26-
2016)
Final RMO 26-2016, The Formal Letter of If TP agrees it shall pay The assessment shall
Assessment RR 18-2013, Demand and Final the amount assessed become final and
Notice (FAN) RMC 11-2014, Assessment and which shall cause executory when:
/Formal RR 12-99, Notice(FLD/FAN) the termination of the
Letter of shall be issued by audit. 1. Failure to file a
Demand the Commissioner or Protest 30 days from
his duly authorized If the TP disagrees with receipt of FAN/FLD.
representative. The the amount assessed, it
FLD/FAN calling for can within 30 days 2. Failure to submit
payment of the from receipt of supporting
taxpayer's deficiency FAN/FLD file a documents within
tax or taxes shall PROTEST LETTER either the 60-day period
state the facts, the ask for: given if request for
law, rules and reinvestigation is
regulations, or 1. Request for made.
jurisprudence Reconsideration – no
on which the need to present
assessment is supporting documents 3. Failure of the
based; otherwise, taxpayer to receive
the assessment shall 2. Request for any assessment
be void Reinvestigation – need notice because it was
to present supporting served in the address
documents 60 days indicated in the BIR’s
from filing of protest registration database
letter not updated through
BIR Form 1905 -
All protest shall be Application for
considered as registration
request for
RECONSIDERATION
unless TP clearly
indicates the request
for reinvestigation
Final RMO 26-2016, The If TP agrees it shall pay The assessment shall
Decision on RR 18-2013, decision of the the amount assessed become final and
Disputed RMC 11-2014, Commissioner or his and which shall cause executory when:
Assessment RR 12-99 duly authorized the termination of the
(FDDA) representative shall audit. 1. Failure to appeal to
state the Commissioner or to
the (i) facts, the In case of denial: CTA within 30 days
applicable law, rules from receipt of FDDA
and regulations, or a. Denial made issued by the duly
jurisprudence on by the Commissioner authorized
which himself – appeal to the representative of the
such decision is Court of Tax Appeals Commissioner

Pre-week Notes
based, and that it is (CTA) within 30 days 2. Failure to appeal to
the final decision, from the receipt of the the CTA within 30 days
otherwise, the denial. from receipt of FDDA
decision shall be b. Denial made issued by the
void. by duly authorized Commissioner
representative of the 3. Failure to TP to
Commissioner timely file a motion for
(i) appeal to the reconsideration or new
Court of Tax Appeals trial before the CTA
(CTA) within thirty (30) Division or CTA En
days from date of Banc and Supreme
receipt of the said Court
decision; or
(ii) elevate his
protest through request
for reconsideration to
the Commissioner within
thirty (30) days from
date of receipt of the
said decision.
If the BIR does not
render a decision
within the 180-day
period, the taxpayer
has two options,
either:
a) File a petition for
review with the CTA
within 30 days after the
expiration of the 180-
day period; or
b) Await the final
decision of the
Commissioner on the
disputed assessment
and appeal such final
decision to the CTA
within 30 days after the
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, G.R. No. 171251,
March 5, 2012; RCBC vs.
CIR, G.R. No. 168498, April
24, 2007)
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147. Differentiate Tax Deficiency from Tax Delinquency.
As to: Tax Deficiency Tax Delinquency

When exists When the amount imposed by law (as When (i) the self-assessed tax is not
determined by CIR or his authorized paid at all or was only partially paid
representative) exceeds the amount on the prescribed date, or (ii) when
shown as tax upon taxpayer’s return. deficiency tax assessed by the BIR
has become final and executory
When may be collected Has to go through the assessment Can be immediately collected
process
Filing of civil action The filing of civil action during the The filing of civil action for collection
pendency of protest is a ground for of taxes is the proper remedy
motion to dismiss
Imposition of penalties Subject to 25% surcharge, although Subject to surcharges and
subject to interest and compromise administrative penalties.
penalty. (Sec. 248(A)(3), NIRC)
148. What are the significant changes brought about by the revised policies on the
execution of waiver pursuant to RMO No. 14-2016 dated April 4, 2016?
a. It repealed the very strict formal requirements prescribed before (under RMO 20-90 or RDAO
05-01).
b. It is enough that the following conditions are complied with:
i. The waiver is executed before the expiration of the period to assess or to collect taxes;
ii. The waiver is signed by the taxpayer himself, his duly authorized representative, or by any
of the responsible officials for corporations; and,
iii. The expiry date of the period agreed upon to assess/collect the tax is indicated.
c. The particular taxes or amount need not be specified considering that the amounts may not yet
be determinable at the time of the execution. It may simply state “all internal revenue taxes”.
d. The taxpayer has the burden to ensure that the waiver is validly executed by its authorized
representative. The waiver cannot thereafter be invalidated on the ground that the taxpayer’s
representative who participated in the conduct of the audit is not authorized to sign the waiver.
e. Notarization of the waiver is now optional.
f. To be valid, there are only two dates that need to be present on the waiver, namely (1) the
date of execution, and (2) the expiry date of the period the taxpayer waives the statute of
limitations.
149. Give at least 5 instances where the running of Statute of Limitations on Assessment
may be suspended.
a. When taxpayer cannot be located in the address given by him in the return, unless he informs
the CIR of any change in his address or the BIR became aware of his new address;
b. When the taxpayer is out of the Philippines (Sec. 223, NIRC);
c. Where the CIR is prohibited from making the assessment or levy or a proceeding in court for 60
days thereafter, such as where there is a pending petition for review in the CTA from the
decision on the protested assessment (Republic vs. Ker & Co., G.R. No. L-21609, September 29,
1966);
d. Where CIR and the taxpayer agreed in writing for the extension of the assessment, the tax may
be assessed within the period so agreed upon (Sec. 222 [b], NIRC);
e. When the taxpayer requests for reinvestigation which is granted by the Commissioner. (Collector
vs. Suyoc Consolidated Mining Co., G.R. No. L-11527, Nov. 25, 1958)

Pre-week Notes
Note: A request for reconsideration alone does not suspend the period to assess/collect.
150. G Company changed its address but failed to notify the BIR. It continued filing its
returns with the BIR with the new address despite lack of notice. The BIR issued an
assessment against G Company beyond the prescriptive period claiming that the period
of assessment has been suspended for failure of G Company to inform the BIR of its
new address. Is the BIR correct?
No. The suspension of the three-year period to assess applies only if the BIR Commissioner is not
aware of the whereabouts of the taxpayer. Hence, despite the absence of a formal written notice
of G Company's change of address, the fact remains that BIR became aware of its new address as
shown by documents replete in its records. As a consequence, the running of the three-year period
to assess G Company was not suspended and has already prescribed. (CIR vs. BASF Coating + Inks
Phils., G.R. No. 198677, November 26, 2014)
151. Differentiate Deficiency Interest from Delinquency Interest
Deficiency Interest Delinquency Interest

Imposed on any deficiency tax due, which will be Imposed on the failure to pay the amount of tax due
assessed and collected from the date prescribed for on any return to be filed, the amount of tax due for
payment until the full payment or upon the which no return is required, or deficiency tax or any
issuance of a notice of demand by the BIR, surcharge or interest appearing in the notice of
whichever comes first demand.
(Section 249(B) & (C), NIRC as amended by TRAIN LAW)
152. What is the new rule on delinquency interest and deficiency interest under the TRAIN
Law?
They shall be assessed and collected on any unpaid amount of tax, interest at the rate of double
the legal interest rate for loans or forbearance of any money in the absence of an express
stipulation as set by the Bangko Sentral ng Pilipinas from the date prescribed for payment until the
amount is fully paid; provided that in no case shall the deficiency and the delinquency interest
prescribed, be imposed simultaneously. (Sec. 249, NIRC as amended by TRAIN Law)
Any deficiency in the tax due, shall be subject to the interest prescribed above, which interest shall
be assessed and collected from the date prescribed for its payment until the full payment thereof,
or upon issuance of a notice and demand by the CIR, whichever comes earlier.(Sec. 249 of NIRC as
amended by RA No. 10963 or TRAIN Law)
Note:
Interest Rate - TRAIN Law reduced the interest rate from 20% to 12% per annum (double the
legal interest rate of 6% for loans or forbearance of any money in the absence of an express
stipulation in accordance with BSP Circular No. 799).
Per RR 21-2018 dated Sept. 14, 2018:

