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Domondon Taxation Notes 2010
Domondon Taxation Notes 2010
TAXATION
BAR OR WOULD BE UNHAPPY IN LIFE for stealing the intellectual
property of the author.
TAXATION
Lawyer-CPA-Customs Broker, Management Consultant, Professor of Law
and Pre-Bar Reviewer)
56. The basis for the final presumed capital gains tax 60. Excepted from the payment of the presumed
of six per cent (6%) is whichever is the higher of the capital gains tax are those presumed to have been realized
a. gross selling price, or from the disposition by natural persons of their principal place
b. the current fair market value as determined below: of residence
1) the fair market value or real properties located in each a. the proceeds of which is fully utilized in acquiring or
zone or area as determined by the Commissioner of Internal constructing a new principal residence;
Revenue after consultation with competent appraisers both from b. within eighteen (18) calendar months from the date of sale or
the private and public sectors; or disposition
2) the fair market value as shown in the schedule of c. the BIR Commissioner shall have been duly notified by the
values of the Provincial and City Assessors. [Sec. 24 (D) (1) in taxpayer within thirty (30) days from the date of sale or disposition through
relation to Sec. 6 (E), both of the NIRC of 1997] a prescribed return of his intention to avail of the tax exemption; and
It does not matter whether there was an actual gain or loss d. the said tax exemption can only be availed of once every ten
because the tax is a “presumed” capital gains tax. It is the transaction that (10) years. [Sec. 24 (D) (2), NIRC of 1997]
is taxed not the gain.
61. MBC was incorporated in 1961 and engaged in
57. Holding period not applied to the taxation of the presumed commercial banking operations since 1987. On May 22, 1987, it
capital gains derived from the sale of real property considered as capital ceased operations that year by reason of insolvency and its
assets. assets and liabilities were placed under the charge of a
government-appointed receiver. On June 23, 1999, the BSP
58. The tax liability, of individual taxpayers (not authorized MBC to operate as a thrift bank.
corporate), if any, on gains from sales or other dispositions of
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In 2000, It filed its tax return for the year 1999 paying the b. Period when a corporation becomes subject to the MCIT.
amount of P33 million computed in accordance with the “(5) Specific rules for determining the period when a corporation becomes
minimum corporate income tax (MCIT). It sought the BIR’s subject to the MCIT (minimum corporate income tax) -
ruling on whether it is entitled to the four (4) year grace period For purposes of the MCIT, the taxable year in which business
operations commenced shall be the year in which the domestic corporation
for paying on the basis of MCIT reckoned from 1999. BIR then registered with the Bureau of Internal Revenue (BIR).
ruled that cessation of business activities as a result of being Firms which were registered with BIR in 1994 and earlier years shall
placed under involuntary receivership may be an economic be covered by the MCIT beginning January 1, 1998. x x x” (Rev. Regs.
reason for suspending the imposition of the MCIT. No. 9-98)
As a result of the ruling MBC filed an application for Manila Banking Corporation v. Commissioner of Internal Revenue,
refund of the P33 million. Due to the BIR’s inaction, MBC filed a G. R. No. 168118, August 26, 2006 did not apply Rev. Regs. No. 9-98
petition for review with the CTA. because Rev. Regs. No. 4-95 specifically refers to thrift banks.)
The CTA denied the petition on the ground that MBC is c. Purpose of the four (4) year grace period. The intent of
not a newly organized corporation. In a volte facie the BIR now Congress relative to the MCIT is to grant a four (43) – year suspension of
tax payment to newly organized corporations. Corporations still starting
maintains that MBC should pay the MCIT beginning January 1,
their business operations have to stabilize their venture in order to obtain a
1998 as it did not close its business operations in 1987 but stronghold in the industry. It does not come as a surprise then when many
merely suspended the same. Even if placed under companies reported losses in their initial years of operations.
receivership, the corporate existence was never affected. Thus, in order to allow new corporations to grow and develop at the
Thus, it falls under the category of an existing corporation initial stages of their operations, the lawmaking body saw the need to
recommencing its banking operations. provide a grace period of four years from their registration before they pay
Should the refund be granted ? their minimum corporate income tax. (Manila Banking Corporation v.
SUGGESTED ANSWER: Yes. The MCIT shall be imposed Commissioner of Internal Revenue, G. R. No. 168118, August 26, 2006)
beginning in the fourth taxable year immediately following the year in
which the corporation commenced its business operations. [Sec. 27 (E) ESTATE TAXES
(1), NIRC of 1997]
The date of commencement of operations of a thrift bank is the date 1. In determining the gross estate of a decedent,
it was registered with the SEC or the date when the Certificate of Authority
are his properties abroad to be included, and more
to Operate was issued to it by the Monetary Board, whichever comes later.
(Sec. 6, Rev. Regs. No. 4-95) particularly, what constitutes gross estate ?
Clearly then. MBC is entitled to the grace period of four years from SUGGESTED ANSWER: Yes, if the decedent is a Filipino citizen
June 23, 1999 when it was authorized by the BSP to operate as a thrift or a resident alien.
bank before the MCIT should be applied to it. (Manila Banking Corporation The gross estate of a Filipino citizen or a resident alien comprises
v. Commissioner of Internal Revenue, G. R. No. 168118, August 26, 2006) all his real property, wherever situated; all his personal property, tangible,
NOTES AND COMMENTS: intangible or mixed, wherever situated, to the extent of his interest
a. The MCIT and when should be imposed and the four (4) existing therein at the time of his death.
year grace period. “A minimum corporate income tax of two percent (2%) The gross estate of a non-resident alien comprises all his real
of the gross income as of the end of the taxable year, as defined herein, is property, situated in the Philippines; all his personal property, tangible,
hereby imposed on a corporation taxable under this Title, beginning on the intangible or mixed, situated in the Philippines, to the extent of his
fourth taxable year immediately following the year in which such interest existing therein at the time of his death.
corporation commenced its business operations, when the minimum
corporate income tax is greater than the tax computed under Subsection 2. William Smith, an American citizen, was a
(A) of this section for the taxable year.” [Sec. 27 (E) (1), NIRC of 1997] permanent resident of the Philippines. He died in San
Francisco, California. He left 10,000 shares of San Miguel
Corporation, a condominium unit at the Twin Towers
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Building at Pasig, Metro Manila and a house and lot in c. Where the insurance was NOT taken by the decedent upon
Miami, Florida. his own life and the beneficiary is not the decedent’s estate, his executor
What assets shall be included in the Estate Tax Return to or administrator.
be filed with the BIR ?
SUGGESTED ANSWER: All of the assets should be included in the 4. Items deductible from the gross estate of a resident
Estate Tax Return to be filed with the BIR. or nonresident Filipino decedent or resident alien decedent:
Smith, an American citizen and a permanent resident of the a. Expenses, losses, claims, indebtedness and taxes;
Philippines is considered, for Philippine estate tax purposes, a resident b. Property previously taxed;
alien. Consequently, the assets to be included in the Estate Tax Return to c. Transfers for public use;
be filed with the BIR should be all property, real or personal, tangible, d. The Family Home up to a value not exceeding P1 million;
intangible or mixed, wherever situated, to the extent of the interest that e. Standard deduction of P1 million;
Smith has at the time of his death. Thus, all of the properties f. Medical expenses not exceeding P500,000.00;
enumerated in the problem irrespective of where they are situated are g. Amount of exempt retirement received by the heirs under
includible in the gross estate of Smith. Rep. Act Mo. 4917;
h. Net share of the surviving spouse in the conjugal partnership.
3. Proceeds of life insurance includible in a decedent’s
gross estate. 5. There is no transfer in contemplation of death if
a. The decedent takes the insurance policy on his own life there is no showing that the transferor “retained for his life or for any
1) The amounts are receivable by period which does not in fact end before his death: (1) the possession or
a) the decedent’s estate, enjoyment of, or the right to the income from the property, or (2) the right,
b) his executor, or either alone or in conjunction with any person, to designate the person who
c) administrator irrespective of whether or not the shall possess or enjoy the property or the income therefrom.” [Sec. 85 (B),
insured retained the power of revocation, OR NIRC of 1997]
2) The amounts are receivable by any beneficiary
designated in the policy of insurance as revocable beneficiary. 6. Vanishing deduction (deduction for property
[Sec. 85 (E), NIRC of 1997] previously taxed), defined. The deduction allowed from the gross
b. One, other than the decedent takes the insurance policy on estates of citizens, resident aliens and nonresident estates for properties
the life of the decedent which were previously subject to donor’s or estate taxes. The deduction
1) The amounts are receivable by is called a vanishing deduction because the deduction allowed diminishes
a) the decedent’s estate, over a period of five (5) years.
b) his executor, or It is also known as a deduction for property previously taxed.
c) administrator
2) irrespective of whether or not the insured retained the 7. Vanishing deduction (property previously taxed)
power of revocation. allowed as a deduction from the gross estate of a Filipino
citizen, whether resident or not, of a resident alien decedent,
4. Proceeds of life insurance NOT included in a or of a nonresident alien decedent.
decedent’s gross estate. a. An amount equal to the value specified below of
a. The decedent takes the insurance policy on his own life, and b. Any property forming a part of the gross estate situated in
b. the proceeds are receivable by a beneficiary designated as the Philippines
irrevocable. [Sec. 85 (E), NIRC of 1997) c Of any person who died within five years prior to the
NOTES AND COMMENTS: The beneficiary must not be the decedent’s
death of the decedent, or transferred to the decedent by gift within five
estate, executor or administrator, because the proceeds are includible as part of
gross estate whether or not the decedent retained the power of revocation. (Ibid.) years prior to his death,
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d. Where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior 2. For purposes of the donor’s tax who is a stranger ?
decedent by gift, bequest, devise, or inheritance, or SUGGESTED ANSWER: A stranger is a is person who is not a:
e. Which can be identified as having been acquired in a. Brother, sister (whether by whole or half-blood), spouse,
exchange for property so received: ancestor and lineal descendant; or
100% of the value if the prior decedent died within one year prior b. Relative by consanguinity in the collateral line within the
to the death of the decedent, or if the property was transferred to him by fourth degree of relationship.” [Sec. 99 (B), NIRC of 1997]
gift within the same period prior to his death; NOTES AND COMMENTS: All relatives by affinity, irrespective of
80% of the value if the prior decedent died more than one year but the degree, are considered as strangers.
not more than two years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his 3. What is the tax base for donations ?
death; SUGGESTED ANSWER: The net gifts made during the calendar
60% of the value if the prior decedent died more than two years year. [Sec. 99 (A), NIRC of 1997]
but not more than three years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his 4. For purposes of the donor’s tax, what is meant by
death; “net gifts ?”
40% of the value if the prior decedent died more than three years SUGGESTED ANSWER: The net economic benefit from the
but not more than four years prior to the death of the decedent, or if the transfer that accrues to the donee. Accordingly, if a mortgaged property
property was transferred to him by gift within the same period prior to his is transferred as a gift, but imposing upon the donee the obligation to pay
death; and the mortgage liability, then the net gift is measured by deducting from the
20% of the value if the prior decedent died more than four years fair market value of the property the amount of the mortgage assumed.
but not more than five years prior to the death of the decedent, or if the (last par., Sec. 11, Rev. Regs.No.2-2003)
property was transferred to him by gift within the same period prior to his
death. [Sec. 86 (A) (2) and (B) (2), NIRC of 1997, numbering, arrangement and 5. How are gifts of personal property to be valued for
underlining supplied] donor’s tax purposes ?
SUGGESTED ANSWER: The market value of the personal
8. The approval of the court sitting in probate, or as a property at the time of the gift shall be considered the amount of the gift.
settlement tribunal over the estate of the deceased is not a (Sec. 102, NIRC of 1997)
mandatory requirement for the collection of the estate. The
probate court is determining issues which are not against the property of 6. What is the valuation of donated real property for
the decedent, or a claim against the estate as such, but is against the donor’s tax purposes ?
interest or property right which the heir, legatee, devisee, etc. has in the SUGGESTED ANSWER: The real property shall be appraised at its
property formerly held by the decedent. fair market value as of the time of the gift.
The notices of levy were regularly issued within the prescriptive However, the appraised value of the real property at the time of the
period. gift shall be whichever is the higher of:
The tax assessment having become final, executory and a. the fair market value as determined by the Commissioner of
enforceable, the same can no longer be contested by means of a disguised Internal Revenue (zonal valuation) or
protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47) b. the fair market value as shown in the schedule of values fixed
by the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B) both
DONOR’S TAXES of the NIRC of 1997]
1. What is the donor’s tax rate if the donee is a 7. A died leaving as his only heirs, his surviving
stranger ? spouse B, and three minor children, X, Y and Z. Since B does
SUGGESTED ANSWER: When the donee or beneficiary is a not want to participate in the distribution of the estate, she
stranger, the tax payable by the donor shall be 30% of the net gifts. renounced her hereditary share in the estate.
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a. Is the renunciation subject to donor’s tax ? Explain. than thirty percent (30%) of said gifts shall be used by such donee for
SUGGESTED ANSWER: No. The general renunciation by an heir, administration purposes. [Sec. 101 (A), NIRC of 1997, numbering and
including the surviving spouse, as in the case B, of her share in the arrangement supplied]
hereditary estate left by the decedent is not subject to donor’s tax. (4 th g. Gifts made by non-resident aliens outside of the Philippines to
par., Sec. 11, Rev. Regs. No. 2-2003) Philippine residents are exempt from donor’s taxes because taxation is
This is so because the general renunciation by B was not basically territorial. The transaction, which should have been subject to tax
specifically and categorically done in favor of identified heir/s to the was made by non-resident aliens and took place outside of the Philippines.
exclusion or disadvantage of the other co-heirs in the hereditary estate.
b. Supposing that instead of a general renunciation, B 9. What is the concept of donation or gift splitting ?
renounced her hereditary share in A’s estate to X who is a Illustrate.
special child, would your answer be the same ? Explain. SUGGESTED ANSWER: Donation or gift splitting is spreading
SUGGESTED ANSWER: My answer would be different. The the gift over numerous calendar years in order to avail of lower donor’s
renunciation in favor of X would be subject to donor’s tax. taxes.
This is so because the renunciation was specifically and In 2008 Leon was thinking of donating a P200,000.00 to Miklos, his
categorically done in favor of X and identified heir to the exclusion or first cousin. The P200,000.00 is the totality of the net gifts for 2008. If
disadvantage of Y and Z, the other co-heirs in the hereditary estate. (4th he donated the P200,000.00 in 2008 the first P100,000 would be
par., Sec. 11, Rev. Regs. No. 2-2003) exempt and the remaining P50,000.00 would be subject to donor’s tax
If Leon spreads the P200,000 donation over two (2) calendar
8. Give some donations that are exempt from donor’s years, donating P100,000.00 on December 30, 2008 and the remaining
tax. P100,000.00 on January 1, 2009 the transaction would be exempt from
SUGGESTED ANSWER: donor’s tax. This is so even if the donation is separated only by two days
a. The first P100,000.00 net donation during a calendar year is because the basis is the calendar year. Leon would be enjoying the
exempt from donor’s tax [Sec. 99 (A), NIRC of 1997] made by a resident or exemption for the first P100,000.00 net gifts for each calendar year.
non resident;
b. The donation by a resident or non-resident of a prize to an 10. A, who is engaged in the car “buy and sell”
athlete in an international sports tournament held abroad and sanctioned business sold to B P7 million Jaguar for only P4 million. The
by the national sports association is exempt from donor’s tax (Sec. 1, Rep. proper VAT on the sale was paid. If you are the BIR examiner
Act No. 7549) assigned to review the sale, would you issue a tax assessment
c. Political contributions made by a resident or non-resident on the transaction ? Explain your answer briefly.
individual if registered with the COMELEC irrespective of whether donated SUGGESTED ANSWER: Donor’s taxes would be due on the
to a political party or individual. insufficiency of consideration.
However, the Corporation Code prohibits corporations from making Where property, other than real property that has been subjected
political contributions. (Corp. Code, Title IV, Sec. 36.9) to the final capital gains tax, is transferred for less than an adequate and
d. Dowries or gifts made on account of marriage and before full consideration in money or money’s worth, then the amount by which
its celebration or within one year thereafter by residents who are parents the fair market value of the property at the time of the execution of the
to each of their legitimate, recognized natural, or adopted children to the Contract to Sell or execution of the Deed of Sale which is not preceded
extent of the first ten thousand pesos (P10,000.00); by a Contract to Sell exceeded the value of the agreed or actual
e. Gifts made by residents or non-residents to or for the use of consideration or selling price shall be deemed a gift, and shall be
the National Government or any entity created by any of its agencies included in computing the amount of gifts made during the calendar
which is not conducted for profit, or to any political subdivisions of the year. (5th par., Sec. 11, Rev. Regs. No. 2-2003)
said Government;
f. Gifts made by residents or non residents in favor of an VALUE-ADDED TAXES (VAT)
educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or
research institution or organization: Provided, however, That not more
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WARNING !!! Approximately 10% of the total questions asked in
the Bar Examination are sourced from VAT and its concepts. This area is 5. The VAT is a tax on consumption. Meaning of
probably the most difficult area to forecast because there are no consumption as used under the VAT system. Consumption is
statistically perceived patterns. The author has retained the “Stars System” "the use of a thing in a way that thereby exhausts it."
for VAT. Considering the limited period of time, the reader is advised to Applied to services, the term means the performance or
focus on areas marked with stars and just browse the unmarked areas. "successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x" Unlike goods,
1. Value-added tax (VAT) is a tax which is imposed only on services cannot be physically used in or bound for a specific place when
the increase in the worth, merit or importance of goods, properties or their destination is determined. Instead, there can only be a
services, and not on the total value of the goods or services being sold or "predetermined end of a course" when determining the service "location
rendered. or position x x x for legal purposes." [Commissioner of Internal Revenue v.