Interest imposed on any deficiency tax due, which interest shall be assessed and collected from
the date prescribed for its payment until: (a) full payment thereof, or (b) upon issuance of a notice
and demand by the Commissioner or his authorized representative, whichever comes first.
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Upon the effectivity of the TRAIN Law (January 1, 2018), in no case shall the deficiency and
delinquency interest be imposed simultaneously. In cases where the tax liability/ies or
deficiency tax/es became due before the effectivity of the TRAIN Law on January 1, 2018, and
where the full payment thereof will only be accomplished after the said effective date, the interest
rates shall be applied as follows:
Period Applicable Interest Type and Rate

Prior to effectivity of TRAIN Law Deficiency and /or delinquency interest at 20%
(For the period up to December 31, 2017)
Upon the effectivity of TRAIN Law Deficiency and/or delinquency interest at 12%
(For the period January 1, 2018 until full payment of
the tax liability)
The double imposition of both deficiency and delinquency interest under Section 249 prior to its
amendment will still apply in so far as the period between the date prescribed for payment until
December 31, 2017.
NIRC TRAIN Law (Sec. 75 of RA 10963)

Interest imposed on unpaid amount of taxes Interest imposed on unpaid amount of taxes
(delinquency/deficiency) is at twenty percent (deficiency/delinquency) is at DOUBLE THE
(20%) per annum LEGAL INTEREST RATE* for loans or
forbearance of any money as set by the Bangko
Sentral ng Pilipinas
*As the law stands now – the legal interest rate is

at 6%. Thus the current interest on unpaid
amount of taxes is at 12% (double the current
legal interest rate)
When Applicable?
From the date prescribed payment of tax due until From effectivity of RA 10963 which is January
December 2017 1,2018
153. What is the purpose of the Notice of Informal Conference?
Notice of Informal Conference is being issued to taxpayer as part of due process requirement in
the issuance of a deficiency tax assessment. Under the new Revenue Regulation which restored
its use (RR No. 7-2018), it now expressly provides that the informal conference shall not extend
beyond 30 days from the taxpayer’s receipt of the Notice for Informal Conference.
Further, if the taxpayer is found to be still liable for deficiency taxes after presenting his side or if
the taxpayer is not amenable, the case will be endorsed to the Assessment Division of the
Revenue Regional Office or to the Commissioner or his duly authorized representative within
seven (7) days from conclusion of the informal conference for issuance of a deficiency tax
assessment. Finally, failure of the revenue officers to comply with the periods shall subject them
to penalties as provided under existing rules and regulations. (RR 7-2018)
154. What are the period of limitation upon assessment and collection?
Prescriptive period Assessment Collection Legal Basis

Regular 3 years from filing of 3 years Section 203 of the
return or last day NIRC. Note that NIRC is
prescribed for filing, silent as to the period

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whichever comes later for collection.
Exceptional (with prior 3 years 5 years As to the period of
assessment) collection, the applicable
legal basis is Sections
222 (C) and (D) of
NIRC.
Exceptional (without Tax may be assessed at Proceeding in court Section 222 (A) of NIRC.
prior assessment) any time within 10 (judicial proceeding) for
years from discovery the collection of such tax
of falsity, fraud or may be filed without
omission. assessment at any time
within 10 years from
discovery of falsity,
fraud or omission.
155. ABC Co. received a PAN from the BIR which it timely disputed. In response, the BIR
issued a Formal Letter of Demand with Assessment Notices stating that it is BIR’s final
decision based on its investigation and if ABC Co. disagrees with the finding, the
remedy is to file a timely appeal. ABC Co. filed an outright appeal with the CTA. Can the
Formal Letter of Demand be construed as a final decision of the CIR appealable to the
CTA under R.A. No. 9282?
Yes. This is considered an exception to the general rule on exhaustion of administrative remedies
since the CIR is considered estopped from claiming applicability of such principle in view of its own
actions. The tenor of the demand letter is clear that the CIR had already made a final decision and
that the remedy of ABC Co is to file a timely appeal. The use of “final decision” and “appeal” in the
Formal Letter of Demand were deemed unequivocal language pointing to the finality of the
decision. (Allied Banking Corporation vs. CIR, G.R. No. 175098, February 5, 2010)
156. BIR made an assessment based on a letter notice or computerized matching of the
taxpayer’s records without a Letter of Authority (LOA). The BIR contends that an LOA
is only required when the books of account of a taxpayer is physically examined. Is the
contention of BIR correct? Explain.
No. 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. A LOA is premised on the fact that the examination of a taxpayer who has already
filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly
authorized representatives. It is clear that 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 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.
Thus, for not having authority to examine the taxpayer in the first place, the assessment issued by
the CIR is inescapably void. (MEDICARD vs. CIR, G.R. No. 222743, April 5, 2017)
157. A Letter of Authority (LOA) was issued to a team of BIR examiners to audit the
taxpayer Sony Philippines for “the period 1997 and unverified prior years.” It appears,
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however, that Sony was using the fiscal year, in that it reported its tax liabilities for
the period “April 1, 1997 to March 31, 1998.” Deficiency taxes were discovered by the
team of examiners covering the period 1 January 1998 to 31 March 1998. This was
contested by Sony as the same was not covered by the LOA. The CIR insists that the
LOA, although it states the period 1997 and unverified prior years, should be
understood to mean the fiscal year ending in March 31, 1998.
Did the CIR act properly in assessing Sony for taxes covering the period 1 January
1998 to 31 March 1998?
No. The CIR went beyond the scope of their authority because the assessment they arrived at was
based on records from January to March 1998 or using the fiscal year which ended in March 31,
1998.
A Letter of Authority should cover a taxable period not exceeding one taxable year. The
practice of issuing LOAs 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 LOA. (CIR vs. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010)
158. When will a Final Decision on Disputed Assessment (FDDA) be declared void? And in
the event that the FDDA is found void, what would be its effect on the tax assessment?
An FDDA that does not inform the taxpayer in writing of the facts and law, the rules and
regulations and jurisprudence, if there is any, on which the FDDA is based renders the decision
void. It should also state that it is the final decision of the CIR. Therefore, it is as if there was no
decision rendered by the CIR. It is tantamount to a denial by inaction by the CIR, which may still
be appealed before the CTA and the assessment evaluated on the basis of the available evidence
and documents.
The assessment remains valid notwithstanding the nullity of the FDDA because the assessment
itself differs from a decision on the disputed assessment. (CIR vs. Liquigaz Philippines Corporation, G.R.
No. 215534 & 215557, April 18, 2016)
159. Distinguish compromise from abatement of taxes.
Compromise Abatement
Reduction of the taxpayer’s liability Cancellation of the taxpayer’s liability
As to grounds: As to grounds:
(1) reasonable doubt as to the validity of the claim (1) Tax or any portion thereof appears to be unjustly
against the taxpayer exist; or excessively assessed; or
(2) when the financial position of the taxpayer (2) The administration and collection costs involved
demonstrates a clear inability to pay the assessed do not justify the collection of the amount due.
tax.
Basis: Section 204 (A) Basis: Section 204 (B)

As to who is authorize to enter: As to who is authorized to enter:
CIR, the National Evaluation Board and Regional CIR only.

Evaluation Board.

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Application for tax abatement is deemed approved
only upon the issuance of a TERMINATION LETTER
by the BIR. (Asiatrust vs. CIR, G.R. No. 201530,
April 19, 2017)
160. On April 11, 1996, Fitness filed its Annual Income Tax Return for the taxable year of
1995. On June 9, 2004, Fitness received a copy of the Final Assessment Notice (FAN)
(dated March 17, 2004) concerning its 1995 ITR. Fitness filed a protest to the FAN.
Fitness contends that since the FAN is allegedly based on fraud, the BIR must show the
details of the fraudulent acts imputed to it as part of due process. Is the contention of
Fitness correct?
Yes. From 1995, it was almost eight (8) years passed before the disputed final assessment notice
was issued. BIR claimed fraud assessment to justify the belated assessment made. If fraud was
indeed present, the period of assessment should be within 10 years. It is incumbent upon BIR to
clearly state the allegations of fraud committed by Fitness to serve the purpose of an assessment
notice to aid respondent in filing an effective protest.
Fraud is a question of fact that should be alleged and duly proven. "The willful neglect to file the
required tax return or the fraudulent intent to evade the payment of taxes, considering that the
same is accompanied by legal consequences, cannot be presumed." Fraud entails corresponding
sanctions under the tax law. Therefore, it is indispensable for the Commissioner of Internal
Revenue to include the basis for its allegations of fraud in the assessment notice.
Here, the FAN and its attachments failed to substantiate the Commissioner's allegations of fraud
since the assessment notice and details of discrepancies do not impute fraud on the part of the
former. Moreover, it was obtained on information and documents illegally obtained by an informant
in 1996. (CIR vs. Fitness By Design Inc., G.R. No. 215957, November 9, 2016)
161. Chomart Inc., received a Formal Assessment Notice for the Taxable Year 2012 which
reads:
“The complete details covering the aforementioned discrepancies established during

the investigation of this case are shown in the accompanying Annex 1 of this Notice.
The 50% surcharge and 20% interest have been imposed pursuant to Sections 248
and 249(B) of the [National Internal Revenue Code], as amended. Please note,
however, that the interest and the total amount due will have to be adjusted if paid
prior or beyond April 15, 2012.”
Is the assessment valid?
No. It lacks the definite amount of tax liability for which respondent is accountable. It does not
purport to be a demand for payment of tax due, which a final assessment notice should
supposedly be. Although the disputed notice provides for the computations of Chomart’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. (CIR vs. Fitness By Design, GR No. 215957, November
9, 2016)
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162. The CIR issued a Preliminary Assessment Notice (PAN) finding Asalus liable for
deficiency VAT for 2007 alleging that false or fraudulent return was made by Asalus. In
the PAN, it was categorically stated that:
"The running of the three-year statute of limitation as provided under Section 203 of
the NIRC is not applicable but rather the ten (10) year prescriptive period pursuant to
Section 222(A) of the NIRC”.
Asalus’ reply against the PAN was denied by the CIR. Asalus thereafter received the
Final Assessment Notice (FAN) (made reference to the PAN) stating that it was liable
for deficiency VAT for 2007 in the total amount of ₱95,681,988.64, inclusive of
surcharge and interest. Consequently, it filed its protest against the FAN. Asalus
eventually received the FDDA showing VAT deficiency for 2007 in the aggregate
amount of ₱106,761,025.17.
Asalus contended that the VAT assessment had prescribed and consequently deemed
invalid. It opined that the ten-year prescriptive period under Section 222 of the NIRC
was inapplicable as neither the FAN nor the FDDA indicated that Asalus had filed a
false VAT return warranting the application of the ten-year prescriptive period. It
explained that it was only in the PAN where an allegation of false or fraudulent return
was made.
Is the contention of Asalus correct?
No. In this case, it is true that neither the FAN nor the FDDA explicitly stated that the applicable
prescriptive period was the ten-year period set in Section 222 of the NIRC. The BIR, however,
made reference to the PAN, which categorically stated that "the running of the three-year statute
of limitation as provided under Section 203 of the NIRC is not applicable but rather the ten (10)
year prescriptive period pursuant to Section 222(A) of the NIRC.”
Thus, substantial compliance with the requirement as laid down under Section 228 of the NIRC
suffices, for what is important is that the taxpayer has been sufficiently informed of the factual and
legal bases of the assessment so that it may file an effective protest against the assessment. In
this case, Asalus was sufficiently informed that with respect to its tax liability, the extraordinary
period laid down in Section 222 of the NIRC would apply. This was categorically stated in the PAN
and all subsequent communications from the CIR made reference to the PAN. (CIR vs. Asalus
Corporation, GR No. 221590, February 22, 2017)
163. OCA Corporation, is one of the leading manufacturing company in the Philippines. In
March 2018, it received a Letter of Authority (LOA) covering the taxable year 2015. On
July 25, 2017, the BIR issued a Preliminary Assessment Notice (PAN) and sent it the
same day thru registered mail. The BIR then after 15 days even without waiting for the
reply of OCA, it sent a Final Assessment Notice (FAN) dated August 9, 2017 to OCA
again through registered mail. OCA received the PAN and FAN on the same day, August
15, 2017. Is the assessment valid ?
We could assail the validity of the assessment for its failure to observe OCA’s right to due process
as it was deprived of its opportunity to contest within the 15 day period. In issuing the FAN when
the taxpayer has not yet received the PAN, the CIR effectively disregarded ABC’s right to be