Placer Dome Technical Services (Phils.), Inc. G. R. No. 164365, June 8, 2007]
2. Nature of VAT. VAT is an indirect tax that may be
shifted or passed on to the buyer, transferee or lessee of the goods, 6. Illustration of the meaning of consumption as used
properties or services. As such, it should be understood not in the under the VAT system. For example the services rendered by a local
context of the person or entity that is primarily, directly liable for its firm to its foreign client are performed or successfully completed upon its
payment, but in terms of its nature as a tax on consumption . sending to a foreign client the drafts and bills it has gathered from service
[Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. establishments here. Its services, having been performed in the
No. 153866, February 11, 2005 citing various authorities} Philippines, are therefore also consumed in the Philippines. Such
VAT is a percentage tax imposed on any person whether or not a facilitation service has no physical existence, yet takes place upon
franchise grantee, who in the course of trade or business, sells, barters, rendition, and therefore upon consumption, in the Philippines.
exchanges, leases, goods or properties, renders services. It is also [Commissioner of Internal Revenue v. Placer Dome Technical Services (Phils.),
levied on every importation of goods whether or not in the course of trade Inc. G. R. No. 164365, June 8, 2007]
or business. The tax base of the VAT is limited only to the value added to
such goods, properties, or services by the seller, transferor or lessor. 7. Who are liable for the value-added tax.
Further, the VAT is an indirect tax and can be passed on to the buyer. a. Any person who, in the course of his trade or business,
(Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, 1) Sells, barters, exchanges or leases goods or
October 6, 2008) properties, or
2) renders services, and
3. Effect of exemptions from VAT which is an indirect b. any person who imports goods xxx
tax. If a special law merely exempts a party as a seller from its direct However, in the case of importation of taxable goods, the importer,
liability for payment of the VAT, but does not relieve the same party as a whether an individual or corporation and whether or not made in the
purchaser from its indirect burden of the VAT shifted to it by its VAT- course of his trade or business, shall be liable to VAT xxx . (Rev. Regs.
registered suppliers, the purchase transaction is not exempt. No. 16-2005,Sec. 4.105-1, paraphrasing supplied)
REASON: The VAT is a tax on consumption, the amount of which
may be shifted or passed on by the seller to the purchaser of the goods, 8. Various VAT methods and systems.
properties or services. [Commissioner of Internal Revenue v. Seagate a. Cost deduction method. This is a single-stage tax which
Technology (Philippines), G. R. No. 153866, February 11, 2005) is payable only by the original sellers. (Abakada Guro Party List (etc.) v.
Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases)
4. Illustration of effects of exemptions from VAT which This was subsequently modified and a mixture of “cost deduction
is an indirect tax. A VAT exempt seller sells to a non-VAT exempt method” and “tax credit method” was used to determine the value-added
purchaser. The purchaser is subject to VAT because the VAT is merely tax payable. (Ibid.)
added as part of the purchase price and not as a tax because the burden b. Tax credit method. This method relies on invoices, an
is merely shifted. The seller is still exempt because it could pass on the entity can credit against or subtract from the VAT charged on its sales or
burden of paying the tax to the purchaser. outputs the VAT paid on its purchases, inputs and imports.
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[Commissioner of Internal Revenue v. Seagate Technology (Philippines), a. the transitional input tax and
G. R. No. 153866, February 11, 2005] b. the presumptive input tax xxx.
If at the end of a taxable period, the output taxes charged by a It includes
seller are equal to the input taxes passed on by the suppliers, no c. input taxes which can be directly attributed to transactions
payment is required. It is when the output taxes exceed the input taxes subject to the VAT plus a ratable portion of any input tax which cannot be
that the excess has to be paid. directly attributed to either the taxable or exempt activity. (Rev. Regs.
If however, the input taxes exceed the output taxes, the excess No. 4.110-1, 1st par., 2nd sentence,. And 2nd par., paraphrasing,
shall be carried over to the succeeding quarter or quarters. Should the arrangement and numbering supplied )
input taxes result from zero-rated or effectively zero-rated transactions or 14. Concept of transitional input tax credits on
from acquisition of capital goods, any excess over the output taxes shall beginning inventories. Taxpayers who become VAT-registered
instead be refunded to the taxpayer or credited against other internal persons upon exceeding the minimum turnover of P1,500,000.00 in any
revenue taxes. (Ibid.) 12-month period, or who voluntarily register even if their turnover does
not exceed P1,500,000.00 (except franchise grantees of radio and
9. How the VAT is imposed on the increase in worth, television broadcasting whose threshold is P10,000,000.00) shall be
merit or improvement of the goods or services. The VAT utilizes entitled to a transitional input tax on the inventory on hand as of the
the concept of the output and input taxes. effectivity of their VAT registration, on the following:
Output VAT less Input VAT = VAT due on the increase in worth, a. goods purchased for resale in their present condition;
merit or improvement f the goods or services. b. materials purchased for further processing, but which have
not yet undergone processing;
10. The right to credit the input tax be limited by c. goods which have been manufactured by the taxpayer;
legislation because it is a mere creation of law. Prior to the d. goods in process for sale; or
enactment of multi-stage sales taxation, the sales taxes paid at every e. goods and supplies for use in the course of the taxpayer’s
level of distribution are not recoverable from the taxes payable. With the trade or business as a VAT-registered person. [Rev. Regs. No. 16-2005,
advent of Executive Order No. 273 imposing a 10% multi-stage tax on all Sec.4.111-1, (a), 1st par., arrangement and numbering supplied]
sales, it was only then that the crediting of the input tax paid on purchase
or importation of goods and services by VAT-registered persons against 15. Concept of presumptive input tax credits. Persons
the output tax was established. This continued with the Expanded VAT or firms engaged in the processing of sardines, mackerel, and milk, and
Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). in manufacturing refined sugar, cooking oil and packed noodle-based
The right to credit input tax as against the output tax is clearly a privilege instant meals, shall be allowed a presumptive input tax, creditable
created by law, a privilege that also the law can limit. It should be against the output tax, equivalent to four percent (4%) of the gross value
stressed that a person has no vested right in statutory privileges. in money of their purchases of primary agricultural products which are
(ABAKADA Guro Party List, etc. et al. vs. Ermita, G.R. No. 168207, October 15, used as inputs to their production.
2005, and companion cases, on the motion for reconsideration) As used in this paragraph, the term processing shall mean
pasteurization, canning and activities which through physical or chemical
11. Output tax is the value-added tax due on the sale or process alter the exterior texture or form or inner substance of a product
lease or taxable goods, properties or services by any VAT-registered in such a manner as to prepare it for special use to which it could not
person. have been put in its original form or condition. [Rev. Regs. No. 16-2005,
Sec.4.111-1, (b)]
17. Under the creditable withholding tax system, taxes 1. Surtaxes or surcharges, also known as the civil penalties, are
withheld on certain income payments are intended to equal or the amounts imposed in addition to the tax required.
at least approximate the tax due from the payee on the said They are in the nature of penalties and shall be collected at the
income. The income recipient is still required to file an income tax return same time, in the same manner, and as part of the tax. [Sec.248 (A),
and/or pay the difference between the tax withheld and the tax due on the NIRC of 1997]
income. [1st and 2nd sentences, Sec. 257(B), Rev. Regs. No. 2-98]
2. What are the two (2) kinds of civil penalties ?
18. The two kinds of creditable withholding taxes are (a) SUGGESTED ANSWER:
taxes withheld on income payments covered by the expanded withholding a. the 25% surcharge for late filing or late payment [Sec. 248
tax; and (b) taxes withheld on compensation income. (A), NIRC of 1997] (also known as the delinquency surcharge), and
b. the 50% willful neglect or fraud surcharge. [Sec. 248 (B),
19. Payments to the following are exempt from the Ibid.]
requirement of withholding or when no withholding taxes
required: 3. Define deficiency income tax.
SUGGESTED ANSWER: Deficiency income tax is the amount by
which the tax imposed under the NIRC of 1997 exceeds the amount shown
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as the tax due by the taxpayer upon his return. [Sec. 56 (B) (1), NIRC of surcharges. (Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal
1997] Revenue, G. R. No. 166786, September 11, 2006)
4. Deficiency interest, defined. The interest assessed and REPUBLIC ACT NO. 1125, CREATING THE COURT
collected on any unpaid amount of tax at the rate of 20% per annum or OF TAX APPEALS INCLUDING JURISDICTION OF
such higher rate as may be prescribed by regulations, from the date
prescribed for payment until the amount is fully paid. [Sec. 249 (A) (B), THE CTA, AS AMENDED
NIRC of 1997]
COURT OF TAX APPEALS, IN GENERAL
5. Delinquency interest, defined. The interest assessed
and collected on the unpaid amount until fully paid where there is failure on 1. Discuss the role of the judiciary in taxation.
the part of the taxpayer to pay the amount die on any return required to be SUGGESTED ANSWER: The role of the judiciary is to be the
filed; or the amount of the tax due for which no return is required; or a sympathetic or vigilant court which would check injustices or abuses of
deficiency tax, or any surcharge or interest thereon, on the date appearing the legislative and administrative agents of the State in their exercise of
in the notice and demand by the Commissioner of Internal Revenue. the power of taxation.
[Sec.249 (c), NIRC of 1997]
2. What is the nature and composition of the Court of
6. After resolving the issues the BIR Commissioner Tax Appeals ?
reduced the assessment. Was it proper to impose delinquency SUGGESTED ANSWER: The Court of Tax Appeals is the special
interest despite the reduction of the assessment ? Why ? tax court created under Republic Act No. 1125, as amended, and is
SUGGESTED ANSWER: Yes. The intention of the law is to composed of a Presiding Justice and eight (8) Associate Justices,
discourage delay in the payment of taxes due to the State and in this sense organized into three (3) divisions.
the surcharge and interest charged are not penal but compensatory in
nature – they are compensation to the State for the delay in payment, or 3. What are the purposes for the creation of the Court
for the concomitant tuse of the funds by the taxpayer beyond the date he is of Tax Appeals ?
supposed to have paid them to the State. (Bank of the Philippine Islands v. SUGGESTED ANSWER:
Commissioner of Internal Revenue, G. R. No. 137002, July 27, 2006) a. To prevent delay in the disposition of tax cases by the then
Courts of First Instance (now RTCs), in view of the backlog of civil,
7. Compromise penalty is the amount agreed upon between criminal, and cadastral cases accumulating in the dockets of such courts;
the taxpayer and the Government to be paid as a penalty in cases of a and
compromise. b. To have a body with special knowledge which ordinary Judges
of the then Courts of First Instance (now RTCs), are not likely to possess,
8. As a result of divergent rulings on whether it is thus providing for an adequate remedy for a speedy determination of tax
subject to tax or not, the taxpayer was not able to pay his taxes cases. (Ursal v. Court of Tax Appeals, et al., 101 Phil. 209)
on time. Imposed surcharges and interests for such delay, the
taxpayer not invokes good faith with the BIR countering by 4. Jurisdiction of the Court of Tax Appeals.
saying that good faith is not a valid defense for violation of a “a. Exclusive appellate jurisdiction to review by appeal, as
herein provided:
special law. Furthermore, the BIR further raises the defense
1. Decisions of the Commissioner of Internal Revenue in cases
that the government is not bound by the errors of its agents. involving disputed assessments, refunds of internal revenue taxes, fees or
Who is correct ? other charges, penalties, in relation thereto, or other matters arising under
SUGGESTED ANSWER: The taxpayer is correct. The settled rule the National Internal Revenue Code or other laws administered by the
is that good faith and honest belief that one is not subject to tax on the Bureau of Internal Revenue’; (DIVISION)
basis of previous interpretation of government agencies tasked to 2. Inaction by the Commissioner of Internal Revenue in cases
implement the tax, are sufficient justification to delete the imposition of involving disputed assessments, refunds or internal revenue taxes, fees or
47
other charges, penalties in relation thereto, or other matter arising under contrary notwithstanding, the criminal action and the corresponding civil
the National Internal Revenue Code or other laws administered by the action for the recovery of civil liability for taxes and penalties shall at all
Bureau of Internal Revenue, where the National Internal Revenue Code times be simultaneously instituted with, and jointly determined in the same
provides a specific period of action, in which case the inaction shall be proceeding by the CTA, the filing of the criminal action being deemed to
deemed a denial; (The inaction on refunds in two years from the time tax necessarily carry with it the filing of the civil action, and no right to reserve
was paid. Thus, if the prescriptive period of two years is about to expire, the filing of such civil action separately from the civil action will be
the taxpayer should interpose a petition for review with the CTA – recognized.
DIVISION) 2. Exclusive appellate jurisdiction in criminal offenses:
3. Decisions, orders or resolutions of the Regional Trial Courts in a) Over appeals from the judgments, resolutions or orders
local tax cases originally decided or resolved by them in the exercise of of the Regional Trial Courts in tax cases originally decided by them,
their original or appellate jurisdiction; (If original DIVISION; if appellate EN in their respective territorial jurisdiction.
BANC) b) Over petitions for review of the judgments, resolutions
4. Decisions of the Commissioner of Customs in cases involving or orders of the Regional Trial Courts in the exercise of their
liability for customs duties, fees or other money charges, seizure, detention appellate jurisdiction over tax cases originally decided by the
or release of property affected, fines, forfeitures or other penalties in Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
relation thereto, or other matters arising under the Customs Law or other Trial Courts in their respective jurisdiction.
laws administered by the Bureau of Customs; (DIVISION) c. Jurisdiction over tax collection cases:
5. Decisions of the Central Board of Assessment Appeals in the 1. Exclusive original jurisdiction in tax collection cases involving
exercise of its appellate jurisdiction over cases involving the assessment final and executory assessments for taxes, fees, charges and penalties:
and taxation of real property originally decided by the provincial or city Provided, however, That collection cases where the principal amount of
board of assessment appeals; (EN BANC) taxes and fees, exclusive of charges and penalties, claimed is less than
6. Decisions of the Secretary of Finance on customs cases One million pesos (P1,000,000) shall be tried by the proper Municipal Trial
elevated to him automatically for review from decisions of the Court, Metropolitan Trial Court and Regional Trial Court.
Commissioner of Customs which are adverse to the Government under 2. Exclusive appellate jurisdiction in tax collection cases:
Section 2315 of the Tariff and Customs Code; (This has reference to a) Over appeals from judgments, resolutions, or orders of
forfeiture cases where the decision is to release the seized articles – the Regional Trial Courts in tax collection cases originally decided by
DIVISION) them, in their respective territorial jurisdiction.