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notified as well as the right to respond to the PAN. Thus, the assessment is void. (CIR vs. Yumex
Philippines Corporation, CTA EB No. 1139, August 11, 2015)
164. Gold Chains supplies imported fuel to Big Travel Service (BTS) Airlines. BTS’ franchise
grants it an exemption from both direct and indirect taxes on its purchase of petroleum
products. In 2004, BTS Received from Gold Chains an Aviation Billing Invoice reflecting
an amount of P3 Million as the related excise tax on the transaction. This was
confirmed by Gold Chains in a Certification where it indicated that the excise taxes it
paid on the imported fuel and that the excise tax payment was passed on by it to BTS,
and that it did not file any claim for the refund of the said excise tax with BIR. BTS
sought a refund of the excise tax passed on to it by Gold Chains. The CIR denied the
claim for refund on the ground that only Gold Chains may seek refund on the excise
taxes it paid. Does BTS have legal standing to file a claim for tax refund?
Yes. The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he shifts the burden
thereof to another. However, this rule does not apply to instances where the law clearly grants the
party to which the economic burden of the tax is shifted an exemption from both direct and
indirect taxes. In which case, the latter must be allowed to claim a tax refund even if it is not
considered as the statutory taxpayer under the law.
In this case, BTS’ franchise grants it an exemption from both direct and indirect taxes on its
purchase of petroleum products. BTS is exempt from paying: (a) taxes directly due from or
imposable upon it as the purchaser of the subject petroleum products; and (b) the cost of the
taxes billed or passed on to it by the seller, producer, manufacturer, or importer of the said
products either as part of the purchase price or by mutual agreement or other arrangement.
Therefore, given the foregoing direct and indirect tax exemptions under its franchise, and applying
the principles as above-discussed, BTS is endowed with the legal standing to file the subject tax
refund claim, notwithstanding the fact that it is not the statutory taxpayer as contemplated by law.
(Philippines Airlines, Inc. vs. CIR, G.R. No. 198759, July 1, 2013, J. Perlas-Bernabe)
165. In 2006 Annual ITR, Tyrell Corp. chose the option “To be issued a tax credit certificate”
with respect to the amount of PhP 2 Million representing unutilized excess creditable
taxes for the taxable year ending 31 December 2006. In the following year, Tyrell Corp.
change its taxable period from calendar year to fiscal year ending on the last day of
March. Thus, it filed an Annual ITR covering the short period from January 1 to March
31, 2007 and opted to carry over as “Prior Year’s Excess Credits” the total amount of
PhP5 Million which included the 2006 unutilized creditable withholding tax. On the
same date, Tyrell Corp. filed an amended ITR for the short period fiscal year ended
March 31, 2007, removing the 2006 unutilized creditable withholding tax. In 2008
Tyrell Corp. filed a claim for refund and/or issuance of Tax Credit Certificate in the
amount of PhP 2 Million representing the excess and unutilized creditable withholding
taxes for 2006.
a. Is Tyrell Corp. still be entitled to the refund of its 2006 excess tax credits when it
thereafter filed its income tax return indicating the option of carryover?
No. Tyrell Corp. is no longer entitled for a refund or tax credit certificate because of the
irrevocability rule. The law does not prevent a taxpayer who originally opted for a refund or tax
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credit certificate from shifting to the carryover of the excess creditable taxes to the taxable
quarters of the succeeding taxable years. However, in case the taxpayer decides to shift its option
to carry over, it may no longer revert its original choice due to the irrevocability rule. As Section 76
unequivocally provides, once the option to carry over has been made, it shall be irrevocable.
Furthermore, the provision seems to suggest that there are no qualifications or conditions attached
to the rule on irrevocability. Law and jurisprudence unequivocally support the view that only the
option of carryover is irrevocable. (University Physicians Services, Inc. vs. CIR, G.R. No. 205955, March 7,
2018)
b. What are the requisites for claiming a refund of the said excess creditable
withholding taxes?
The requisites for claiming a refund of excess creditable withholding taxes are:
1. The claim is filed with the CIR within 2 years from the payment of the tax;
2. It is shown in the return of the recipient that the income payment received was declared
as part of the gross income; and
3. The fact of withholding is established by a copy of statement duly issued by the payor to
the payee showing the amount paid and the amount of the tax withheld therefrom (BIR
Form No. 2307).
166. What are the available options of a corporation when it overpays its income tax
liability at the close of the taxable year?
There are two options available to the corporation whenever it overpays its income tax for the
taxable year:
a. to carry over and apply the overpayment as tax credit against the estimated quarterly
income tax liabilities of the succeeding taxable years (also known as automatic tax credit)
until fully utilized (meaning there is no prescriptive period); and
b. to apply for a cash refund or issuance of tax certification within 2 years from the date of
payment of taxes in the Final Adjustment Return. (University Physicians Services, Inc. vs. CIR,
G.R. No. 205955, March 7, 2018)
167. On 15 April 2002, BTS filed its ITR with BIR reporting an income tax overpayment for
P70 Million arising from unutilized creditable withholding taxes withheld during the
year. BTS marked the appropriate box manifesting its intention to have the
overpayment be refunded. On 19 March 2003 BTS then filed with BIR, a letter
requesting for the refund or issuance of tax credit certificate corresponding to its
reported unutilized creditable withholding taxes. On 27 March 2003 BTS filed a petition
for Review before CTA in order to toll the running of the two-year prescriptive period
provided under Sec. 229 of NIRC. BTS presented numerous documentary evidence such
as ITR for 2001 and 2002, various Certificates of Creditable Tax Withheld at Source for
year 2001. CTA division granted the petition and order the refund or issuance of a tax
credit certificate. CTA en banc affirmed the decision of the division. However, CIR
contended that BTS failed to establish its entitlement of refund. Is the contention of
CIR correct?
No. The claim for refund was filed within the two-year prescriptive period under Sec 229 of NIRC
1997. BTS filed its ITR on 15 April 2002, counting from said date it indeed had until 14 April 2004
within which to file its claim for refund or issuance of tax credit certificate in its favor both
administratively and judicially. BTS administrative claim and petition for review fell within the

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prescriptive period. BTS was able to present various certificates of creditable tax withheld and it
declared the income related to the claimed creditable withholding taxes on its return. Lastly, in
compliance with Sec. 76 of NIRC 1997, BTS opted to be refunded of its unutilized tax credit, as
evidenced by the “x” mark in the appropriate box of its 2001 ITR, and the same was not carried
over in its 2002 ITR. Therefore, the entire amount of Php 70 Million may be proper subject of a
claim for refund or tax credit certificate.
It is also important to point out that the findings and conclusions of CTA are accorded with highest
respect and will not be lightly set aside. Its findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or abuse on the part of the
Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must
presume that the CTA rendered a decision which is valid in every respect. (CIR vs. Team Operations
Corp., G.R. No. 179260, April 2, 2014)
168. What are the essential conditions for the grant of a claim for refund of creditable
withholding income tax?
a. the claim is filed with the Commissioner of Internal Revenue within the two-year period from
the date of payment of the tax;
b. it is shown on the return of the recipient that the income payment received was declared as
part of the gross income; and
c. the fact of withholding is established by a copy of a statement duly issued by the payor to the
payee showing the amount paid and the amount of the tax withheld therefrom. (CIR vs. Team
Operations Corp., G.R. No. 179260, April 2, 2014)
F. Government Remedies
171. What is a tax lien?
A tax lien is a legal claim or charge on property (whether real or personal) established by law as a
sort of security for the payment of tax obligations. (HSBC vs. Rafferty, G.R. No. L-13188, November 15,
1918)
172. Which is more superior between government’s tax lien or private litigant’s claim?
A tax lien created in favor of the government is superior to all other claims or preferences. (Republic
vs. Peralta, G.R. No. L-56568, May 20, 1987)
The lien is, however, not valid against any mortgagee, purchases, or judgment creditor until notice
of such lien shall have been filed in the register of deed of the province or city where the property
of the taxpayer is located. (CIR v. NLRC, G.R. No. 74965, November 9, 1994)
173. What is the distinction between forfeiture and seizure?
In seizure for the enforcement of tax lien, the residue, after deducting the tax liability and
expenses, will go to the taxpayer (BPI vs. Trinidad, G.R. No. L-16014, October 4, 1921).
In forfeiture, all the proceeds of the sale will go to the coffers of the government. (U.S. vs. Suria,
G.R. No. 6536, September 2, 1911)
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174. Is injunction available to restrain collection of tax?
No. An injunction is not available to restrain collection of tax. No court shall have the authority to
grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge
imposed by the NIRC. (Sec. 218, NIRC)
Only the CTA can issue an injunction and it is only allowed when the following conditions concur:
a. There is an appeal to the CTA, and

b. In the opinion of the court, the collection by the government agencies may jeopardize the
interest of the Government and/or the taxpayer, and
c. Taxpayer is willing either to deposit the amount claimed or to file a surety bond for not more
than the double the amount with the Court. (Sec. 11 of R.A. 1125, as amended by R.A. 9282)
175. What are the instances when the CIR can place the property of the taxpayer under
constructive distraint?
a. Retiring from any business subject to tax;

b. Intending to leave the Philippines;
c. Intending to remove his property therefrom;
d. Intending to hide or conceal his property; or
e. Intending to perform any act tending to obstruct the proceedings for collecting the tax due or
which may be due from him (Sec. 206, NIRC).
176. What are the grounds for the compromise of payment of internal revenue taxes?
a. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax
(Sec. 204, NIRC).
177. What are the elements for the violation for failure to make or file a return?
a. The accused is a person required to make or file a return;

b. The accused failed to make or file the return at the time required by law; and
c. The failure to make or file the return was willful (Sec. 255, NIRC).
178. Should the filing of a criminal complaint be preceded by assessment?
No. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to
defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully
filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is
grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and
the government’s failure to discover the error and promptly to assess has no connections with the
commission of the crime. (Ungab vs. Cusi, G.R. No. L-41919-24, May 30, 1980)
179. Is the filing of the criminal action an implied assessment?
No. The filing of a criminal action is not an implied assessment. An assessment contains not only a
computation of tax liabilities but also a demand for payment within the prescribed period. An

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affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and
attached to the criminal complaint for tax evasion cannot be deemed an assessment that can be
questioned before the CTA. (CIR vs. Pascor Realty, G.R. No. 128215, June 29, 1999)
180. Is a decision on a request for reinvestigation a condition precedent to the filing of an

action of taxes already assessed?
No. A decision on a request for reinvestigation is not a condition precedent to the filing of an action
of taxes already assessed. Nowhere in the Tax Code is the CIR required to rule first on a taxpayer’s
request for reinivistegation before he can go to court for the purpose of collecting the tax
assessed. (Republic vs. Lim Tian Teng Songs & Co, G.R. No. L-21731, March 31, 1966)
The requirement to rule on disputed assessments before bringing action for collection is applicable
only on where the assessment was actually disputed, adducing reasons in support thereto. In this
case, the taxpayer did not actually contest the assessment by stating the basis thereof. (Dayrit vs.
Cruz, G.R. No. L-39910, September 26, 1988)
III. LOCAL TAXATION
A. Local Government Taxation
181. What are the taxes that may be imposed by provinces?
The province may levy only the following taxes, fees, and charges (Sec. 134 of Local Government
Code of 1991):
1. Tax on transfer of real property ownership (Sec. 135);
2. Tax on business of printing and publication (Sec. 136);
3. Franchise tax (Sec. 137);
4. Tax on sand, gravel and other quarry resources (Sec. 138);
5. Professional tax (Sec. 139);
6. Amusement tax (Sec. 140); and
7. Annual fixed tax for every delivery truck or van of manufacturers or producers, wholesalers of,
dealers, or retailers in, certain products (Sec. 141)
182. The Congress, after public hearing and consultations with various sectors of society,
came to the conclusion that it will be good for the country to have only one system of
government units. Would such a law be valid under the Constitution? Explain your
answer.
No. The law centralizing the imposition and collection of all taxes in the national government would
contravene the Constitution which mandates that “each local government unit shall have the power
to create their own sources of revenue and to levy taxes, fees, and charges subject to such
guidelines and limitations as Congress may provide consistent with the basic policy of local
autonomy (Sec. 5, Art. X, 1987 Constitution).” It is clear that Congress can only give the guidelines
and limitations on the exercise by the local governments of the power to tax but what was granted
by the fundamental law cannot be withdrawn by the Congress.
183. What is the procedure for approval and effectivity of tax ordinances?
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The procedure for approval of local tax ordinances and revenue measures shall be in accordance
with the provisions of the LGC: Provided:
a. That public hearings shall be conducted for the purpose prior to the enactment thereof;
b. That any question on the constitutionality or legality of tax ordinances or revenue measures
may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal;
c. That such appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein; and
d. That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period
without the Secretary of Justice period acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction. (Section 187, LG Code)
184. May a province or city impose tax on professionals?
Yes. Under Sec. 139 of the LG Code, the province may levy an annual professional tax on each
person engaged in the exercise or practice of his profession requiring government examination at
such amount and reasonable classification as the Sangguniang Panlalawigan or Sanngguniang
Panglungsod may determine.
185. What are the limitations on the imposition of professional tax?
a. The professional tax shall not exceed Three hundred pesos (P300). However, cities may impose
professional taxes higher than P300;
b. Professional tax may be imposed by a province or city but not by a municipality or barangay;
c. Payment in one place exempts professionals from payment of professional tax in other LGUs;
d. Professionals exclusively employed in the government are exempted from professional tax.
(Section 139, LGC)
186. When and where professional taxes shall be paid?
The professional tax shall be payable annually, on or before the thirty-first (31st) day of January.
Any person first beginning to practice a profession after the month of January must, however, pay
the full tax before engaging therein. It must be paid at the province where he practices his
profession or where he maintains his principal office in case he practices his profession in several
places: Provided, however, that such person who has paid the corresponding professional tax shall
be entitled to practice his profession in any part of the Philippines without being subjected to any
other national or local tax, license, or fee for the practice of such profession. (Section 228 (b), IRR of
LGC)
187. MBM Corporation is the owner-operator of movie houses in Cavite. During the year
2010, it received a total gross receipt of P20 Million from the operation of movies. It
did not register as a VAT person. Is MBM Corp. liable for VAT or 10% amusement tax,
or both?
MBM Corporation is exempt from the 12% VAT, but liable for the 10% amusement tax on
admissions under the Local Government Code. The province may levy an amusement tax to be
collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses,

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boxing stadia, and other places of amusement, based on the gross receipts from admission fees.
(CIR vs. SM Prime, G.R. No. 183505, February 26, 2010)
188. What is the basis for the computation of business tax on banks and other financial
institutions under the Local Government Code?
Under Sec. 143(f), the municipality may impose taxes on banks and other financial institutions at a
rate not exceeding fifty percent (50% of one percent (1%) on the gross receipts of the preceding
calendar year derived from interest, commissions and discounts from lending activities, income
from financial leasing, dividends, rentals on property and profit from exchange or sale of property,
insurance premium.
189. What is the basis for the computation of business tax on contractors under the Local
Government Code?
The business tax on contractors is a graduated annual fixed tax based on the gross receipts for the
preceding calendar year. If the gross receipts amount to more than P2 million, the business is subject to
a percentage tax at the rate of 50% of 1%. (Section 143(e), LG Code)
190. Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its principal office in
Cubao, Quezon City. It has branches/sales offices in Cebu and Davao. Its factory is
located in Marikina City where most of its workers live. Its principal office in Quezon
City is also a sales office.
Sales of finished products for calendar year 2009 in the amount of P10 million were
made at the following locations:
i) Cebu branch - 25%
ii) Davao branch - 15%
iii) Quezon City branch - 60%
Where should the applicable local taxes on the shoes be paid? Explain.
Under the Section 150 of LGC, the manufacturers maintaining a branch or sales outlet shall record
the sale in the branch or sales outlet making the sale and pay the tax in the city or municipality
where the branch or sales outlet is located. In cases where there is no such branch or sales outlet
in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in
the principal office and 30% of the said sales are taxable in the place where the principal office is
located while 70% is taxable in the place where the factory is located. Hence, 25% of total sales or
P2.5M shall be taxed in Cebu and 15% of total sales or P1.5M shall be taxed in Davao. For the
remaining 60% sales amounting to P6M which is recorded in the principal office, 30% thereof or
P1.8M is taxable in Quezon City where the principal office is located and 70% or P4.2M is taxable
in Marikina City where the factory is located.
191. Atty. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer

engaged in the practice of his two professions. He has his main office in Makati City
and maintains a branch office in Pasig City. Mr. Fermin pays his professional tax as a
CPA in Makati City and his professional tax as a lawyer in Pasig City.
(a) May Makati City, where he has his main office, require him to pay his professional
tax as a lawyer? Explain.
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Yes. Since Atty. Fermin is practicing his profession in several places, then he should pay his
professional tax in the place where he maintains his principal office, which is in Makati City.
Section 139(b), in relation to Sec. 151 of the LGC provides that every person legally authorized to
practice his profession shall pay the professional tax to the province or the city where he practices
his profession or where he maintains his principal office in case he practices his profession in
several places. In the latter case, payment of the professional tax in the principal office’s site shall
exempt the professional concerned from paying any other national or local tax, license or fee for
the practice of such profession. And since Atty. Fermin is a lawyer and also a certified public
accountant, he must pay a professional tax imposed for a lawyer and for a CPA in the City of
Makati where his principal office is located.
(b) May Quezon City, where he has his residence and where he also practices his two
professions, go after him for the payment of his professional tax as a CPA and a
lawyer? Explain.
No. the situs of the professional tax is the city where the professional practices his profession or
where he maintains his principal office in case he practices his profession in several places. The
local government of Quezon City has no right to collect the professional tax from Mr. Fermin as the
place of residence of the taxpayer is not the proper situs in the collection of the professional tax.
(Sec. 139, LGC)
192. When Pasig was still a municipality, it passed an ordinance imposing franchise tax on
franchise holders within the municipality. Later on, by virtue of R.A. 7829, which took
effect on 25 January 1995, the Municipality of Pasig was converted into a highly
urbanized city to be known as the City of Pasig. On 24 August 2001, the Treasurer’s
Office of the City Government of Pasig informed MERALCO, a grantee of a legislative
franchise, that it is liable to pay taxes for the period 1996 to 1999, pursuant to
Municipal Ordinance No. 25. The city, thereafter, on two separate occasions, demanded
payment of the said tax in the amount of ₱500,000, exclusive of penalties. Are the
franchise tax assessments against MERALCO valid?
No. The franchise taxes levied by Pasig City from 1996-1999 when it was just a municipality is null
and void and that nullity is not cured by the subsequent conversion of Pasig from then a
municipality into a now a city. Neither does it authorize the collection of the tax under said
ordinance.
Under the LGC of 1991, a municipality is bereft of authority to levy and impose franchise tax on
franchise holders within its territorial jurisdiction because that authority belongs to provinces and
cities only. (City of Pasig vs. Meralco, G.R. No. 181710, March 7, 2018)
193. In accordance with the Local Government Code (LGC), the Sangguniang Panglungsod
(SP) of Baguio City enacted Tax Ordinance No. 19, Series of 2014, imposing a P50 tax
on all the tourists and travellers going to Baguio City. In imposing the local tax, the SP
reasoned that the tax collected will be used to maintain the cleanliness of Baguio City
and for the beautification of its tourist attractions.
Claiming the tax to be unjust, Baguio Travellers Association (BTA), an association of