7. Decisions of the Secretary of Trade and Industry, in case of b) Over petitions for review of the judgments, resolutions
nonagricultural product, commodity or article, and the Secretary of or orders of the Regional Trial Courts in the exercise of their
Agriculture in the case of agricultural product, commodity or article, appellate jurisdiction over tax collection cases originally decided by the
involving dumping and countervailing duties under Section 301 and 302, Metropolitan Trial Courts, Municipal Trial Courts and Municipal
respectively, of the Tariff and Customs Code, and safeguard measures Circuit Trial Courts, in their respective jurisdiction.” (Sec. 7, R. A. No.
under Republic Act No. 8800, where either party may appeal the decision 1125, as amended by R. A. No. 9282, emphasis and words in parentheses
to impose or not to impose said duties. (DIVISION) supplied)
b. Jurisdiction over cases involving criminal offenses as The petition for review to be filed with the CTA en banc
herein provided: as the mode for appealing a decision, resolution, or order of
1. Exclusive original jurisdiction over all criminal cases the CTA Division, under Section 18 of Republic Act No. 1125,
arising from violations of the National Internal Revenue Code or Tariff and as amended, is not a totally new remedy, unique to the CTA,
Customs Code and other laws administered by the Bureau of Internal with a special application or use therein. To the contrary, the CTA
Revenue or the Bureau of Customs: Provided, however, That offenses or merely adopts the procedure for petitions for review and appeals long
felonies mentioned in this paragraph where the principal amount of taxes established and practiced in other Philippine courts. Accordingly,
and fees, exclusive of charges and penalties claimed, is less than One doctrines, principles, rules, and precedents laid down in jurisprudence by
million pesos (P1,000,000.00) or where there is no specified amount this Court as regards petitions for review and appeals in courts of general
claimed shall be tried by the regular Courts and the jurisdiction of the CTA jurisdiction should likewise bind the CTA, and it cannot depart therefrom.
shall be appellate. Any provision of law or the Rules of Court to the (Santos v. People, et al, G. R. No. 173176, August 26, 2008)
48
partially releases the shipment seized is affirmed by the Commissioner of
5. It is the Regional Trial Court that has jurisdiction to Customs.
rule upon the constitutionality of a tax law or a regulation c. In case of automatic review by the Secretary of Finance of a
issued by the taxing authorities. Where what is assailed is the decision of a Collector of Customs acting favorably upon a customs
validity or constitutionality of a law, or a rule or regulation issued by the protest.
administrative agency in the performance of its quasi-legislative function,
the regular courts have jurisdiction to pass upon the same. The ASSESSMENT OF INTERNAL REVENUE TAXES
determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within 1. Outline of tax remedies of a taxpayer and the
the jurisdiction of the regular courts. government relative to ASSESSMENT of internal revenue
Indeed, the Constitution vests the power of judicial review or the taxes.
power to declare a law, treaty, international or executive agreement, a. The taxpayer files his tax return.
presidential decree, order, instruction, ordinance, or regulation in the b. A Letter of Authority is issued authorizing BIR examiner to
courts, including the regional trial courts. This is within the scope of audit or examine the tax return and determines whether the full and
judicial power, which includes the authority of the courts to determine in complete taxes have been paid.
an appropriate action the validity of the acts of the political departments. c. If the examiner is satisfied that the tax return is truly reflective
Judicial power includes the duty of the courts of justice to settle actual of the taxable transaction and all taxes have been paid, the process ends.
controversies involving rights which are legally demandable and However, if the examiner is not satisfied that the tax return is truly
enforceable, and to determine whether or not there has been a grave reflective of the taxable transaction and that the taxes have not been fully
abuse of discretion amounting to lack or excess of jurisdiction on the part paid, a Notice of Informal Conference is issued inviting the taxpayer to
of any branch or instrumentality of the Government. (British American explain why he should not be subject to additional taxes.
Tobacco v. Camacho et al., G. R. No. 163583, August 20, 2008 with an d. If the taxpayer attends the informal conference and the
intervenor) examiner is satisfied with the explanation of the taxpayer, the process is
NOTES AND COMMENTS: The above doctrine supersedes Asia again ended.
International Auctioneers, Inc., etc et al., .v. Parayno, Jr., etc.,, et al., G. R. If the taxpayer ignores the invitation to the informal conference, or
No. 103445, December 18, 2007 which ruled that it is the Court of Tax if the examiner is not satisfied with taxpayer’s explanation,, and he
Appeals that has jurisdiction relative to matters involving the believes that proper taxes should be assessed, the Commissioner of
constitutionality of regulations issued by the BIR. The reason was that this Internal Revenue or his duly authorized representative shall then notify the
falls under the concept of decisions of the BIR Commissioner on “other taxpayer of the findings in the form of a pre-assessment notice. The pre-
matter” arising under the provisions of laws administered by the assessment notice requires the taxpayer to explain within fifteen (15) days
Commission. Issuance of revenue regulations are authorized under the from receipt why no notice of assessment and letter of demand for
NIRC. additional taxes should be directed to him.
British American Tobacco reversed Asia International Auctioneers e. If the Commissioner is satisfied with the explanation of the
upon the concept of the judiciary’s “expanded power.” taxpayer, then the process is again ended.
If the taxpayer ignores the pre-assessment notice by not
6. Instances where the Court of Tax Appeals would responding or his explanations are not accepted by the Commissioner,
have jurisdiction even if there is no decision of the then a notice of assessment and a letter of demand is issued.
Commissioner of Customs: The notice of assessment must be issued by the Commissioner to
a. Decisions of the Secretary of Trade and Industry or the the taxpayer within a period of three (3) years from the time the tax return
Secretary of Agriculture in anti-dumping and countervailing duty cases are was filed or should have been filed whichever is the later of the two events.
appealable to the Court of Tax Appeals within thirty (30) days from receipt Where the taxpayer did not file a tax return or where the tax return filed is
of such decisions. false or fraudulent, then the Commissioner has a period of ten (10) years
b. In case of automatic review by the Secretary of Finance in from discovery of the failure to file a tax return or from discovery of the
seizure or forfeiture cases where the value of the importation exceeds P5 fraud within which to issue an assessment notice. The running of the
million or where the decision of the Collector of Customs which fully or
49
above prescriptive periods may however be suspended under certain failure by the Commissioner to decide the taxpayer must file a petition for
instances. review on certiorari with the Supreme Court within fifteen (15) days from
The notice of assessment must be issued within the prescriptive notice of the judgment on questions of law. An extension of thirty (30)
period and must contain the facts, law and jurisprudence relied upon by the days may for justifiable reasons be granted. If the taxpayer does not so
Commissioner. Otherwise it would not be valid. appeal, the decision of the Court of Tax Appeals would become final and
f. The taxpayer should then file an administrative protest by this has the effect of making the assessment also final and collectible. The
filing a request for reconsideration or reinvestigation within thirty (30) days BIR could then use its administrative and judicial remedies to collect the
from receipt of the assessment notice. tax.
The taxpayer could not immediately interpose an appeal to the
Court of Tax Appeals because there is no decision yet of the Commissioner 2. The word assessment when used in connection with
that could be the subject of a review. taxation, may have more than one meaning. More commonly the
To be valid the administrative protest must be filed within the word “assessment” means the official valuation of a taxpayer’s property for
prescriptive period, must show the error of the Bureau of Internal Revenue purpose of taxation. The above definition of assessment finds application
and the correct computations supported by a statement of facts, and the under tariff and customs taxation as well as local government taxation.
law and jurisprudence relied upon by the taxpayer. There is no need to pay For real property taxation, there may be a special meaning to
under protest. If the protest was not seasonably filed the assessment the burdens that are imposed upon real properties that have been
becomes final and collectible and the Bureau of Internal Revenue could benefited by a public works expenditure of a local government. It is
use its administrative and judicial remedies in collecting the tax. sometimes called a special assessment or a special levy. (Commissioner of
g. Within sixty (60) days from filing of the protest, all relevant Internal Revenue v. Pascor Realty and Development Corporation, et al., G.R. No.
supporting documents shall be submitted, otherwise the assessment shall 128315, June 29, 1999)
become final and collectible and the BIR could use its administrative and For internal revenue taxation assessment as laying a tax. The
judicial remedies to collect the tax. ultimate purpose of an assessment to such a connection is to ascertain the
Once an assessment has become final and collectible, not even amount that each taxpayer is to pay. (Ibid.)
the BIR Commissioner could change the same. Thus, the taxpayer could
not pay the tax, then apply for a refund, and if denied appeal the same to 3. An assessment is a notice duly sent to the taxpayer
the Court of Tax Appeals. which is deemed made only when the BIR releases, mails or
h. If the protest is denied in whole or in part, or is not acted upon sends such notice to the taxpayer . (Commissioner of Internal Revenue
within one hundred eighty (180) days from the submission of documents, v. Pascor Realty and Development Corporation, et al., G.R. No. 128315, June 29,
the taxpayer adversely affected by the decision or inaction may appeal to 1999)
the Court of Tax Appeals within thirty (30) days from receipt of the adverse
decision, or from the lapse of the one hundred eighty (180-) day period, 4. Self-assessed tax, defined. A tax that the taxpayer
with an application for the issuance of a writ of preliminary injunction to himself assesses or computes and pays to the taxing authority. It is a tax
enjoin the BIR from collecting the tax subject of the appeal. that self-assessed by the taxpayer without the intervention of an
If the taxpayer fails to so appeal, the denial of the Commissioner assessment by the tax authority to create the tax liability.
or the inaction of the Commissioner would result to the notice of The Tax Code follows the pay-as-you-file system of taxation under
assessment becoming final and collectible and the BIR could then utilize which the taxpayer computes his own tax liability, prepares the return, and
its administrative and judicial remedies to collect the tax. pays the tax as he files the return. The pay-as-you-file system is a self-
i. A decision of a division of the Court of Tax Appeals adverse assessing tax return.
to the taxpayer or the government may be the subject of a motion for Internal revenue taxes are self-assessing. (Dissent of J. Carpio in
reconsideration or new trial, a denial of which is appealable to the Court of Philippine National Oil Company v. Court of Appeals, et al., G. R. No. 109976, April
Tax Appeals en banc by means of a petition for review. 26, 2005 and companion case)
The Court of Tax Appeals, has a period of twelve (12) months from A clear example of a self-assessed tax is the annual income tax,
submission of the case for decision within which to decide. which the taxpayer himself computes and pays without the intervention of
j. If the decision of the Court of Tax Appeals en banc affirms the any assessment by the BIR. The annual income tax becomes due and
denial of the protest by the Commissioner or the assessment in case of payable without need of any prior assessment by the BIR. The BIR may or
may not investigate or audit the annual income tax return filed by the
50
taxpayer. The taxpayer’s liability for the income tax does not depend on (c) Bank deposit method;
whether or not the BIR conducts such subsequent investigation or audit. (d) Cash expenditure method;
However, if the taxing authority is first required to investigate, and (e) Unit and value method;
after such investigation to issue the tax assessment that creates the tax (f) Third party information or access to records method;
liability, then the tax is no longer self-assessed. (Ibid.) (g) Surveillance and assessment method. (Chapter XIII. Indirect
Approach to Investigation, Handbook on Audit Procedures and Techniques
5. Sec. 6 (B) of the NIRC of 1997 allows the BIR to – Volume I, pp. 68-74)
make or amend a tax return from his own knowledge or
obtained through testimony or otherwise. Thus, the Commissioner 9. Third party information or access to records
of Internal Revenue investigates ”any circumstance which led him to method. The BIR may require third parties, public or private to supply
believe that the taxpayer had taxable income larger than that reported. information to the BIR, and thus, “obtain on a regular basis from any
Necessarily, this inquiry would have to be outside of the books because person other than the person whose internal revenue tax liability is subject
they supported the return as filed. He may take the sworn testimony of the to audit or investigation, or from any office or officer of the national and
taxpayer, he may take the testimony of third parties; he may examine and local governments, government agencies and instrumentalities including
subpoena, if necessary, traders’ and brokers’ accounts and books and the the Bangko Sentral ng Pilipinas and government-owned or –controlled
taxpayer’s books of accounts. The Commissioner is not bound to follow corporations, any information such as, but not limited to, costs and volume
any set of patterns. The existence of unreported income may be shown by of production, receipts or sales and gross incomes of taxpayers, and the
any particular proof that is available in the circumstances of the particular names , addresses, and financial statements of corporations, mutual fund
situation. (Commissioner of Internal Revenue v. Hantex Trading Co., Inc. G. R. companies, insurance companies, regional operating headquarters or
No. 136975, March 31, 2005) multinational companies, joint accounts, associations, joint ventures or
consortia and registered partnerships, and their members; xxx ” [Sec. 5 (B),
6. General rule: When the Commissioner of Internal NIRC of 1997)
Revenue may rely on estimates. “The rule is that in the absence of
accounting records of a taxpayer, his tax liability may be determined by 10. A pre-assessment notice is a letter sent by the Bureau of
estimation. The petitioner (Commissioner of Internal Revenue) is not Internal Revenue to a taxpayer asking him to explain within a period of
required to compute such tax liabilities with mathematical exactness. fifteen (15) days from receipt why he should not be the subject of an
Approximation in the calculation of taxes due is justified. To hold otherwise assessment notice. It is part of the due process rights of a taxpayer.
would be tantamount to holding that skillful concealment is an invincible As a general rule, the BIR could not issue an assessment notice
barrier to proof.” (Commissioner of Internal Revenue v. Hantex Trading Co., Inc. without first issuing a pre-assessment notice because it is part of the due
G. R. No. 136975, March 31, 2005) process rights of a taxpayer to be given notice in the form of a pre-
“However, the rule does not apply where the estimation is arrived at assessment notice, and for him to explain why he should not be the subject
arbitrarily and capriciously.” (Ibid.) of an assessment notice.
7. Meaning of "best evidence obtainable" under Sec. 6 11. Instances where a pre-assessment notice is not
(B), NIRC of 1997. This means that the original documents must be required before a notice of assessment is sent to the taxpayer.
produced. If it could not be produced, secondary evidence must be a. When the finding for any deficiency tax is the result of
adduced. (Hantex Trading Co., Inc. v. Commissioner of Internal Revenue, CA - mathematical error in the computation of the tax as appearing on the face
G.R. SP No. 47172, September 30, 1998) of the return; or
b. When a discrepancy has been determined between the tax
8. The following are the general methods developed by withheld and the amount actually remitted by the withholding agent; or
the Bureau of Internal Revenue for reconstructing a taxpayer’s c. When a taxpayer opted to claim a refund or tax credit of excess
income where the records do not show the true income or where no creditable withholding tax for a taxable period was determined to have
return was filed or what was filed was a false and fraudulent return carried over and automatically applied the same amount claimed against
(a) Percentage method; the estimated tax liabilities for the taxable quarter or quarters of the
(b) Net worth method.; succeeding table year; or
51
d. When the excess tax due on excisable articles has not been This mandate governs the question of prescription of the
paid; or government’s right to assess internal revenue taxes primarily to
e. When an article locally purchased or imported by an exempt safeguard the interests of taxpayers from unreasonable investigation.
person, such as, but not limited to vehicles, capital equipment, machineries Accordingly, the government must assess internal revenue taxes on time
and spare parts, has been sold, trade or transferred to non-exempt so as not to extend indefinitely the period of assessment and deprive the
persons. (Sec. 228, NIRC of 1997) taxpayer of the assurance that it will no longer be subjected to further
investigation for taxes after the expiration of reasonable period of time.
12. Prescriptive periods for making assessments of (Commissioner of Internal Revenue v. FMF Development Corporation, G. R. No.
internal revenue taxes. 167765, June 30, 2008 citing Philippine Journalists, Inc. v. Commissioner of
Internal Revenue G.R. No. 162852, December 16, 2004, 447 SCRA 214, 225)
a. Three (3) years from the last day within which to file a return
or when the return was actually filed, whichever is later (Sec. 203, NIRC of
14. Unreasonable investigation contemplates cases
1997). The CIR has three (3) years from the date of actual filing of the
tax return to assess a national internal revenue tax or to commence court where the period for assessment extends indefinitely because
proceedings for the collection thereof without an assessment. [Bank of this deprives the taxpayer of the assurance that it will not longer be
Philippine Islands (Formerly Far East Bank and Trust Company) v. Commissioner subjected to further investigation for taxes after the expiration of a
of Internal Revenue, G. R. No. 174942, March 7, 2008] reasonable period of time. (Philippine Journalists, Inc. v. Commissioner of
b. ten years from discovery of the failure to file the tax return or Internal Revenue, G. R. No. 162852, December 16, 2004 with note to see Republic
v. Ablaza, 108 Phil. 1105. 1108)
discovery of falsity or fraud in the return [Sec. 222 (a), NIRC of 1997[ ; or
c. within the period agreed upon between the government and Laws on prescription should be liberally construed in favor of the
the taxpayer where there is a waiver of the prescriptive period for taxpayer. Reason: for the purpose of safeguarding taxpayers from an
assessment (Sec. 222 (b), NIRC of 1997). unreasonable examination, investigation or assessment, our tax laws
provide a statute of limitation on the collection of taxes. Thus, the law on
13. Purpose of period of limitations in taxation. For the prescription, being a remedial measure, should be liberally construed in
purpose of safeguarding taxpayers from any unreasonable examination, order to afford such protection, As a corollary, the exceptions to the law on
investigation or assessment, our tax law provides a statute of limitations in prescription should perforce be strictly construed. [Philippine Journalists, Inc.
v. Commissioner of Internal Revenue, G. R. No. 162852, December 16, 2004 citing
the collection of taxes. [Commissioner of Internal Revenue v. B.F. Goodrich Phils, Commissioner of Internal Revenue v. B.F. Goodrich Phils, Inc (now Sime Darby
Inc., (now Sime Darby International Tire Co., Inc.), et al., G.R. No. 104171, February International Tire Co., Inc.),., et al., G.R. No. 104171, February 24, 1999, 303
24, 1999, 303 SCRA 546; Philippine Journalists, Inc. v. Commissioner of Internal SCRA 546]
Revenue, G. R. No. 162852, December 16, 2004], as well as their assessments. The prescriptive period was precisely intended to give the
The law prescribing a limitation of actions for the collection of the taxpayers peace of mind. (Commissioner of Internal Revenue v. B.F. Goodrich
income tax is beneficial both to the Government and to its citizens; to the Phils., Inc., et al., G.R. No. 104171, February 24, 1999)
Government because tax officers would be obliged to act promptly in the
making of assessment, and to citizens because after the lapse of the 15. A “jeopardy assessment” is a delinquency tax
period of prescription citizens would have a feeling of security against assessment which was assessed without the benefit of complete or partial
unscrupulous tax agents who will always find an excuse to inspect the audit by an authorized revenue officer, who has reason to believe that the
books of taxpayers, not to determine the latter’s real liability, but to take assessment and collection of a deficiency tax will be jeopardized by delay
advantage of every opportunity to molest peaceful, law-abiding citizens. because of the taxpayer’s failure to comply with the audit and investigation
Without such a legal defense taxpayers would furthermore be under requirements to present his books of accounts and/or pertinent records, or
obligation to always keep their books and keep them open for inspection to substantiate all or any of the deductions, exemptions, or credits claimed
subject to harassment by unscrupulous tax agents. The law on prescription in his return. [Sec. 3.1 (a), Rev. Regs. No. 6-2000)
being a remedial measure should be interpreted in a way conducive to Jeopardy assessment is an indication of the doubtful validity of the
bringing about the beneficent purpose of affording protection to the assessment, hence it may be subject to a compromise. [Sec. 3.1 (a), Rev.
taxpayer within the contemplation of the Commission which recommend Regs. No. 6-2000]
the approval of the law. [Bank of Philippine Islands (Formerly Far East Bank
and Trust Company) v. Commissioner of Internal Revenue, G. R. No. 174942,
March 7, 2008]
52
16. Requisites for Formal Letter of Demand and March 31, 2005 citing United States v. Janis, 49 L. Ed. 2d 1046 (1976); 428 US
Assessment Notice. The formal letter of demand and assessment 433 (1976)] In such a situation, “the determination of the Commissioner
notice shall be issued by the Commissioner or his duly authorized contained in a deficiency notice disappears.” [Commissioner of Internal
Revenue, supra citing a U.S. Court of Appeals ruling, in Clark and Clark v.
representative. The letter of demand calling for payment of the
taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and Commissioner of Internal Revenue, 266 F. 2d 698 (1959)] “Hence, the
regulations, or jurisprudence on which the assessment is based, determination by the CTA must rest on all the evidence introduced and its
otherwise, the formal letter of demand and assessment notice shall be ultimate determination must find support in credible evidence.”