travel agencies in Baguio City, filed a petition for declaratory relief before the RTC
because BTA was apprehensive that tourists might cancel their bookings with BTA’s

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member agencies. BTA also prayed for the issuance of a Temporary Restraining Order
(TRO) to enjoin Baguio City from enforcing the local tax on their customers and on all
tourists going to Baguio City. Baguio City opposed the issuance of the TRO on the
ground that collection of taxes cannot be enjoined. Is Baguio City correct?
No. The prohibition on the issuance of an order or writ enjoining the collection of taxes applies only
to national internal revenue taxes, and not to local taxes. Unlike the NIRC, there is no express
provision in the Local Government Code which prohibits courts from enjoining the collection of
such taxes. (Valley Trading Co., Inc. vs. CFI of Isabela, G.R. No. L-49529, March 31, 1989; Angeles City vs.
Angeles City Electric Corporation, G.R. No. 166134, June 29, 2010)
194. On May 15, 2009, La Manga Trading Corporation received a deficiency business tax
assessment of P1.5 million from the Pasay City Treasurer. On June 30, 2009, the
corporation contested the assessment by filing a written protest with the City
Treasurer. On October 10, 2009, the corporation received a collection letter from the
City Treasurer, drawing it to file on October 25, 2009 an appeal against the assessment
before the Pasay Regional Trial Court (RTC).
a. Was the protest of the corporation filed on time? Explain.
Yes, the written protest was filed on time. Under the Section 195 of the LG Code, within sixty (60)
days from the receipt of the notice of assessment, the taxpayer may file a written protest with the
local treasurer contesting the assessment; otherwise, the assessment shall become final and
executory. Here, only 45 days has lapsed prior to filing of the protest by the Company.
b. Was the appeal with the Pasay RTC filed on time? Explain.
The appeal was not filed on time. Under Section 195 of the LG Code, when an assessment is
protested, the treasurer has 60 days within which to decide. The taxpayer shall have thirty (30)
days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period
prescribed herein within which to appeal with the court of competent jurisdiction otherwise the
assessment becomes conclusive and unappealable. In this case no decision on the protest was
made, the taxpayer should have appealed to the RTC within 30 days from the lapse of the period
prescribed to decide the protest.
195. How does the LGU enforce the collection of local taxes through judicial action?
The LGU may enforce the collection of deliquent taxes, fees, charges and other revenues by civil
action in any court of competent jurisdiction (Sec 183, LGC).
196. What is the prescriptive period for assessment of local tax?
The assessment of local tax shall prescribe within 5 years from the date taxes, fees, or charges
become due. However, in fraud or intent to evade the payment of taxes, fees, or charges, the
same may be assessed within 10 years from the date of discovery thereof. (Sec 194 (a) (b), LGC)
197. What is the prescriptive period for the collection of local tax?
The collection of local tax shall prescribe within 5 years from the date of assessment. (Sec. 194 (c),
LGC)
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198. Mecca Corp was assessed by the Treasurer of City of Manila for their fourth quarter
local business taxes pursuant to Manila Revenue Code. Consequently, Mecca Corp paid
the total assessed amount under protest but Mecca Corp did not file a written claim for
refund. Subsequently, Mecca Corp filed a case with the Regional Trial Court of Manila
against the City Treasurer contending that Section 21 of the Manila Revenue Code is
null and void. They also sought the refund of the amount of local business taxes they
previously paid to the City. Assuming Section 21 of the Manila Code is declared null and
void, will Mecca Corp be entitled to refund?
No. Section 196 of the LGC reveals that in order to be entitled to a refund/credit of local taxes, the
following procedural requirements must concur: first, the taxpayer concerned must file a written
claim for refund/credit with the local treasurer; and second, the case or proceeding for refund has
to be filed within two (2) years from the date of the payment of the tax, fee, or charge or from the
date the taxpayer is entitled to a refund or credit.
Here, Mecca Corp did not file a written claim for refund with the local treasurer. Indeed, it is
hornbook principle that a claim for a tax refund/credit is in the nature of a claim for an exemption
and the law is construed in strictissimi juris against the one claiming it and in favor of the taxing
authority. Consequently, as Mecca Corp failed to prove that it complied with the procedural
requisites stated under Section 196, its claim for local tax refund/credit must be denied. (Metro
Manila Shopping Mecca Corp. vs. Toledo G.R. No. 190818, June 5, 2013, J. Perlas-Bernabe)
199. In 1992, the Sangguniang Bayan of the Municipality of Pasig enacted Ordinance No. 25
which imposed a franchise tax on all business venture operations carried out through a
franchise within the municipality. Subsequently, the Municipality of Pasig was
converted into a highly urbanized city. In 2001, the Treasurer’s Office of the City
Government of Pasig demanded from the Manila Electric Company (MERALCO), a
grantee of a legislative franchise, franchise taxes for the period 1996 to 1999,
pursuant to Municipal Ordinance No. 25. MERALCO protested the validity of the
demand contending that when Ordinance No. 25 was enacted, Pasig was still a
municipality and had no authority to levy a franchise tax.
a. Does the Municipality of Pasig have the authority to levy franchise taxes?
No. Unlike a city, a municipality is bereft of authority to levy franchise tax, thus, the ordinance
enacted for that purpose is void. The power to impose franchise tax belongs to the province by
virtue of Section 137 of the LGC. On the other hand, the municipalities are prohibited from levying
the taxes specifically allocated to provinces under Section 142. (City of Pasig vs. MERALCO, G.R.
181710, March 7, 2018)
b. With the subsequent conversion of Pasig into a City, does it now possess authority
to collect franchise taxes by virtue of Ordinance No. 25?
No. The conversion of the municipality into a city does not remove the original infirmity of the
subject ordinance. A void ordinance, or provision thereof, is what it is - a nullity that produces no
legal effect. It cannot be enforced; and no right could spring forth from it. The cityhood of Pasig
notwithstanding, it has no right to collect franchise tax under the assailed ordinance. (City of Pasig
vs. MERALCO, G.R. 181710, March 7, 2018)