[Commissioner of Internal Revenue, supra]
void. The same shall be sent to the taxpayer only by registered mail or
by personal delivery.
20. What are the instances that suspends the
running of the prescriptive periods (Statute of Limitations)
17. What are the requirements for the validity of a
within which to make an assessment and the beginning of
formal letter of demand and assessment notice ?
SUGGESTED ANSWER: distraint or levy or of a proceeding in court for the collection, in
a. There must have been previously issued a pre-assessment respect of any tax deficiencies?
notice until excepted; SUGGESTED ANSWER:
b. It must have been issued prior to the prescriptive period; and a. When the Commissioner is prohibited from making the
c. The letter of demand calling for payment of the taxpayer’s assessment, or beginning distraint, or levy or proceeding in court and for
deficiency tax or taxes shall state the facts, the law, rules and regulations, sixty (60) days thereafter;
or jurisprudence on which the assessment is based, otherwise, the formal b. When the taxpayer requests for and is granted a
letter of demand and assessment notice shall be void. (Sec. 3.1.4, Rev. reinvestigation by the commissioner;
Regs. No. 12-99) c. When the taxpayer could not be located in the address given
by him in the return filed upon which the tax is being assessed or collected;
18. What are the reasons for presumption of d. When the warrant of distraint and levy is duly served upon
correctness of assessments ? the taxpayer, his authorized representative, or a member of his household
SUGGESTED ANSWER: with sufficient discretion, and no property could be located; and
a. Lifeblood theory e. When the taxpayer is out of the Philippines.
b. Presumption of regularity (Commissioner of Internal Revenue v. NOTES AND COMMENTS:
Hantex Trading Co., Inc., G, R. No. 136975, March 31, 2005) in the The holding in Commissioner of Internal Revenue v. Court of
performance of public functions. (Commissioner of Internal Revenue v. Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case) that
Tuazon, Inc., 173 SCRA 397) the waiver of the period for assessment must be in writing and have the
c. The likelihood that the taxpayer will have access to the written consent of the BIR Commissioner is still doctrinal because of the
relevant information [Commissioner of Internal Revenue, supra citing United provisions of Sec. 223, NIRC of 1997 which provides for the suspension of
States v. Rexach, 482 F.2d 10 (1973). The certiorari was denied by the United the prescriptive period:
States Supreme Court on November 19, 1973]
d. The desirability of bolstering the record-keeping requirements
of the NIRC. (Ibid.)
21. Under RMO No. 20-90, which implements
19. Give instances where prima facie correctness of a Sections 203 and 222 (b), the following procedures should be
tax assessment does not apply. followed for a valid waiver of the prescriptive period for an
SUGGESTED ANSWER: The “prima facie correctness of a tax assessment:
assessment does not apply upon proof that an assessment is utterly a. The waiver must be in the proper form;
without foundation, meaning it is arbitrary and capricious. Where the BIR b. The waiver shall be signed by the taxpayer himself or
has come out with a “naked assessment” i.e., without any foundation his duly authorized representative. In the case of a corporation, the
character, the determination of the tax due is without rational basis.” waiver must be signed by any of its responsible officials.
[Commissioner of Internal Revenue v. Hantex Trading Co., Inc., G, R. No. 136975, Soon after the waiver is signed by the taxpayer, the Commissioner
53
of Internal Revenue or the revenue official authorized by him, as taxpayer, within which the former may assess and collect taxes. It also
hereinafter provided, shall sign the waiver indicating that the Bureau has would have no binding effect on the taxpayer if there was no consent by
accepted and agreed to the waiver. The date of such acceptance by the Commissioner. On this basis, no implied consent can be presumed,
the Bureau should be indicated. Both the date of execution by the nor can it be contended that the concurrence to such waiver is a mere
taxpayer and date of acceptance by the Bureau should be before the formality. (Commissioner of Internal Revenue v. FMF Development Corporation,
expiration of the period of prescription or before the lapse of the period G. R. No. 167765, June 30, 2008 citing Philippine Journalists, Inc. v.
agreed upon in case a subsequent agreement is executed. Commissioner of Internal Revenue G.R. No. 162852, December 16, 2004, 447
c. The following revenue officials are authorized to sign the SCRA 214, 229 in turn citing Id. at 229, citing Commissioner of Internal Revenue
v. Court of Appeals, G.R. No. 115712, February 25, 1999, 303 SCRA 614, 620-
waiver.
622.)
A. In the National Office
xxxx
23. BIR cannot rely on its invocation of the rule that the
3. Commissioner
For tax cases involving more than P1M government cannot be estopped by the mistakes of its revenue
B. In the Regional Offices officers in the enforcement of RMO No. 20-90 because the law on
1. The Revenue District Officer with respect to prescription should be interpreted in a way conducive to bringing about the
tax cases still pending investigation and the period to assess is beneficent purpose of affording protection to the taxpayer within the
about to prescribe regardless of amount. contemplation of the Commission which recommended the approval of the
xxxx law. To the Government, its tax officers are obliged to act promptly in the
d. The waiver must be executed in three (3) copies, the making of assessment so that taxpayers, after the lapse of the period of
original copy to be attached to the docket of the case, the second copy prescription, would have a feeling of security against unscrupulous tax
for the taxpayer and the third copy for the Office accepting the waiver. agents who will always try to find an excuse to inspect the books of
The fact of receipt by the taxpayer of his/her file copy shall be taxpayers, not to determine the latter’s real liability, but to take advantage of
indicated in the original copy. a possible opportunity to harass even law-abiding businessmen. Without
d. The foregoing procedures shall be strictly followed. such legal defense, taxpayers would be open season to harassment by
Any revenue official found not to have complied with this Order resulting unscrupulous tax agents. [Commissioner of Internal Revenue v. FMF
Development Corporation, G. R. No. 167765, June 30, 2008 citing Republic of
in prescription of the right to assess/collect shall be administratively dealt
the Phils. v. Ablaza, 108 Phil. 1105, 1108 (1960)]
with. (Renumbering and emphasis supplied.)
If the above are not followed there is no valid waiver and
24. The signatures of both the Commissioner and
prescription would run. (Commissioner of Internal Revenue v. FMF
Development Corporation, G. R. No. 167765, June 30, 2008 citing Philippine the taxpayer, are required for a waiver of the prescriptive
Journalists, Inc. v. Commissioner of Internal Revenue G.R. No. 162852, period, thus a unilateral waiver on the part of the taxpayer does not
December 16, 2004, 447 SCRA 214, 228-229) suspend the prescriptive period. [Commissioner of Internal Revenue v. Court of
Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case)]
22. The procedures in RMO No. 20-90 are NOT merely
directory and that the execution of a waiver is a renunciation of 47. The act of requesting a reinvestigation alone does
a taxpayer’s right to invoke prescription. RMO No. 20-90 must not suspend the running of the prescriptive period. The
be strictly followed. A waiver of the statute of limitations under the request for reinvestigation must be granted by the CIR. The
NIRC, to a certain extent being a derogation of the taxpayer’s right to Supreme Court declared that the burden of proof that the request for
security against prolonged and unscrupulous investigations, must be reinvestigation had been actually granted shall be on the Commissioner
carefully and strictly construed. The waiver of the statute of limitations of Internal Revenue. Such grant may be expressed in its
does not mean that the taxpayer relinquishes the right to invoke communications with the taxpayer or implied from the action of the
prescription unequivocally, particularly where the language of the Commissioner or his authorized representative in response to the request
document is equivocal. for reinvestigation. [Bank of Philippine Islands (Formerly Far East Bank and
Thus a waiver becomes unlimited in time, and invalid, because it Trust Company) v. Commissioner of Internal Revenue, G. R. No. 174942, March
7, 2008]
did not specify a definite date, agreed upon between the BIR and the
54
PROTESTING INTERNAL REVENUE TAX ASSESSMENTS the statute of limitations on collection of the assessed tax, while the latter
cannot. (Commissioner of Internal Revenue v. Philippine Global Communication,
1. What is the presumption that flows from a taxpayer’s Inc., G. R. No. 167146, October 31, 2006 citing Bank of Philippine Islands v.
Commissioner of Internal Revenue, G. R. No. 139736, 17 October 2005, 473
failure to protest an assessment ? SCRA 205, 230-231)
SUGGESTED ANSWER: “Tax assessments by tax examiners are
presumed correct and made in good faith. The taxpayer has the duty to 4. What are the requirements for the validity of a
prove otherwise. In the absence of proof of any irregularities in the taxpayer’s protest ?
performance of duties, an assessment duly made by a Bureau of Internal SUGGESTED ANSWER:
Revenue examiner and approved by his superior officers will not be a. It must be filed within the reglementary period of thirty (30)
disturbed. All presumptions are in favor of the correctness of tax days from receipt of the notice of assessment.
assessments.” (Commissioner of Internal Revenue v. Bank of Philippine Islands., b. The taxpayer must not only show the errors of the Bureau of
G, R. No. 134062, April 17, 2007 citing Sy Po v. Court of Appeals, G. R. No. L-
81446, 18 August 1988, 164 SCRA 524, 530, citations omitted)
Internal Revenue but also the correct computation through
1) A statement of the facts, the applicable law, rules and
2. What are the two ways of protesting an assessment regulations, or jurisprudence on which the taxpayer’s protest is
based,
notice for an internal revenue tax ? Alternatively, what are the
2) If there are several issues involved in the disputed
two types of protests ? Explain briefly. assessment and the taxpayer fails to state the facts, the applicable
SUGGESTED ANSWER: law, rules and regulations, or jurisprudence in support of his protest
a. Request for reconsideration which refers to a plea for re- against some of the several issues on which the assessment is
evaluation of an assessment on the basis of existing records without need based, the same shall be considered undisputed issue or issues, in
of additional evidence. It may involve both a question of fact or of law or which case, the taxpayer shall be required to pay the corresponding
both. deficiency tax or taxes attributable thereto. (Sec. 3.1.5, Rev. Regs.
b. Request for reinvestigation which refers to a plea for re- 12-99)
evaluation of an assessment on the basis of newly-discovered evidence or c. Within sixty (60) days from filing of the protest, the taxpayer
additional evidence that a taxpayer intends to present in the investigation. shall submit all relevant supporting documents. [4th par., Sec. 228 (e), NIRC
It may also involve a question of fact or law or both. (Commissioner of of 1997]
Internal Revenue v. Philippine Global Communication, Inc., G. R. No. 167146,
October 31, 2006 citing Rev. Regs. No. 12-85)
5. “Relevant supporting documents,” defined. The term
“relevant supporting documents” should be understood as those
3. What is that type of protest that suspends the documents necessary to support the legal basis in disputing a tax
running of the statute of limitations for the beginning of assessment as determined by the taxpayer. The BIR can only inform the
distraint or levy or a proceeding in court for collection ? Why ? taxpayer to submit additional documents.
SUGGESTED ANSWER: It is that type of protest “when the The BIR cannot demand what type of supporting documents should
taxpayer requests for a reinvestigation which is granted by the be submitted. Otherwise, a taxpayer will be at the mercy of the BIR,
Commissioner” (Sec. 223, NIRC of 1997), that suspends the running of the which may require the production of documents that a taxpayer cannot
statute of limitations for collection of the tax. (Commissioner of Internal submit. (Commissioner of Internal Revenue v. First Express Pawnshop Company, Inc.,
Revenue v. Philippine Global Communication, Inc., G. R. No. 167146, October 31, G. R. 172045-46, June 16, 2009)
2006 citing Sec. 271, now Sec. 223, NIRC of 1997) When a taxpayer demands
a reinvestigation, the time employed in reinvestigation should be deducted JUDICIAL REMEDIES INVOLVING PROTESTED
from the total period of limitation. [Commissioner of Internal Revenue, supra
citing Republic v. Lopez, 117 Phil. 575, 578; 7 SCRA 566, 568-569 (1963)] ASSESSMENTS
Undoubtedly, a reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time than a 1. Acts of BIR Commissioner that may be considered
reconsideration of a tax assessment which will be limited to the evidence as denial of a protest which serve as basis for appeal to the
already at hand; this justifies why the former can suspend the running of Court of Tax Appeals.
55
a. Filing by the BIR of a civil suit for collection of the deficiency of distraint and levy. (Commissioner of Internal Revenue v. Union Shipping Corp.,
tax is considered a denial of the request for reconsideration. (Commissioner 185 SCRA 547)
of Internal Revenue v. Union Shipping Corporation, 185 SCRA 547) Furthermore, a motion for the suspension of the collection of the tax
b. An indication to the taxpayer by the Commissioner “in clear may be filed together with the petition for review (Sec. 3, Rule 10, RRCTA
and unequivocal language” of his final denial not the issuance of the effective December 15, 2005) because the collection of the tax may
warrant of distraint and levy. What is the subject of the appeal is the final jeopardize the interest of the taxpayer.
decision not the warrant of distraint. (Ibid.)
c. A BIR demand letter sent to the taxpayer after his protest of 3. As a general rule, there must always be a decision
the assessment notice is considered as the final decision of the of the Commissioner of Internal Revenue or Commissioner of
Commissioner on the protest. (Surigao Electric Co., Inc. v. Court of Tax Customs before the Court of Tax Appeals, would have
Appeals, et al., 57 SCRA 523)
jurisdiction. If there is no such decision, the petition would be dismissed
d. A letter of the BIR Commissioner reiterating to a taxpayer his
for lack of jurisdiction unless the case falls under any of the following
previous demand to pay an assessment is considered a denial of the
exceptions.
request for reconsideration or protest and is appealable to the Court of Tax
Appeals. (Commissioner v. Ayala Securities Corporation, 70 SCRA 204)
e. Final notice before seizure considered as commissioner’s 4. Instances where the Court of Tax Appeals would
decision of taxpayer’s request for reconsideration who received no other have jurisdiction even if there is no decision yet by the
response. Commissioner of Internal Revenue v. Isabela Cultural Commissioner of Internal Revenue:
Corporation, G.R. No. 135210, July 11, 2001 held that not only is the a. Where the Commissioner has not acted on the disputed
Notice the only response received: its content and tenor supports the assessment after a period of 180 days from submission of complete
theory that it was the CIR’s final act regarding the request for supporting documents, the taxpayer has a period of 30 days from the
reconsideration. The very title expressly indicated that it was a final notice expiration of the 180 day period within which to appeal to the Court of Tax
prior to seizure of property. The letter itself clearly stated that the taxpayer Appeals. (last par., Sec. 228 (e), NIRC of 1997; Commissioner of Internal
was being given “this LAST OPPORTUNITY” to pay; otherwise, its Revenue v. Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001)
properties would be subjected to distraint and levy. b. Where the Commissioner has not acted on an application for
refund or credit and the two year period from the time of payment is about
2. The taxpayer seasonably protested the assessment to expire, the taxpayer has to file his appeal with the Court of Tax Appeals
before the expiration of two years from the time the tax was paid.
issued by the Commissioner of Internal Revenue. During the
It is disheartening enough to a taxpayer to be kept waiting for an
pendency of the protest the CIR issued a warrant of distraint indefinite period for the ruling,. It would make matters more exasperating
and levy to collect the taxes subject of the protest. for the taxpayer if the doors of justice would be closed for such a relief until
As counsel what advice shall you give the taxpayer. after the Commissioner, would have, at his personal convenience, given
Explain briefly your answer. his go signal. (Commissioner of Customs, et al, v. Court of Tax Appeals, et al.,
SUGGESTED ANSWER: The taxpayer should appeal, by way of a G.R. No. 82618, March 16, 1989, unrep.)
petition for review, to the Court of Tax Appeals not on the ground of the
denial of the protest but on other matter arising under the provisions of the 5. The characteristic of a BIR denial of a protest such
National Internal Revenue Code. The actual issuance of a warrant of as would enable the taxpayer to appeal the same to the Court
distraint and levy in certain cases cannot be considered a final decision on of Tax Appeals. The Commissioner of Internal Revenue should always
a disputed assessment. indicate to the taxpayer in clear and unequivocal language whenever his
To be a valid decision on a disputed assessment, the decision of action on an assessment questioned by a taxpayer constitutes his final
the Commissioner or his duly authorized representative shall (a) state the determination on the disputed assessment.
facts, the applicable law, rules and regulations, or jurisprudence on which On the basis of his statement indubitably showing that the
such decision is based, otherwise, the decision shall be void, in which case Commissioner’s communicated action is his final decision on the contested
the same shall not be considered a decision on the disputed assessment; assessment, the aggrieved taxpayer would then be able to take recourse to
and (b) that the same is his final decision. (Sec. 3.1.6, Rev. Regs. 12-99) the tax court at the opportune time. Without needless difficulty, the
These conditions are not complied with by the mere issuance of a warrant taxpayer would be able to determine when his right to appeal to the tax
56
court accrues. (Commissioner of Internal Revenue v. Bank of the Philippines year period. The period so agreed upon may be extended by subsequent
Islands, G. R. No. 134062, April 17, 2007) written agreements made before the expiration of the period previously
agreed upon.” [Sec. 222 (d), in relation to Secs. 222 (b) and 203, NIRC of 1997,
COLLECTION OF INTERNAL REVENUE TAXES emphasis supplied]
d. Collection upon a return that is not false or fraudulent, or
1. General rule: Collection of taxes is imprescriptible. where the assessment is not an extended assessment. “Except as
While this may be so, statutes may provide for periods of prescription, provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the
2. Why is the collection of taxes imprescriptible ?
collection of such taxes shall be begun after the expiration of such
SUGGESTED ANSWER:
period; Provided, That in case where a return is filed beyond the period
a. As a general rule, revenue laws are not intended to be
prescribed by law, the three (3) year period shall be computed from the day
liberally construed, and exemptions are not given retroactive application,
the return was filed. For purposes of this Section, a return filed before the
considering that taxes are the lifeblood of the government and in Holmes’
last day prescribed by law for the filing thereof shall be considered filed on
memorable metaphor, the price we pay for civilization, tax laws must be
such last day.” (Sec. 203, NIRC of 1997, emphasis supplied)
faithfully and strictly implemented. (Commissioner of Internal Revenue v.
Acosta, etc.,G. R. No. 154068, August 3, 2007) However, statutes may provide When the BIR validly issues an assessment within the three (3)-
for prescriptive periods for the collection of particular kinds of taxes. year period, it has another three (3) years within which to collect the tax
b. Tax laws, unlike remedial laws, are not to be applied due by distraint, levy, or court proceeding. The assessment of the tax is
retroactively. Revenue laws are substantive laws and their application deemed made and the three (3)-year period for collection of the assessed
must not be equated with remedial laws. (Acosta, supra) tax begins to run on the date the assessment notice had been released,
mailed or sent to the taxpayer. [Bank of Philippine Islands (Formerly Far East
Bank and Trust Company) v. Commissioner of Internal Revenue, G. R. No.
3. What is the prescriptive period for collecting internal 174942, March 7, 2008 citing BPI v. Commissioner of Internal Revenue, G.R.
revenue taxes ? No. 139736, 17 October 2005, 473 SCRA 205, 222-223]
SUGGESTED ANSWER: There are four (4) prescriptive periods for NOTES AND COMMENTS:
the collection of an internal revenue tax: a. Both the former Sec. 269, NIRC of 1977 and Sec.222 of
a. Collection upon a false or fraudulent return or no return NIRC of 1997 do not refer to a “regular return.” It is clear that in
without assessment. In case of a false or fraudulent return with the intent enacting Sec. 222, entitled “Exceptions as to the period of limitation of
to evade tax or of failure to file a return, “a proceeding in court for the assessment and collection of taxes,” the NIRC of 1997 has eliminated
collection of such tax may be filed without assessment, at any time within sub-paragraph c of the former Sec. 269 of the NIRC, also entitled
ten (10) years after the discovery of the falsity, fraud or omission.” [Sec. “Exceptions as to the period of limitation of assessment and collection of
222 (a), NIRC of 1997] taxes.” Said Sec. 269 (c), reads “Any internal revenue tax which has been
b. Collection upon a false or fraudulent return or no return with assessed within the period of limitation above-prescribed may be collected
assessment. Any internal revenue tax which has been assessed (because by distraint or levy or by a proceeding in court within three years following
the return is false or fraudulent with intent to evade tax or of failure to fail a the assessment of the tax.”
return), within a period of ten (10) years from discovery of the falsity, fraud A perusal of Sec. 222 of the NIRC is clear that it covers only three
or omission “may be collected by distraint or levy or by a proceeding scenarios only. 1) No assessment was made upon a false or fraudulent
in court within five (5) years following the assessment of the tax.” return or omission to file a return; 2) an assessment was made upon a
[Sec. 222 (c), in relation to Sec. 222 (a) NIRC of 1997, emphasis supplied] false or fraudulent return or omission to file a return; and 3) an extended
c. Collection upon an extended assessment. Where a tax has assessment issued within a period agreed upon by the Commissioner and
been assessed with the period agreed upon between the Commissioner the taxpayer. The same scenarios are those referred to in the former Sec.
and the taxpayer in writing (which should initially be within three (3) years 269 which provided for a prescriptive period for collection of three (3)
from the time the return was filed or should have been filed), or any years.
extensions before the expiration of the period agreed upon, the tax “may It is clear therefore that neither Sec. 222 nor the former Sec. 269
be collected by distraint or levy or by a proceeding in court within provide for an instance where the assessment was made upon a “regular
the period agreed upon in writing before the expiration of the five (5)
57
return” or one that is not false or fraudulent, or that there was an d. Delinquent accounts with duly approved schedule of
agreement to extend the period for assessment. installment payments;
Resort should therefore be made to the three (3) year period e. Cases where final reports of reinvestigation or reconsideration
referred to in Sec. 203 of the NIRC of 1997 which reads, “Except as have been issued resulting to reduction in the original assessment and the
provided in Section 222, internal revenue taxes shall be assessed within taxpayer is agreeable to such decision by signing the required agreement
three (3) years after the last day prescribed by law for the filing of the form for the purpose. On the other hand, other protested cases shall be
return, and no proceeding in court without assessment for the handled by the Regional Evaluation Board (REB) or the National
collection of such taxes x x x “ (paraphrasing and emphasis supplied) Evaluation Board (NEB) on a case to case basis;
f. Cases which become final and executory after final judgment
4. What is a compromise ? of a court where compromise is requested on the ground of doubtful
SUGGESTED ANSWER: A compromise is a contract whereby the validity of the assessment; and
parties, by making reciprocal concessions, avoid a litigation or put an end g. Estate tax cases where compromise is requested on the
to one already commenced. (Art. 2028, Civil Code) ground of financial incapacity of the taxpayer. (Sec. 2, Rev. Regs. No. 30-
A compromise penalty could not be imposed by the BIR, if the 2002)
taxpayer did not agree. A compromise being, by its nature, mutual in
essence requires agreement. The payment made under protest could only 7. When may the Commissioner of Internal Revenue
signify that there was no agreement that had effectively been reached compromise the payment of any internal revenue tax ?
between the parties. (Vda. de San Agustin, et al., v. Commissioner of Internal Alternatively, what are the grounds for a compromise, and what
Revenue, G. R. No. 138485, September 10, 2001) are the amounts for which a compromise may be entered into ?
SUGGESTED ANSWER:
5. What tax cases may be the subject of a compromise a. A reasonable doubt as to the validity of the claim against the
? taxpayer exists provided that the minimum compromise entered into is
SUGGESTED ANSWER: The following cases may, upon equivalent to forty percent (40%) of the basic tax; or
taxpayer’s compliance with the basis for compromise, be the subject b. The financial position of the taxpayer demonstrates a clear
matter of compromise settlement: inability to pay the assessed tax provided that the minimum compromise
a. Delinquent accounts; entered into is equivalent to ten percent (10%) of the basic assessed tax
b. Cases under administrative protest after issuance of the Final In the above instances the Commissioner is allowed to enter into a
Assessment Notice to the taxpayer which are still pending in the Regional compromise only if the basic tax involved does not exceed One million
Offices, Revenue District Offices, Legal Service, Large Taxpayer Service pesos (P1,000,000.00), and the settlement offered is not less than the
(LTS), Collection Service, Enforcement Service and other offices in the prescribed percentages. [Sec. 204 (A), NIRC of 1997]
National Office; In instances where the Commissioner is not authorized, the
c. Civil tax cases being disputed before the courts; compromise shall be subject to the approval of the Evaluation Board
d. Collection cases filed in courts; composed of the Commissioner and the four (4) Deputy Commissioners.
e. Criminal violations, other than those already filed in court, or
those involving criminal tax fraud. (Sec. 2, Rev. Regs. No. 30-2002) 8. When is the Commissioner of Internal Revenue
authorized to abate or cancel a tax liability ?:
6. What tax cases could not be the subject of SUGGESTED ANSWER:
compromise ? a. The tax or any portion thereof appears to be unjustly or
SUGGESTED ANSWER: excessively assessed; or
a. Withholding tax cases unless the applicant-taxpayer invokes b. The administration and collection costs involved do not justify the
provisions of law that cast doubt on the taxpayer’s obligation to withhold.; collection of the amount due. [Sec. 204 (B), NIRC of 1997]
b. Criminal tax fraud cases, confirmed as such by the
Commissioner of Internal Revenue or his duly authorized representative; 9. The collection of a tax may not be suspended. Only
c. Criminal violations already filed in court; the Court of Tax Appeals may issue an order suspending the collection of a
tax.
58
b. The tax was excessively collected. There is a law that
10. As a general rule, “No court shall have the authority authorizes the collection of a tax but the tax collected was more than what
to grant an injunction to restrain the collection of any national the law allows.
internal revenue tax, fee or charge.” (Sec. 218, NIRC) c. The tax was paid through a mistaken belief that the taxpayer
“No appeal taken to the CTA from the decision of the Commissioner should pay the tax (solution indebeti)
of Internal Revenue or the Commissioner of Customs or the Regional Trial
Court, provincial, city or municipal treasurer or the Secretary of Finance, 2. What are the three (3) conditions for the grant of a
the Secretary of Trade and Industry and Secretary of Agriculture, as the claim for refund of creditable withholding tax ?
case may be shall suspend the payment, levy, distraint, and/or sale of any SUGGESTED ANSWER:
property of the taxpayer for the satisfaction of his tax liability as provided a. The claim is filed with the Commissioner of Internal Revenue
by existing law: Provided, however, That when in the opinion of the Court within the two-year period from the date of the payment of the tax.
the collection by the aforementioned government agencies may jeopardize b. It is shown on the return of the recipient that the income
the interest of the Government and/or the taxpayer the Court at any stage payment received was declared as part of the gross income; and
of the proceeding may suspend the said collection and require the c. The fact of withholding is established by a copy of a
taxpayer either to deposit the amount claimed or to file a surety bond for statement duly issued by the payee showing the amount paid and the
not more than double the amount with the Court.” (Sec. 11, Rep. Act No. amount of tax withheld therefrom. (Banco Filipino Savings and Mortgage Bank
1125, as amended by Sec. 9, Rep. Act No. 9282 ) v. Court of Appeals, et al., G. R. No. 155682, March 27, 2007)
The Supreme Court may enjoin the collection of taxes under its NOTES AND COMMENTS:
general judicial power but it should be apparent that the source of the a. Proof of fact of withholding. “Sec. 10. Claim for tax credit
power is not statutory but constitutional. or refund. – (a) Claims for Tax Credit or Refund of Income tax deducted
and withheld on income payments shall be given due course only when it is
11. What is the procedure for suspension of collection shown on the return that the income payment received has been declared
of taxes ? as part of the gross income and the fact of withholding is established by a
SUGGESTED ANSWER: Where the collection of the amount of copy of the Withholding Tax Statement duly issued by the payor to the
the taxpayer’s liability, sought by means of a demand for payment, by payee showing the amount paid and the amount of the tax withheld
levy, distraint or sale of property of the taxpayer, or by whatever means, therefrom xxx” (Rev. Regs. No. 6-85, as amended)
as provided under existing laws, may jeopardize the interest of the The document which may be accepted as evidence of the third
government or the taxpayer, an interested party may file a motion for the condition, that is, the fact of withholding, must emanate from the payor
suspension of the collection of the tax liability (Sec. 1, Rule 10, RRCTA itself, and not merely from the payee, and must indicate the name of the
effective December 15, 2005) with the Court of Tax Appeals.
payor, the income payment basis of the tax withheld, the amount of the tax
The motion for suspension of the collection of the tax may be filed withheld and the nature of the tax paid. (Banco Filipino Savings and
Mortgage Bank v. Court of Appeals, et al., G. R. No. 155682, March 27, 2007)
together with the petition for review or with the answer, or in a separate
motion filed by the interested party at any stage of the proceedings. (Sec.
3, Rule 10, RRCTA effective December 15, 2005)
3. What should be established by a taxpayer for the
grant of a tax refund ? Why ?
REFUND OF INTERNAL REVENUE TAXES SUGGESTED ANSWER: A taxpayer needs to establish not only
that the refund is justified under the law, but also the correct amount that
should be refunded.
1. What are the grounds for refund or credit of internal If the latter requisite cannot be ascertained with particularity, there is
revenue taxes ? cause to deny the refund, or allow it only to the extent of the sum that is
SUGGESTED ANSWER: The grounds for refund or credit or actually proven as due.
internal revenue taxes are the following: Tax refunds partake of the nature of tax exemptions and are thus
a. The tax was illegally collected. There is no law that construed strictissimi juris against the person claiming the exemption. The
authorizes the collection of the tax. burden in proving the claim for refund necessarily falls on the taxpayer.
59
(Far East Bank Trust and Company, etc., v. Commissioner of Internal Revenue , et one, not even the state, shall enrich oneself at the expense of another.
al., G. R. No. 138919, May 2, 2006) Indeed, simple justice requires the speedy refund of the wrongly held
taxes. (Ibid.)
4. What is The legal remedy under the NIRC of 1997
at the judicial level with respect to refund or recovery of tax
erroneously or illegally collected ?
SUGGESTED ANSWER: Filing of a suit or proceeding with the
Court of Tax Appeals
a. before the expiration of two (2) years from the date of
payment of the tax regardless of any supervening cause that may arise
after payment (2nd par., Sec. 229, NIRC of 1997) , or 56. What are the reasons for requiring the filing of an
b. within thirty (30) days from receipt of the denial by the administrative application for refund or credit with the BSUGGESTED
Commissioner of the application for refund or credit. (Sec. 11, R.A. No. 8. Why is it necessary to file an administrative claim
1125) for refund with the BIR, before filing a case with the Court of
Tax Appeals ?
5. The two (2) year period and the thirty (30) day period
should be applied on a whichever comes first basis . Thus, if the
30 days is within the 2 years, the 30 days applies, if the 2 year period is
about to lapse but there is no decision yet by the Commissioner which
would trigger the 30-day period, the taxpayer should file an appeal, despite
the absence of a decision. (Commissioners, etc. v. Court of Tax Appeals, et al.,
G. R. No. 82618, March 16, 1989, unrep.)
9. As a
general rule the filing of an application for refund or credit with
the Bureau of Internal Revenue is an administrative Who could apply for a tax refund or credit ?
precondition before a suit may be filed with the Court of Tax
Appeals ?
10. Who could apply for a refund or credit ?
SUGGESTED SUGGESTED ANSWER: The person who paid the tax may apply
ANSWER: for a refund or credit.
A withholding tax agent may also apply for a refund. In a sense,
he is also a taxpayer because the tax may be collected from him if he does
not withhold.