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200. Elektra is an electric cooperative duly organized and existing by virtue of Presidential
Decree (PD) 269 and registered with the National Electrification Administration (NEA).
It is engaged in the business of electric power distribution to various consumers within
Iriga City and Municipalities in Rinconada area. The City of Iriga assessed Elektra on
franchise taxes. Elektra refused to pay on the ground that it is an electric cooperative
provisionally registered with the Cooperative Development Authority (CDA), and
therefore exempt from the payment of local taxes. It also contends that, assuming it is
liable for franchise tax, its liability should be limited to gross receipts from supply of
electricity within the City of Iriga and not those from Rinconada area.
a. Is Elektra liable for the payment of franchise tax?
Yes. A franchise tax is a tax on the privilege of transacting business in the state and exercising
corporate franchises granted by the state. It is not levied on the corporation simply for existing as
a corporation, upon its property or its income, but on its exercise of the rights or privileges granted
to it by the government. Thus, to be liable for local franchise tax, the following requisites should
concur: (1) that one has a “franchise” in the sense of a secondary or special franchise; and (2) that
it is exercising its rights or privileges under this franchise within the territory of the pertinent local
government unit. In this case, by virtue of PD 269 NEA granted Elektra a franchise to operate an
electric light and power service within Iriga City. It is, therefore, liable to pay franchise tax
notwithstanding its non-profit nature. (City of Iriga vs. CASURECO III, G.R. No. 192945, September 5,
2012, J. Perlas-Bernabe)
b. Should it be limited to gross receipts within Iriga City?
No. As Section 137 of the LGC provides, franchise tax shall be based on gross receipts precisely
because it is a tax on business, rather than on persons or property. Since it partakes of the nature
of an excise tax, the situs of taxation is the place where the privilege is exercised, in this case in
the City of Iriga, where Elektra has its principal office from where it operates, regardless of the
place where its services or products are delivered. Hence, franchise tax covers all gross receipts
from Iriga City and the Rinconada area. (City of Iriga vs. CASURECO III, G.R. No. 192945, September 5,
2012, J. Perlas-Bernabe)
B. Real Property Taxation
201. What are the Fundamental Principles in Real Property Taxation?
The appraisal, assessment, levy and collection of real property for taxation purposes shall be
guided by the following fundamental principles:
a. Real property shall be appraised at its current and fair market value;
b. Real property shall be classified for assessment purposes on the basis of its actual use;
c. Real property shall be assessed on the basis of a uniform classification within each local political
subdivision;
d. The appraisal, assessment and levy of real property for taxation purposes and the collection of
the real property tax shall not be let to any private persons; and
e. The appraisal and assessment of real property shall be equitable. (Sec. 198, LGC)
206. Angela owns real property in Quezon City. On July 1, 2014, she received a notice o
assessment from the City Assessor, informing her of a deficiency tax on her property.
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She wants to contest the assessment. May Rosario refuse to pay the deficiency tax
assessment during the pendency of her appeal?
No. The payment of the deficiency tax is a condition sine qua non before she can protest the
deficiency assessment. It is the decision on the protest or inaction thereon that gives her the right
to appeal. This means that she cannot refuse to pay the deficiency tax assessment during the
pendency of the appeal because it is the payment itself which gives rise to the remedy. The law
provides that no protest (which is the beginning of the disputation process) shall be entertained
unless the taxpayer first pays the tax. (Section 252, LGC)
207. Bea owns real property in Makati City. On July 1, 2014, she received a notice of
assessment from the City Assessor, informing her of a deficiency tax on her property.
She wants to contest the assessment. What are the administrative remedies available
to Bea in order to contest the assessment and their respective prescriptive periods?
The administrative remedies available to Rosario to contest the assessment and their respective
prescriptive periods are as follows:
a. Pay the deficiency real property tax under protest (Section 252, LGC);
b. File the protest with the local treasurer – The protest in writing muse be filed within thirty (30)
days from payment of the tax to the provincial, city, or municipal treasurer, in the case of a
municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days
from receipt (Section 252, LGC);
c. Appeal to the LBAA – If protest is denied or upon the lapse of the 60-day period for the
treasurer to decide, the taxpayer may appeal to the LBAA within 60 days and the case decided
within 120 days (Section 226 & 229, LGC);
d. Appeal to the CBAA – If not satisfied with the decision of the LBAA, appeal to the CBAA within
30 days from receipt of a copy of the decision (Section 229(c), LGC).
208. Mr. Anderson is a citizen, who purchased a parcel of land in Makati City in 1970 with a
consideration of P1M. In 2012, the land which remained undeveloped and idle, had a
fair market value of P20M. The Assessor of Makati re-assessed in 2011 the property at
P10M. When is Mr. Anderson liable for real property tax on the land based on the re-
assessed fair market value?
Mr. Anderson shall be liable to the real property tax based on the re-assessed fair market value of
P10M beginning 2012. All re-assessments made after the first day of any year shall take effect on
the first of January of the succeeding year. (Sec. 21, LGC) The fair market value of P20M as
determined by the Commissioner shall be used only for purposes of national internal revenue
taxes.
209. What is the Basis of Real Property Tax?
The basis of real property taxation under the Assessment Law was ownership or interest
tantamount to ownership. The Real Property Tax Code changed the basis of real property taxation
and adopted the policy of taxing real property on the basis of actual use, even if the user is not the
owner. (Prov. of Nueva Ecija vs. Imperial Mining Co., G.R. No. L-59463, November 19, 1982)

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210. What are properties exempt from real property tax?
The following are exempted from payment of the 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 RA 6938; and
e. Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned
or controlled corporations, are hereby withdrawn upon the effectivity of this Code. (Sec. 234, LGC)
211. Mr. Alonzo leased a piece of land owned by the Municipality of Pinagsabitan and built a
warehouse on the property for his business operations. The Municipal Assessor
assessed Mr. Alonzo for real property taxes on the land and the warehouse. Mr. Alonzo
objected to the assessment, contending that he should not be asked to pay realty taxes
on the land since it is municipal property. Was the assessment proper?
Yes. The land, although owned by the Municipality, is not exempt from real property tax because
the beneficial use has been granted to a taxable person. (Sec. 234(a), LGC)
212. Julia inherited a two-storey building in Makati from his father, a real estate broker in
the 60s. A group of Tibetian Monks approached Julia and offered to lease the building
in order to use it as a venue for their Buddhist ritual and ceremonies. Julia accepted
the rental of P1M for the whole year. The following year, the City Assessor issued an
assessment against Julia for non-payment of real property taxes. Is the assessor
justified in assessing Julia’s deficiency real property taxes? Explain.
No. The assessor made an error in assessing the deficiency real property tax on the land owned by
Julia but being leased and used by the Tibetian monks for their religious rituals and ceremonies.
Section 198 of the Local Government Code provides that real property shall be classified for
assessment purposes on the basis of actual use. Moreover, charitable institution, churches,
personages 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, are exempt from the payment of real property tax. (Sec. 234, LGC)
213. Article VI, Section 28(3) of the 1987 Philippine Constitution provides that charitable
institutions, churches and parsonages or convents appurtenant thereto, mosques, non-
profit cemeteries and all lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes shall be exempt from
taxation.
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a. To what kind of tax does this exemption apply?
This exemption applies only to real property taxes. What is exempted is not the Institution itself
but the lands, buildings and improvements actually, directly and exclusively used for religious,
charitable and educational purposes.
b. Is proof of actual use necessary for tax exemption purposes under the Constitution?
Yes, because tax exemption are strictly construed against the taxpayer. There must be evidence to
show that the taxpayer has complied with the requirements for exemption. Furthermore, real
property taxation is based on use and not on ownership; hence, the same rule must also be
applied for real property tax exemption. (Lung Center of the Philippines vs. Quezon City, G.R. No.
144104, June 29, 2004)
IV. COURT OF TAX APPEALS
214. May the courts enjoin the collection of revenue taxes? Explain your answer.
No. As a general rule, the courts have no authority to enjoin the collection of revenue taxes (Sec.
218, NIRC). However, the Court of Tax Appeals is empowered to enjoin the collection of taxes
through administrative remedies when collection could jeopardize the interest of the government
or taxpayer (Sec. 11, RA 1125).
215. Paras, Inc. received the Final Decision on Disputed Assessment issued by the
Commissioner of Internal Revenue (CIR) dismissing the protest of Paras, Inc. and
affirming the assessment against said corporation. Paras, Inc. filed a Petition for
Review with the Court of Tax Appeals (CTA) Division. The CTA Division dismissed
Paras, Inc.’s petition. Paras, Inc. immediately filed a Petition for Review with the CTA
En Banc. Is the immediate appeal by Paras, Inc. to the CTA En Banc of the adverse
Decision of the CTA Division the proper remedy?
No. Paras, Inc. should have filed a Motion for Reconsideration with the CTA Division first. The CTA
Rules state that a Motion for Reconsideration is a prerequisite before elevating the case to the CTA
En Banc. (Ingles, Tax Made Less Taxing, 2018, p. 487)
216. In criminal cases under CTA exclusive original jurisdiction, is there a right to reserve
the filing of a separate civil action for the recovery of taxes?
No. Under Sec. 11 Rule 9 of RRCTA, the filing of the criminal action shall necessarily carry with it
the filing of the civil action. No right to reserve the filing of such civil action separately from the
criminal action shall be allowed or recognized
217. In cases appealed before the CTA, what are the conditions in order that CTA may
suspend the collection of tax?
a. In the opinion of the Court the collection will jeopardize the interest of the Government and/or
the taxpayer; and
b. The taxpayer either deposit the amount claimed or file a surety bond for not more than the
amount. (Sec. 9, R.A. 9282 as amended)