1
64
2. When is importation deemed terminated and imposed on the importation of a product, commodity or article of
why is it important to know whether importation has already commerce into the Philippines at less than its normal value when destined
ended? for domestic consumption in the exporting country which is causing or is
SUGGESTED ANSWER: Importation is deemed terminated upon threatening to cause material injury to a domestic industry, or materially
payment of the duties, taxes and other charges due upon the agencies, or retarding the establishment of a domestic industry producing the like
secured to be paid, at the port of entry and the legal permit for withdrawal product. [Sec. 301 (s) (5), TCC, as amended by Rep. Act No. 8752, “Anti-
Dumping Act of 1999”]
shall have been granted.
In case the articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs. (Sec. 1202, TCCP) 8. When is the anti-dumping duty imposed ?
The Bureau of Customs loses jurisdiction to enforce the TCCP and to SUGGESTED ANSWER: The anti-dumping duty is imposed
make seizures and forfeitures after importation is deemed terminated. a. Where a product, commodity or article of commerce is exported
into the Philippines at a price less than its normal value when destined for
domestic consumption in the exporting country,
3. The flexible tariff clause is a provision in the Tariff b. and such exportation is causing or is threatening to cause
and Customs Code, which implements the constitutionally delegated material injury to a domestic industry, or materially retards the
power to the Congress to further delegate to the President of the establishment of a domestic industry producing the like product. [Sec. 301
Philippines, in the interest of national economy, general welfare and/or (a), TCC, as amended by Rep. Act No. 8752, “Anti-Dumping Act of 1999”]
national security upon recommendation of the NEDA (a) to increase,
reduce or remove existing protective rates of import duty, provided that, 9. Normal value for purposes of imposing the anti-
the increase should not be higher than 100% ad valorem; (b) to establish
dumping duty is the comparable price at the date of sale of like product,
import quota or to ban imports of any commodity, and (c) to impose
commodity, or article in the ordinary course of trade when destined for
additional duty on all imports not exceeding 10% ad valorem, among
consumption in the country of export. [Sec. 301 (s) (3 ), TCC, as amended
others.
by Rep. Act No. 8752, “Anti-Dumping Act of 1999”]
4. Customs duties defined. Customs duties is the name 10. The imposing authority for the anti-dumping duty is
given to taxes on the importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from, or exported to, a foreign the Secretary of Trade and Industry in the case of non-
country. (Nestle Phils. v. Court of Appeals, et al., G.R. No. 134114, July 6, agricultural product, commodity, or article or the Secretary of
2001) Agriculture, in the case of agricultural product, commodity or
article, after formal investigation and affirmative finding of the Tariff
5. Special customs duties are additional import duties Commission. [Sec. 301 (a), TCC, as amended by Rep. Act No. 8752, “Anti-
imposed on specific kinds of imported articles under certain Dumping Act of 1999”]
conditions. The special customs duties under the Tariff and Customs 11. Even when all the requirements for the imposition
Code (TCCP) are the anti-dumping duty, the countervailing duty, the
discriminatory duty, and the marking duty, and under the Safeguard have been fulfilled, the decision on whether or not to impose a
Measures Act (SMA) additional tariffs as safeguard measures. definitive anti-dumping duty remains the prerogative of the
Tariff Commission. [Sec. 301 (a), TCC, as amended by Rep. Act No. 8752,
6. The special customs duties are imposed for the “Anti-Dumping Act of 1999”] Thus, the cabinet secretaries could not
protection of consumers and manufacturers, as well as contravene the recommendation of the Tariff Commission. They could not
impose the anti-dumping duty or any special customs duty without the
Philippine products. favorable recommendation of the Tariff Commission.
7. Dumping duty is an additional special duty 12. In the determination of whether to impose the anti-
amounting to the difference between the export price and the dumping duty, the Tariff Commission, may consider among
normal value of such product, commodity or article (Sec. 301 (s) others, the effect of imposing an anti-dumping duty on the
(1), TCC, as amended by Rep. Act No. 8752, “Anti-Dumping Act of 1999.”)
65
welfare of the consumers and/or the general public, and other place as legibly, indelibly and permanently in such manner as to indicate to
related local industries. (Sec. 301 (a), TCC, as amended by Rep. Act No. an ultimate purchaser in the Philippines the name of the country of origin.
8752, “Anti-Dumping Act of 1999”)
18. The Commissioner of Customs imposes the marking
13. The amount of anti-dumping duty that may be duty.
imposed is the difference between the export price and the
normal value of such product, commodity or article. (Sec. 301 (s) 19. The marking duty is equivalent to five percent (5%) ad
(1), TCC, as amended by Rep. Act No. 8752, “Anti-Dumping Act of 1999”) valorem.
The anti-dumping duty shall be equal to the margin of dumping on
such product, commodity or article thereafter imported to the Philippines 20. A discriminatory duty is a new and additional customs
under similar circumstances, in addition to ordinary duties, taxes and duty imposed upon articles wholly or in part the growth or product of, or
charges imposed by law on the imported product, commodity or article. imported in a vessel, of any foreign country which imposes, directly or
indirectly, upon the disposition or transportation in transit through or re-
14. What are countervailing duties and when are they exportation from such country of any article wholly or in part the growth or
imposed ? product of the Philippines, any unreasonable charge, exaction, regulation
SUGGESTED ANSWER: Countervailing duties are additional or limitation which is not equally enforced upon like articles of every
customs duties imposed on any product, commodity or article of foreign country, or discriminates against the commerce of the Philippines,
commerce which is granted directly or indirectly by the government in the directly or indirectly, by law or administrative regulation or practice, by or in
country of origin or exportation, any kind or form of specific subsidy upon respect to any customs, tonnage, or port duty, fee, charge, exaction,
the production, manufacture or exportation of such product commodity or classification, regulation, condition, restriction or prohibition, in such
article, and the importation of such subsidized product, commodity, or manner as to place the commerce of the Philippines at a disadvantage
article has caused or threatens to cause material injury to a domestic compared with the commerce of any foreign country.
industry or has materially retarded the growth or prevents the
establishment of a domestic industry. (Sec. 302, TCCP as amended by 21. The President of the Philippines imposes the
Section 1, R.A. No. 8751) discriminatory duties.
15. The imposing authority for the countervailing duties 22. Safeguard measures are emergency measures,
is the Secretary of Trade and Industry in the case of non- including tariffs, to protect domestic industries and producers from
agricultural product, commodity, or article or the Secretary of increased imports which inflict or could inflict serious injury on them.
Agriculture, in the case of agricultural product, commodity or The CTA is vested with jurisdiction to review decisions of the
article, after formal investigation and affirmative finding of the Tariff Secretary of Trade and Industry imposing safeguard measures as provided
Commission. under Rep. Act No. 8800 the Safeguard Measures Act (SMA ). (Southern
Even when all the requirements for the imposition have been Cross Cement Corporation v. The Philippine Cement Manufacturers Corp., et al.,
fulfilled, the decision on whether or not to impose a definitive anti-dumping G. R. No. 158540, July 8, 2004)
duty remains the prerogative of the Tariff Commission. ( Sec. 301 (a), TCC, The DTI Secretary cannot impose the safeguard measures if the
as amended by Rep. Act No. 8752, “Anti-Dumping Act of 1999”) Tariff Commission does not favorably recommend its imposition.
16. The countervailing duty is equivalent to the value of 23. Imposing authority for safeguard measures. The
the specific subsidy. imposing authority for the countervailing duties is the
Secretary of Trade and Industry in the case of non-agricultural
17. Marking duties are the additional customs duties imposed product, commodity, or article or the Secretary of Agriculture,
on foreign articles (or its containers if the article itself cannot be marked), in the case of agricultural product, commodity or article , after
not marked in any official language in the Philippines, in a conspicuous formal investigation and affirmative finding of the Tariff Commission.
66
24. Safeguards measures that may be imposed. planes as envisaged under Sec. 2505 of the TCCP (Failure to declare
Additional tariffs, import quotas or banning of imports. baggage). (Jardeleza v. People, G.R. No. 165265, February 6, 2006)
25. The basis of dutiable value of merchandise that is 29. A flight stewardess arrived from Singapore. Upon
subject to ad valorem customs duties is the transaction value, her arrival she was asked whether she has anything to declare.
which shall be the price actually paid or payable for the goods when sold She answered none, and she submitted her “Customs Baggage
for export to the Philippines, adjusted by adding certain cost elements to Declaration Form” which she accomplished and signed with
the extent that they are incurred by the buyer but are not included in the nothing or written on the space for items to be declared. When
price actually paid or payable for the imported goods, and may include the her hanger bag was examined some pieces of jewelry were
following: found concealed within the lining of said bag.
a. Cost of containers and packing,
She was then convicted of violating of Sec. 3601 of the
b. Insurance, and
c. Freight. (Sec. 201, TCC as amended by Sec. 1, Rep. Act No. Tariff and Customs Code for unlawful importation which
9135) penalizes any person who shall fraudulently import or bring
into the Philippines any article contrary to law.
26. The above transaction value is the primary method She now appeals claiming that lower court erred n
of determining dutiable value. If the transaction value of the convicting her under Sec. 3601 when the facts alleged both in
imported article could not be determined using the above, the the information and those shown by the prosecution constitute
following alternative methods should be used one after the the offense under Sec. 2505 “Failure to Declare Baggage,” of
other: which she was acquitted. Is she correct ?
a. Transaction value of identical goods SUGGESTED ANSWER: No. Sec. 3601 does not define a crime.
b. Transaction value of similar goods It merely provides, inter alia, the administrative remedies which can be
c. Deductive method resorted to by the Bureau of Customs when seizing dutiable articles found
d. Computed method the baggage of any person arriving in the Philippines which is not included
e. Fallback method in the accomplished baggage declaration submitted to the customs
authorities, and the administrative penalties that such person must pay for
27. How and to whom should claims for refund of the release of such goods if not imported contrary to law.
Such administrative penalties are independent of the criminal
customs duties be made ?
liability for smuggling that may be imposed under Sec. 3601, and other
SUGGESTED ANSWER: All claims for refund of duties shall be
provisions of the TCC which can only be determined after the appropriate
made in writing and forwarded to the Collector of Customs to whom such
criminal proceedings, prescinding from the outcome in any administrative
duties are paid, who upon receipt of such claim, shall verify the same by
case that may have been filed and disposed of by the customs authorities.
the records of his Office, and if found to be correct and in accordance with
Indeed the second paragraph of Sec. 2505 provides that nothing
law, shall certify the same to the Commissioner of Customs with his
shall prevent the bringing of a criminal action against the offender for
recommendation together with all necessary papers and documents. Upon
smuggling under Section 3601. (Jardeleza v. People, G. R. No. 165265,
receipt by the Commissioner of such certified claim he shall cause the
February 6, 2006)
same to be paid if found correct. (Sec. 1708, TCC)
28. What is mean by the term “entry” in Customs 30. Payment is not a defense in smuggling. “When upon
trial for violation of this section, the defendant is shown to have possession
Law ?
of the article in question, possession shall be deemed sufficient evidence
SUGGESTED ANSWER: It has a triple meaning.
to authorize conviction, unless the defendant shall explain the possession
a. the documents filed at the Customs house;
to the satisfaction of the court: Provided, however, That payment of the tax
b. the submission and acceptance of the documents; and
due after apprehension shall not constitute a valid defense in any
c. Customs declaration forms or customs entry forms required
prosecution under this section.” (last par., Sec. 3601, TCC)
to be accomplished by passengers of incoming vessels or passenger
67
31. How is smuggling committed ? (Jao, et al., v. Court of Appeals, et al., and companion case, 249 SCRA 35,
SUGGESTED ANSWER: Smuggling is committed by any person 43)
who: d. The issuance by regular courts of writs of preliminary
a. fraudulently imports or brings into the country any article injunction in seizure and forfeiture proceedings before the Bureau of
contrary to law; Customs may arouse suspicion that the issuance or grant was for
b. assists in so doing any article contrary to law; or consideration other than the strict merits of the case. (Zuno v. Cabredo,
c. receives, conceals, buys, sells or in any manner facilitates 402 SCRA 75 [2003])
the transportation, concealment or sale of such goods after importation, e. Under the doctrine of primary jurisdiction, the Bureau of Customs
knowing the same to have been imported contrary to law. (Jardeleza v. has exclusive administrative jurisdiction to conduct searches, seizures and
People, G.R. No. 165265, February 6, 2006 citing Rodriguez v. Court of forfeitures of contraband without interference from the courts. It could
Appeals, G. R. No. 115218, September 18, 1995, 248 SCRA 288, 296) conduct searches and seizures without need of a judicial warrant except if
NOTES AND COMMENTS: the search is to be conducted in a dwelling place.
a. Importation consists of bringing an article into the country Where an administrative office has obtained a technical expertise in
from the outside. Importation begins when the conveying vessel or a specific subject, even the courts must defer to this expertise.
aircraft enters the jurisdiction of the Philippines with intention to unload NOTES AND COMMENTS: The Bureau of Customs could search
therein. and seize articles without need of a judicial warrant unless the place to be
b. When unlawful importation is complete. In the absence searched is a dwelling place. In such a case customs requires a judicial
of a bona fide intent to make entry and pay duties when the prohibited warrant.
article enters the Philippine territory. Importation is complete when the
taxable, dutiable commodity is brought within the limits of the port of 33. “A” claiming to be the owner of a vessel which is
entry. Entry through a custom house is not the essence of the act. the subject of customs warrant of seizure and detention
(Jardeleza v. People, G.R. No. 165265, February 6, 2006) sought the intercession of the RTC to restrain the Bureau of
Customs from interfering with his property rights over the
32. The Collector of Customs sitting in seizure and vessel. Would the suit prosper?
forfeiture proceedings has exclusive jurisdiction to hear and SUGGESTED ANSWER: No. His remedy was not with the RTC
determine all questions touching on the seizure and forfeiture but with the CTA, as issues of ownership of goods in the custody of
of dutiable goods. RTCs are precluded from assuming customs officials are within the power of the CTA to determine.
cognizance over such matters even through petitions of The Collector of Customs has exclusive jurisdiction over seizure
certiorari, prohibition or mandamus. (The Bureau of Customs, et and forfeiture proceedings and trial courts are precluded from assuming
al., v. Ogario, et al., G.R. No. 138081, March 20, 2000) cognizance over such matters even through petitions for certiorari,
What is the rationale for this doctrine ? prohibition or mandamus. (Commissioner of Customs v. Court of
SUGGESTED ANSWER: Appeals, et al., G. R. Nos. 111202-05, January 31, 2006)
a. Regional Trial Courts have no jurisdiction to replevin a
property which is subject to seizure and forfeiture proceedings for violation 34. The customs authorities do not have to prove to the
of the Tariff and Customs Code otherwise, actions for forfeiture of property satisfaction of the court that the articles on board a vessel were
for violation of the Customs laws could easily be undermined by the simple imported from abroad or are intended to be shipped abroad
device of replevin. (De la Fuente v. De Veyra, et al., 120 SCRA 455) before they may exercise the power to effect customs
b. The doctrine of exclusive customs jurisdiction over customs searches, seizures, or arrests provided by law and continue
cases to the exclusion of the RTCs is anchored upon the policy of placing with the administrative hearings. (The Bureau of Customs, et al., v.
no unnecessary hindrance on the government’s drive, not only to prevent Ogario, et al., G.R. No. 138081, March 20, 2000)
smuggling and other frauds upon Customs,
c. but more importantly, to render effective and efficient the 35. The Tariff and Customs Code allows the Bureau of
collection of import and export duties due the State, which enables the
Customs to resort to the administrative remedy of seizure, such
government to carry out the functions it has been instituted to perform.
as by enforcing the tax lien on the imported article when the
68
imported articles could be found and be subject to seizure and a. Wrongful making by the owner, importer, exporter or
forfeiture. consignee of any declaration or affidavit, or the wrongful making or
delivery by the same person of any invoice, letter or paper – all touching
36. The Tariff and Customs Code allows the Bureau of on the importation or exportation of merchandise.
b. the falsity of such declaration, affidavit, invoice, letter or
Customs to resort to the judicial remedy of filing an action in paper; and
court when the imported articles could not anymore be found. c. an intention on the part of the importer/consignee to evade
the payment of the duties due. (Republic, etc., v. The Court of Appeals, et
37. Section 2301 of the TCCP states that seized al., G.R. No. 139050, October 2, 2001)
articles may not be released under bond if there is prima facie
evidence of fraud in their importation. Commissioner of Customs 41. On January 7, 1989, the vessel M/V ”Star Ace,
v. Court of Tax Appeals, et al., G. R. No. 171516-17, February 13, 2009 ”coming from Singapore laden with cargo, entered the Port of
Section 2301. Warrant for Detention of Property-Cash Bond. – San Fernando, La Union for needed repairs. When the Bureau
Upon making any seizure, the Commissioner shall issue a warrant for the of Customs later became suspicious that the vessel’s real
detention of the property; and if the owner or importer desires to secure
purpose in docking was to smuggle cargo into the country,
the release of the property for legitimate use, the Collector shall, with the
approval of the Commissioner of Customs, surrender it upon the filing of seizure proceedings were instituted and subsequently two
a cash bond, in an amount fixed by him, conditioned upon the payment Warrants of Seizure and Detention were issued for the vessel
of the appraised value of the article and/or any fine, expenses and costs and its cargo.
which may be adjudged in the case: Provided, That such importation Cesar does not own the vessel or any of its cargo but
shall not be released under any bond when there is prima facie claimed a preferred maritime lien. Cesar then brought several
evidence of fraud in the importation of the article: Provided, further, cases in the RTC to enforce his lien. Would these suits prosper
That articles the importation of which is prohibited by law shall not be ?
released under any circumstances whatsoever: Provided, finally, That SUGGESTED ANSWER: No. The Bureau of Customs having first
nothing in this section shall be construed as relieving the owner or obtained possession of the vessel and its goods has obtained jurisdiction
importer from any criminal liability which may arise from any violation of to the exclusion of the trial courts.
law committed in connection with the importation of the article. (emphasis When Cesar has impleaded the vessel as a defendant to enforce his
supplied) alleged maritime lien, in the RTC, he brought an action in rem under the
Code of Commerce under which the vessel may be attached and sold.
38. Instances where there is no right of redemption of However, the basic operative fact is the actual or constructive
seized and forfeited articles: possession of the res by the tribunal empowered by law to conduct the
a. There is fraud; proceedings. This means that to acquire jurisdiction over the vessel, as a
b. The importation is absolutely prohibited, or defendant, the trial court must have obtained either actual or constructive
c. The release of the property would be contrary to law. possession over it. Neither was accomplished by the RTC as the vessel
(Transglobe International, Inc. v. Court of Appeals, et al., G.R. No. 126634, January was already in the possession of the Bureau of Customs. (Commissioner
25, 1999) of Customs v. Court of Appeals, et al., G. R. Nos. 111202-05, January 31,
2006)
39. In Aznar v. Court of Tax Appeals, 58 SCRA 519, reiterated in NOTES AND COMMENTS:
Farolan, Jr. v. Court of Tax appeals, et al., 217 SCRA 298, the Supreme a. Forfeiture of seized goods in the Bureau of Customs is in
Court clarified that the fraud contemplated by law must be actual the nature of a proceeding in rem, i.e. directed against the res or
and not constructive. It must be intentional, consisting of deception, imported goods and entails a determination of the legality of their
willfully and deliberately done or resorted to in order to induce another to importation. In this proceeding, it is in legal contemplation the property
give up some right. itself which commits the violation and is treated as the offender, without
reference whatsoever to the character or conduct of the owner.
40. Requisites for forfeiture of imported goods:
69
The issue is limited to whether the imported goods should be
forfeited and disposed of in accordance with law for violation of the Tariff 45. Administrative tax protest under the Tariff and
and Customs Code. .(Transglobe International, Inc. v. Court of Appeals, et Customs Code (TCCP). A tax protest case, under the TCCP,
al., G.R. No. 126634, January 25, 1999) involves a protest of the liquidation of import entries. (Pilipinas Shell
Forfeiture of seized goods in the Bureau of Customs is a proceeding Petroleum Corporation v. Commissioner of Customs, G. R. No. 176380, June 18,
against the goods and not against the owner. (Asian Terminals, Inc. v. 2009)
Bautista-Ricafort, G .R. No. 166901, October 27, 2006 citing Transglobe)
46. Liquidation, defined. A liquidation is the final
42. The Collector of Customs upon probable cause that computation and ascertainment by the collector of the duties on imported
the articles are imported or exported, or are attempted to be merchandise, based on official reports as to the quantity, character, and
imported or exported, in violation of the tariff and customs laws value thereof, and the collector’s own finding as to the applicable rate of
shall issue a warrant of seizure. (Sec. 6, Title III, CAO No. 9-93) duty; it is akin to an assessment of internal revenue taxes under the
If the search and seizure is to be conducted in a dwelling place, then National Internal Revenue Code where the tax liability of the taxpayer is
a search warrant should be issued by the regular courts not the Bureau of definitely determined. (Pilipinas Shell Petroleum Corporation v. Commissioner
of Customs, G. R. No. 176380, June 18, 2009)
Customs.
There may be instances where no warrants issued by the Bureau of
Customs or the regular courts is required, as in search and seizures of 47. The following letters of demand can not be
motor vehicles and vessels. considered as a liquidation or an assessment of Shell’s import
tax liabilities that can be the subject of an administrative tax
43. Smuggled goods seized by virtue of a court warrant protest proceeding before the Commissioner of Customs
should be surrendered to the court that issued the warrant and whose decision is appealable to the Court of Tax Appeals:
not to the Bureau of Customs because the goods are in custodia a. the One Stop Shop Inter-Agency Tax Credit and Duty
legis. Drawback Center (the Center) November 3 letter, signed by the Secretary
of Finance, informing it of the cancellation of the Tax Credit Certificates
44. Decisions of the Commissioner of Customs “in (TCCs);
cases involving liability for customs duties, fees or other b. the Commissioner of Customs’ November 19 letter requiring
money charges” that must be appealed to the Court of Tax Shell to replace the amount equivalent to the amount of the cancelled
Appeals Division within thirty (30) days from receipt specifically TCCs used by Shell; and
refer to his decisions on administrative tax protest cases, as stated in c. the Commissioner of Customs’ collection letters, issued
Section 2402 of the Tariff and Customs Code of the Philippines (TCCP): through Deputy Commissioner Atty. Valera, formally demanding the
amount covered by the cancelled TCCs.
Section 2402. Review by Court of Tax Appeals. None of these letters, however, can be considered as a liquidation
– The party aggrieved by a ruling of the or an assessment of Shell’s import tax liabilities that can be the subject of
Commissioner in any matter brought before him an administrative tax protest proceeding before the respondent whose
upon protest or by his action or ruling in any case of decision is appealable to the CTA. Shell’s import tax liabilities had long
seizure may appeal to the Court of Tax Appeals, in the been computed and ascertained in the original assessments, and Shell
manner and within the period prescribed by law and paid these liabilities using the TCCs transferred to it as payment.
regulations. It is even an error to consider the letters as a “reassessment”
because they refer to the same tax liabilities on the same importations
Unless an appeal is made to the Court of Tax Appeals in the covered by the original assessments. The letters merely reissued the
manner and within the period prescribed by laws and regulations, the original assessments that were previously settled by Shell with the use of
action or ruling of the Commissioner shall be final and conclusive. the TCCs. However, on account of the cancellation of the TCCs, the tax
[Emphasis supplied.] (Pilipinas Shell Petroleum Corporation v. Commissioner liabilities of Shell under the original assessments were considered
of Customs, G. R. No. 176380, June 18, 2009) unpaid; hence, the letters and the actions for collection.
70
When Shell went to the CTA, the issues it raised in its petition were
all related to the fact and efficacy of the payments made, specifically the
genuineness of the TCCs; the absence of due process in the enforcement LOCAL GOVERNMENT TAXATION
of the decision to cancel the TCCs; the facts surrounding the fraud in
originally securing the TCCs; and the application of estoppel. These are 1. The fundamental principles of local taxation are:
payment and collection issues, not tax protest issues within the CTA’s a. Uniformity;
jurisdiction to rule upon. b. Taxes, fees, charges and other impositions shall be equitable
Shell never protested the original assessments of its tax liabilities and based on ability to pay, for public purposes, not unjust, excessive,
and in fact settled them using the TCCs. These original assessments, oppressive or confiscatory, not contrary to law, public policy, national
therefore, have become final, incontestable, and beyond any subsequent economic policy or in restraint of trade;
protest proceeding, administrative or judicial, to rule upon. c. The levy and collection shall not be let to any private person;
To be very precise, Shell’s petition before the CTA principally d. Inures solely to the local government unit levying the tax;
questioned the validity of the cancellation of the TCCs – a decision that e. The progressivity principle must be observed.
was made not by the Commissioner of Customs, but by the Center. As
the CTA has no jurisdiction over decisions of the Center, Shell’s remedy 2. A law which deprives local government units of
against the cancellation should have been a certiorari petition before the their power to tax would be unconstitutional. The constitution has
regular courts, not a tax protest case before the CTA. Records do not delegated to local governments the power to levy taxes, fees and other
show that Shell ever availed of this remedy. charges. This constitutional delegation may only be removed by a
Alternatively, as held in Shell v. Republic of the Philippines, G.R. constitutional amendment.
No. 161953, March 6, 2008, 547 SCRA 701, the appropriate forum for
Shell under the circumstances of this case should be at the collection 3. Under the now prevailing Constitution, where there is
cases before the RTC where Shell can put up the fact of its payment as a neither a grant nor prohibition by statute, the taxing power of
defense. (Pilipinas Shell Petroleum Corporation v. Commissioner of local governments must be deemed to exist although Congress
Customs, G. R. No. 176380, June 18, 2009)
may provide statutory limitations and guidelines in order to
safeguard the viability and self-sufficiency of local government units by
48. A case becomes ripe for filing with the Regional directly granting them general and broad tax powers. (City Government of
Trial Court (RTC), as a collection matter after the finality of the San Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25,
Commissioner of Customs assessment. (Pilipinas Shell Petroleum 1999)
Corporation v. Commissioner of Customs, G. R. No. 176380, June 18, 2009
citing Shell v. Republic of the Philippines, G.R. No. 161953, March 6, 2008, 547
SCRA 701) 4. The Local Government Code explicitly authorizes
The assessment has long been final, and this recognition of finality provinces and cities, notwithstanding “any exemption granted
removes all perceived hindrances, based on this case, to the continuation by any law or other special law” to impose a tax on businesses
of the collection suits. enjoying a franchise. Indicative of the legislative intent to carry out the
A suit for the collection of internal revenue taxes, where the constitutional mandate of vesting broad tax powers to local government
assessment has already become final and executory, the action to collect units, the Local Government Code has withdrawn tax exemptions or
is akin to an action to enforce the judgment. No inquiry can be made incentives theretofore enjoyed by certain entities. (City Government of San
therein as to the merits of the Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999)
In light of the conclusion that the present case does not involve a
decision of the Commissioner of Customs on a matter brought to him as 5. Philippine Long Distance Telephone Company, Inc.,
a tax protest, Atty. Valera’s lack of authority to issue the collection letters v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001,
and to institute the collection suits is irrelevant. For this same reason, upheld the authority of the City of Davao, a local government unit, to
the injunction against Atty. Valera cannot be invoked to enjoin the impose and collect a local franchise tax because the Local Government
collection of unpaid taxes due from Shell. (Pilipinas Shell Petroleum has withdrawn all tax exemptions previously enjoyed by all persons and
Corporation v. Commissioner of Customs, supra)
71
authorized local government units to impose a tax on business enjoying a 9. Further amplification by Bernas of the local
franchise tax notwithstanding the grant of tax exemption to them. government’s power to tax. “What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not change the
6. Explain the concept of the “paradigm shift” in doctrine that municipal corporations do not possess inherent powers of
local government taxation. taxation. What it does is to confer municipal corporations a general
SUGGESTED ANSWER: “Paradigm shift” from exclusive power to levy taxes and otherwise create sources of revenue. They no
Congressional power to direct grant of taxing power to local legislative longer have to wait for a statutory grant of these powers. The power of
bodies. The power to tax is no longer vested exclusively on Congress; the legislative authority relative to the fiscal powers of local governments
local legislative bodies are now given direct authority to levy taxes, fees has been reduced to the authority to impose limitations on municipal
and other charges pursuant to Article X, section 5 of the 1987 Constitution. powers. Moreover, these limitations must be “consistent with the basic
(Batangas Power Corporation v. Batangas City, et al. G. R. No. 152675, policy of local autonomy.” The important legal effect of Section 5 is thus
and companion case, April 28, 2004 citing National Power Corporation v. to reverse the principle that doubts are resolved against municipal
City of Cabanatuan, G. R. No. 149110, April 9, 2003) corporations. Henceforth, in interpreting statutory provisions on
municipal fiscal powers, doubts will be resolved in favor of municipal
7. The fundamental law did not intend the direct grant to corporations. It is understood, however, that taxes imposed by local
local government units to be absolute and unconditional, the government must be for a public purpose, uniform within a locality, must
constitutional objective obviously is to ensure that, while local government not be confiscatory, and must be within the jurisdiction of the local unit to
units are being strengthened and made more autonomous, the legislature pass.” (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No.
must still see to it that: 166408, October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169)
a. the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions;
b. each local government unit will have its fair share of available 10. Reconciliation of the local government’s authority
resources; to tax and the Congressional general taxing power. Congress
c. the resources of the national government will be unduly has the inherent power to tax, which includes the power to grant tax exemptions.
disturbed; and On the other hand, the power of local governments, such as provinces and cities
for example Quezon City, to tax is prescribed by Section 151 in relation to
d. local taxation will be fair, uniform and just. (Manila Electric
Section 137 of the LGC which expressly provides that notwithstanding any
Company v. Province of Laguna, et al., G.R. No. 131359, May 5, 1999) exemption granted by any law or other special law, the City or a province may
impose a franchise tax. It must be noted that Section 137 of the LGC does not
8. Taxing power of the local government is limited. prohibit grant of future exemptions.
The taxing power of local governments is limited in the sense that The Supreme Court in a series of cases has sustained the power
Congress can enact legislation granting tax exemptions. of Congress to grant tax exemptions over and above the power of the
While the system of local government taxation has changed with local government’s delegated power to tax. (Quezon City, et al., v. ABS-CBN
the onset of the 1987 Constitution, the power of local government units to Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing City
tax is still limited. Government of Quezon City, et al. v. Bayan Telecommunications, Inc., G.R. No.
While the power to tax by local governments may be exercised by 162015, March 6, 2006, 484 SCRA 16)
local legislative bodies, no longer merely be virtue of a valid delegation “Indeed, the grant of taxing powers to local government units
as before, but pursuant to direct authority conferred by Section 5, Article under the Constitution and the LGC does not affect the power of
X of the Constitution, the basic doctrine on local taxation remains Congress to grant exemptions to certain persons, pursuant to a declared
essentially the same, “the power to tax is [still] primarily vested in the national policy. The legal effect of the constitutional grant to local
Congress.” (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. governments simply means that in interpreting statutory provisions on
No. 166408, October 6, 2008 citing City Government of Quezon City, et al. v. municipal taxing powers, doubts must be resolved in favor of municipal
Bayan Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA corporations.” [Ibid., referring to Philippine Long Distance Telephone
169 in turn referring to Mactan Cebu International Airport Authority, v. Marcos, Company, Inc. (PLDT) vs. City of Davao]
G.R. No. 120082, September 11, 1996, 261 SCRA 667, 680)
72
11. Professional tax may be imposed by a province or
city but not by a municipality or barangay. 14. X City issued a notice of assessment against ABC
a. Transaction taxed: Exercise or practice of profession requiring Condominium Corporation for unpaid business taxes. The
government licensure examination. Condominium Corporation is a duly constituted condominium
b. Tax rate: In Accordance with a taxing ordinance which should corporation in accordance with the Condominium Act which
not exceed P300.00. owns and holds title to the common and limited common areas
c. Tax base: Reasonable classification by the sanggunian. of the condominium. Its membership comprises the unit
d. Exception: Payment to one province or city no longer subject owners and is authorized under its By-Laws to collect regular
to any other national or local tax, license or fee for the practice of such
assessments from its members for operating expenses, capital
profession in any part of the Philippine professionals exclusively employed
in the government. expenditures on the common areas and other special
e. Date of payment: or on before January 31 or engaging in the assessments as provided for in the Master Deed with ?
profession. Declaration of Restrictions of the Condominium.
f. Place of payment: Province or city where the professional ABC Condominium Corporation insists that the X City
practices his profession or where he maintains his principal office in case Revenue Code and the Local Government Code do not contain
he practices his profession in several places. provisions upon which the assessment could be based.
Resolve the controversy.