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218. After filing an Information for violation of Section 254 of NIRC (Attempt to Evade or
Defeat Tax) with the CTA, the Public Prosecutor manifested that the People is
reserving the right to file the corresponding civil action for the recovery of the civil
liability for taxes. As counsel for the accused, comment on the People’s manifestation.
The public prosecutor is wrong. CTA Rules states that the filing of the criminal action shall
necessarily carry with it the filing of the civil action and no right to reserve the filing of the civil
action separately shall be allowed. (Ingles, Tax Made Less Taxing, 2018, page 488)
219. Petshell Inc., which is engaged in the manufacture and marketing of petroleum
products, imports alkylate as a raw material for the manufacture of motor gasoline. On
June 29, 2012, CIR issued a letter interpreting Sec. 148(e) of NIRC and thereby,
opining that “alkylate”, which is a product of distillation similar to naphtha is subject
to tax. In the implementation thereof, the Commissioner of Customs (COC) issued CMC
No. 164-2012 wherein alkylate was subjected to excise tax. Thereafter, the Collector of
Customs assessed excise tax on Petshell’s importation of alkylate. Petshell filed a
Petition for Review before the CTA, contesting the allegedly erroneous classification of
alkylate and the resultant imposition of excise tax arising from the CIR's interpretation
of Section 148(e) of the NIRC. Does the CTA have jurisdiction on cases involving the
CIR's exercise of interpretative or quasi-legislative functions?
Yes. Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes,
appeals from the decisions of quasi-judicial agencies (Commissioner of Internal Revenue,
Commissioner of Customs, Secretary of Finance, Central Board of Assessment Appeals, Secretary
of Trade and Industry) on tax-related problems must be brought exclusively to the Court of Tax
Appeals. Furthermore, with respect to administrative issuances, these are issued by the
Commissioner under its power to make rulings or opinions in connection with the implementation
of the provisions of internal revenue laws. Tax rulings, on the other hand, are official positions of
the Bureau on inquiries of taxpayers who request clarification on certain provisions of the National
Internal Revenue Code, other tax laws, or their implementing regulations. Hence, the
determination of the validity of these issuances clearly falls within the exclusive appellate
jurisdiction of the Court of Tax Appeals under Section 7(l) of Republic Act No. 1125, as amended,
subject to prior review by the Secretary of Finance, as required under Republic Act No. 8424. (CIR
vs. CTA and Petron Corporation, G.R. 207843, February 14, 2018, J. Perlas-Bernabe)
220. Romina filed before the RTC a Complaint for Annulment of Warrant of Levy, Public
Auction Sale, Sheriff’s Certificate of Sale, Recovery of Ownership and Possession, and
Damages. She alleged that she is the registered owner of Maxwell Lot which the City
Officers of Quezon City, with malice and bad faith sold at a public auction to Daniela
without notice of the levy and auction sale proceedings. She added that the City
Officers of Quezon City were in bad faith as they did not return to her the difference
between the bid price paid by Daniela and her alleged tax liability. The RTC dismissed
the complaint on the ground that it is barred by the final judgment in an LRC Case
(cancellation case) which upheld the validity of the auction sale. Romina elevated the
case to the Court of Appeals. Daniela argued that the case should be elevated to the
CTA and not to the CA. Is Daniela correct?
No. The CTA’s appellate jurisdiction over decisions, orders, or resolutions of the RTCs becomes
operative only when the RTC has ruled on a local tax case. Thus, cases decided by the RTC which
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involve issues relating to the power of the local government to impose real property taxes are
considered as local tax cases, which fall under the appellate jurisdiction of the CTA. In this case,
Romina’s action is essentially one for recovery of ownership and possession of the property, with
damages, which is not anchored on a tax issue, but on due process considerations. The Annulment
Complaint’s allegations do not contest the tax assessment on the property, as Romina only bewails
the alleged lack of due process which deprived her of the opportunity to participate in the
delinquency sale proceedings. As such, the RTC’s ruling thereon could not be characterized as a
local tax case over which the CTA could have properly assumed jurisdiction on appeal. (Ignacio vs.
Office of the City Treasurer of Quezon City, G.R. No. 221620, September 11, 2017, J. Perlas-Bernabe)
HAIL TO THE CHIEFS!

Pre-week Notes

General Principles of Taxation Explained

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General Principles of Taxation Explained

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I.

GENERAL PRINCIPLES OF TAXATION

1. Distinguish Tax from License Fee.

Tax License Fee

3. What are the Constitutional Limitations on the Power of Taxation?

a. Due Process (Sec.1, Art. III)

4. What are the tax exemptions protected by the non-impairment clause?

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5. Distinguish “direct taxes” from “indirect taxes. Give examples of each.

6. Why is tax exemptions strictly construed against the tax payer?

7. What are the two kinds of double taxation?

The usual methods of avoiding the occurrence of double taxation are:

10. Are taxes subject to set -off?

11. What are the requisites for a proper taxpayer suit?

12. What is a tax amnesty? How it is construed?

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13. Distinguish tax amnesty from tax exemption.

14. Distinguish indirect taxes as against withholding taxes.

a. Is Mitsubishi entitled to a refund? If in the affirmative, where should the refund be

b. What is the difference between tax assumption and tax exemption?

II. NATIONAL TAXATION

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34. Distinguish a “capital asset” from an “ordinary asset”.

Capital Asset Ordinary Asset

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a. Pure compensation income earners;

For Practicing law – P1,000,000.00;

a. How much taxable income will be subject to 8% tax?

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a. Graduated Tax Rates;

As to: NIRC of 1997 TRAIN LAW

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51. Give examples of De Minimis Benefits under the TRAIN Law.

53. What is Improperly Accumulated Taxable Income?

And reduced by the sum of:

As to: Regular Corporate Income Tax Minimum Corporate Income Tax

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57. Kadenang Guinto Philippines Inc. (Kadenang Guinto) is a domestic corporation

a. Is the contention of the CIR correct?

b. Should the redemption price be treated as accumulated dividends in arrears subject

58. Eskwelahan is a non-stock, non-profit educational institution. Eskwelahan leases portion

59. A group of philanthropists organized a non-stock, non-profit hospital for charitable

a. Is the hospital subject to tax on its income? If it is, at what rate?

b. Is it subject to the real property tax? Explain.

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a. Was CIR correct in ruling that the pool is taxable as corporation?

b. Was there a double taxation?

Hence, the "gains" contemplated in Section 32(B)(7)(g) refers to:

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Notwithstanding the aforesaid 5% franchise tax imposed, the Bureau of Internal

66. What are the four factors to determine gross estate?

The gross estate is determined by four factors:

a. When should Maria file her father’s estate tax return?

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71. Considering that an overseas Filipino worker (OFW) is considered as a non-resident

a. As determined by the Commissioner of the BIR (zonal value); or

75. What are the requisites for a vanishing deduction?

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a. What remedy is available to Maria?

The following are the deductions entitled to a non-resident alien decedent:

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83. What are the elements of donation for tax purposes?