12. Requirements: Any individual or corporation employing a SUGGESTED ANSWER: ABC is correct. Condominium
person subject to professional tax shall require payment by that person of corporations are generally exempt from local business taxation under the
the tax on his profession before employment and annually thereafter. Local Government Code, irrespective of any local ordinance that seeks to
Any person subject to the professional tax shall write in deeds, declare otherwise.
receipts, prescriptions, reports, books of account, plans and designs, X City, is authorized under the Local Government Code, to impose a
surveys and maps, as the case may be, the number of the official receipt tax on business, which is defined under the Code as ”trade or commercial
issued to him. activity regularly engaged in as a means of livelihood or with a view to
Exemption: Professionals exclusively employed in the government profit.” By its very nature a condominium corporation is not engaged in
shall be exempt from payment. (Sec. 139, LGC) business, and any profit that it derives is merely incidental, hence it may
NOTE: For the purpose of collecting the tax, the provincial or city not be subject to business taxes. (Yamane , etc. v. BA Lepanto
treasurer or his duly authorized representative shall require from such Condominium Corporation, G. R. No. 154993, October 25, 2005)
professionals their current annual registration cards issued by competent
authority before accepting payment of their professional tax for the current 15. Authority of Local Government Units (LGUs) such
year. The PRC shall likewise require the professionals presentation of as the City of Manila to impose business taxes. Section 143 of
proof of payment before registration of professionals or renewal of their the LGC, is the very source of the power of municipalities and cities to
licenses. (last par., Art. 228, Rules and Regulations Implementing the impose a local business tax, and to which any local business tax imposed
Local Government Code of 1991) by cities or municipalities such as the City of Manila must conform. It is
apparent from a perusal thereof that when a municipality or city has
13. Who are the professionals who, if they are in already imposed a business tax on manufacturers, etc. of liquors, distilled
practice of their profession, are subject to professional tax ? spirits, wines, and any other article of commerce, pursuant to Section
SUGGESTED ANSWER: The professionals subject to the 143(a) of the LGC, said municipality or city may no longer subject the
professional tax are only those who have passed the bar examinations, or same manufacturers, etc. to a business tax under Section 143(h) of the
any board or other examinations conducted by the Professional Regulation same Code. Section 143(h) may be imposed only on businesses that are
Commission (PRC). for example, a lawyer who is also a Certified Public subject to excise tax, VAT, or percentage tax under the NIRC, and that
Accountant (CPA) must pay the professional tax imposed on lawyers and are “not otherwise specified in preceding paragraphs.” In the same
that fixed for CPAs, if he is to practice both professions. [Sec. 238 (f), Rule way, businesses such as respondent’s, already subject to a local business
XXX, Rules and Regulations Implementing the Local Government Code of tax under Section 14 of Tax Ordinance No. 7794 [which is based on
1991] Section 143(a) of the LGC], can no longer be made liable for local
73
business tax under Section 21 of the same Tax Ordinance [which is b. The schedule of fair market values shall be published in a
based on Section 143(h) of the LGC]. (The City of Manila, et al., v. Coca- newspaper of general circulation in the province, city or municipality
Cola Bottlers Philippines, Inc., G. R. No. 181845, August 4, 2009) concerned or the posting in the provincial capitol or other places as
required by law. (Lopez v. City of Manila, et al., G.R. No. 127139, February
19, 1999)
REAL PROPERTY TAXATION Proposed fair market values of real property in a local
government unit as well as the ordinance containing the schedule
must be published in full for three (3) consecutive days in a newspaper
1. The fundamental principles of real property taxation of local circulation, where available, within ten (10) days of its approval,
are: and posted in at lease two (2) prominent places in the provincial capitol,
a. Appraisal at current and fair market value; city, municipal or barangay hall for a minimum of three (3) consecutive
b. Classification for assessment on the basis of actual use; weeks. (Figuerres v. Court of Appeals, et al,. G.R. No. 119172, March 25,
c. Assessment on the basis of uniform classification; 1999)
d. Appraisal, assessment, levy and collection shall not be let to
a private person; 4. Approaches in estimating the fair market value of
e. Appraisal and assessment shall be equitable. real property for real property tax purposes ?
NOTES AND COMMENTS: Real properties shall be appraised at
a. Sales Analysis Approach. The sales price paid in actual
the current and fair market value prevailing in the locality where the
market transactions is considered by taking into account valid sales data
property is situated and classified for assessment purposes on the basis of
accumulated from among the Registrar of Deeds, notaries public,
its actual use. (Allied Banking Corporation, etc., v. Quezon City Government, et
appraisers, brokers, dealers, bank officials, and various sources stated
al., G. R. No. 154126, October 11, 2005)
under the Local Government Code.
b. Income Capitalization Approach. The value of an income-
2. The reasonable market value is determined by the producing property is no more than the return derived from it. An analysis
assessor in the form of a schedule of fair market values. of the income produced is necessary in order to estimate the sum which
The schedule is then enacted by the local sanggunian. might be invested in the purchase of the property.
c. Reproduction cost approach is a formal approach used
3. Fair market value is the price at which a property exclusively n appraising man-made improvements such as buildings and
may be sold by a seller who is not compelled to sell and bought other structures, based on such data as materials and labor costs to
by a buyer who is not compelled to buy, taking into consideration all reproduce a new replica of the improvement.
uses to which the property is adopted and might in reason be applied. The assessor uses any or all of these approaches in analyzing the
The criterion established by the statute contemplates a hypothetical data gathered to arrive at the estimated fair market value to be included in
sale. Hence, the buyers need not be actual and existing purchasers. the ordinance containing the schedule of fair market values. (Allied
(Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R. Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
No. 154126, October 11, 2005 ) 154126, October 11, 2005 citing Local Assessment Regulations No. 1-92)
NOTES AND COMMENTS: In fixing the value of real property,
assessors have to consider all the circumstances and elements of value 5. An ordinance whereby the “parcels of land sold,
and must exercise prudent discretion in reaching conclusions. (Allied ceded, transferred and conveyed for remuneratory
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No. consideration after the effectivity of this revision shall be
154126, October 11, 2005) subject to real estate tax based on the actual amount reflected
Preparation of fair market values: in the deed of conveyance or the current approved zonal
a. The city or municipal assessor shall prepare a schedule of fair
market values for the different classes of real property situated in their
valuation of the Bureau of Internal Revenue prevailing at the
respective Local Government Units for the enactment of an ordinance by time of sale, cession, transfer and conveyance, whichever is
the sanggunian concerned; and higher, as evidenced by the certificate of payment of the capital
74
gains tax issued therefore” is INVALID being contrary to public 6. Examples of personal property under the civil law
policy and for restraining trade for the following reasons: that may be considered as real property for purposes of taxes.
a. It mandates an exclusive rule in determining the fair market Personal property under the civil law may be considered as real property
value and departs from the established procedures such as the sales for purposes of taxes where the property is essential to the conduct of the
analysis approach, the income capitalization approach and the business.
reproduction approach provided under the rules implementing the statute. a. Underground tanks are essential to the conduct of the
It unduly interferes with the duties statutorily placed upon the local business of a gasoline station without which it would not be operational.
assessor by completely dispensing with his analysis and discretion which (Caltex Phils., Inc. v. Central Board of Assessment Appeals, et al., 114 SCRA 296)
the Local Government Code and the regulations require to be exercised. b. Light Rail Transit (LRT) improvements such as buildings,
An ordinance that contravenes any statute is ultra vires and void. carriageways, passenger terminals stations, and similar structures do not
b. The “consideration approach” in the ordinance is illegal since form part of the public roads since the former are constructed over the
“the appraisal, assessment, levy and collection of real property tax shall latter in such a way that the flow of vehicular traffic would not be impaired.
not be let to any private person”, it will also completely destroy the The carriageways and terminals serve a function different from the public
fundamental principle in real property taxation – that real property shall be roads. Furthermore, they are not open to use by the general public hence
classified, valued and assessed on the basis of its actual use regardless of not exempt from real property taxes. Even granting that the national
where located, whoever owns it, and whoever uses it. Allowing the parties government owns the carriageways and terminal stations, the property is
to a private sale to dictate the fair market value of the property will not exempt because their beneficial use has been granted to LRTA a
dispense with the distinctions of actual use stated in the Local Government taxable entity. (Light Rail Transit Authority v. Central Board of Assessment
Code and in the regulations. Appeals, et al., G. R. No. 127316, October 12, 2000)
c. The invalidity is not cured by the prhase “whichever is higher” c. Barges on which were mounted gas turbine power plants
because an integral part of that system still permits valuing real property in designated to generate electrical power, the fuel oil barges which supplied
disregard of its “actual use.” fuel oil to the power plant barges, and the accessory equipment mounted
d. The ordinance would result to real property assessments on the barges were subject to real property taxes.
more than once every three (3) years and that is not the congressional Moreover, Article 415(9) of the Civil Code provides that “[d]ocks and
intent as shown in the provisions of the Local Government Code and the structures which, though floating, are intended by their nature and object to
regulations. Consequently, the real property tax burden should not be remain at a fixed place on a river, lake or coast” are considered immovable
interpreted to include those beyond what the Code or the regulations property by destination being intended by the owner for an industry or
expressly clearly state. work which may be carried on in a building or on a piece of land and which
e. The proviso would provide a chilling effect on real property tend directly to meet the needs of said industry or work. (FELS Energy, Inc.,
owners or administrators to enter freely into contracts reflecting the v. Province of Batangas, G. R. No. 168557, February 16, 2007 and companion
increasing value of real properties in accordance with prevailing market case)
conditions.
While the Local Government Code provides that the assessment of 7. Unpaid realty taxes attach to the property and is
real property shall not be increased once every three (3) years, the chargeable against the person who had actual or beneficial use
questioned proviso subjects the property to a higher assessment every and possession of it regardless of whether or not he is the
time a sales transaction is made. Real property owners would therefore owner. To impose the real property tax on the subsequent owner which
postpone sales until after the lapse of the three (3) year period, or if they was neither the owner not the beneficial user of the property during the
do so within the said period they shall be compelled to dispose of the designated periods would not only be contrary to law but also unjust.
property at a price not exceeding the last prior conveyance in order to Consequently, MERALCO the former owner/user of the property
avoid a higher tax assessment. was required to pay the tax instead of the new owner NAPOCOR. (Manila
In the above two scenarios real property owners are effectively Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
prevented from obtaining the best price possible for their properties and NOTES AND COMMENTS: The above May 18, 2001 decision
unduly hampers the equitable distribution of wealth. (Allied Banking was set aside by the Supreme Court when it granted the petitioner’s
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126, October second motion for reconsideration on June 29, 2004. The author submits
11, 2005) that the above ruling in the May 18, 2001 decision is still valid, not on the
75
basis of the May 18, 2001 decision but in the light of pronouncements of nature. (Puzon v. Abellera, 169 SCRA 789, 795; De Asis v. I.A.C., 169 SCRA
the Supreme Court in other cases. Thus, do not cite the doctrine as 314)
emanating from the May 18, 2001 decision.
13. FELS Energy, Inc., had a contract to supply NPC
8. Secretary of Justice can take cognizance of a case with the electricity generated by FELS’ power barges. The
involving the constitutionality or legality of tax ordinances contract also stated that NPC shall be responsible for all real
where there are factual issues involved. (Figuerres v. Court of estate taxes and assessments. FELS then received an
Appeals, et al., G.R. No. 119172, March 25, 1999) assessment of real property taxes on its power barges from the
Taxpayer files appeal to the Secretary of Justice, within Provincial Assessor of Batangas. If filed a motion for
30 days from effectivity thereof. In case the Secretary decides the reconsideration with the Provincial Assessor.
appeal, a period also of 30 days is allowed for an aggrieved party to go to a. Upon denial, FELS elevated the matter to the Local
court. But if the Secretary does not act thereon, after the lapse of 60 days, Board of Assessment Appeals (LBAA), where it raised the
a party could already seek relief in court within 30 days from the lapse of
following issues:
the 60 day period.
These three separate periods are clearly given for compliance as a 1) Since NPC is tax-exempt then FEL’s should
prerequisite before seeking redress in a competent court. Such statutory also be tax-exempt because of its contract with NPC.
periods are set to prevent delays as well as enhance the orderly and 2) The power barges are not real property
speedy discharge of judicial functions. For this reason the courts construe subject to real property taxes.
these provisions of statutes as mandatory. (Reyes, et al., v. Court of Appeals, b. Upon the other hand the Local Treasurer insists that
et al., G.R. No. 118233, December 10, 1999) the assessment has attained a state of finality hence the appeal
to the LBAA should be dismissed.
9. Public hearings are mandatory prior to approval of Rule on the conflicting contentions.
tax ordinance, but this still requires the taxpayer to adduce evidence to SUGGESTED ANSWER:
show that no public hearings ever took place. (Reyes, et al., v. Court of a. All the contentions of FELS are without merit:
Appeals, et al., G.R. No. 118233, December 10, 1999) Public hearings are 1) NPC is not the owner of the power barges nor the
required to be conducted prior to the enactment of an ordinance imposing operator of the power barges. The tax exemption privilege granted
real property taxes. (Figuerres v. Court of Appeals, et al., G.R. No. 119172, to NPC cannot be extended to FELS. the covenant is between
March 25, 1999) NPC and FELs and does not bind a third person not privy to the
contract such as the Province of Batangas.
10. The concurrent and simultaneous remedies 2) The Supreme Court of New York in Consolidated
afforded local government units in enforcing collection of real Edison Company of New York, Inc., et al., v. The City of New York,
property taxes: et al., 80 Misc. 2d 1065 (1975) cited in FELS Energy, Inc., v.
a. Distraint of personal property; Province of Batangas, G. R. No. 168557, February 16, 2007 and
b. Sale of delinquent real property, and companion case, held that barges on which were mounted gas
c. Collection of real property tax through ordinary court action. turbine power plants designated to generate electrical power, the
fuel oil barges which supplied fuel oil to the power plant barges, and
11. Notice and publication, as well as the legal the accessory equipment mounted on the barges were subject to
requirements for a tax delinquency sale, are mandatory , and the real property taxes.
failure to comply therewith can invalidate the sale. The prescribed notices Moreover, Article 415(9) of the Civil Code provides that
must be sent to comply with the requirements of due process. (De Knecht, “[d]ocks and structures which, though floating, are intended by their
et al,. v. Court of Appeals; De Knecht, et al., v. Honorable Sayo, 290 SCRA nature and object to remain at a fixed place on a river, lake or coast”
223,236) are considered immovable property by destination being intended by
the owner for an industry or work which may be carried on in a
12. The reason behind the notice requirement is that tax building or on a piece of land and which tend directly to meet the
sales are administrative proceedings which are in personam in needs of said industry or work.
76
b. The Treasurer is correct. The procedure do not allow a f. The adverse decision of the Central Board of Assessment
motion for reconsideration to be filed with the Provincial Assessor. Appeals shall be appealed to the Court of Tax Appeals (En Banc) by
To allow the procedure would indeed invite corruption in the system means of a petition for review within thirty (30) days from receipt of the
of appraisal and assessment. it conveniently courts a graft-prone situation adverse decision.
where values of real property ay be initially set unreasonably high, and g. The decision of the CTA may be the subject of a motion for
then subsequently reduced upon the request of a property owner. In the reconsideration or new trial after which an appeal may be interposed by
latter instance, allusions of possible cover, illicit trade-off cannot be means of a petition for review on certiorari directed to the Supreme Court
avoided, and in fact can conveniently take place. Such occasion for on pure questions of law within a period of fifteen (15) days from receipt
mischief must be prevented and excised from our system. (FELS Energy, extendible for a period of thirty (30) days.
Inc., v. Province of Batangas, G. R. No. 168557, February 16, 2007 and
companion case) 18. The entitlement to a tax refund does not necessarily
call for the automatic payment of the sum claimed. The amount
14. A special levy or special assessment is an of the claim being a factual matter, it must still be proven in the normal
imposition by a province, a city, a municipality within the course and in accordance with the administrative procedure for obtaining a
Metropolitan Manila Area, a municipality or a barangay upon real refund of real property taxes, as provided under the Local Government
property specially benefited by a public works expenditure of the LGU to Code. (Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R.
recover not more than 60% of such expenditure. No. 154126, September 15, 2006)
NOTES AND COMMENTS: In the above Allied Banking case, the
15. If the ground for the protest is validity of the real Supreme Court provided for the starting date of computing the two-year
property tax ordinance and not the unreasonableness of the amount prescriptive period within which to file the claim with the Treasurer, which is
collected the tax must be paid under protest, and the issue of legality may from finality of the Decision. The procedure to be followed is that shown
be raised to the proper courts on certiorari without need of exhausting below.
administrative remedies.
19. Procedure for refund of real property taxes based
16. If the ground for the protest is unreasonableness of on validity of the tax measure or solutio indebeti.
the amounts collected there is need to pay under protest and a. Payment under protest not required, claim must be directed
administrative remedies must be resorted to before recourse to the proper to the local treasurer, within two (2) years from the date the taxpayer is
courts. entitled to such reduction or readjustment, who must decide within sixty
(60) days from receipt.
17. Procedure for refund of real property taxes based on b. The denial by the local treasurer of the protest would fall
unreasonableness or excessiveness of amounts collected. within the Regional Trial Court’s original jurisdiction, the review being the
a. Payment under protest at the time of payment or within thirty initial judicial cognizance of the matter. Despite the language of Section
(30) days thereafter, protest being lodged to the provincial, city or in the 195 of the Local Government Code which states that the remedy of the
case of a municipality within the Metro Manila Area the municipal treasurer. taxpayer whose protest is denied by the local treasurer is “to appeal with
b. The treasurer has a period of sixty (60) days from receipt of the court of competent jurisdiction,” labeling the said review as an
the protest within to decide. exercise of appellate jurisdiction is inappropriate since the denial of the
c. Within thirty (30) days from receipt of treasurer’s decision or if protest is not the judgment or order of a lower court, but of a local
the treasurer does not decide, within thirty (30) days from the expiration of government official. (Yamane , etc. v. BA Lepanto Condominium
the sixty (60) period for the treasurer to decide, the taxpayer should file an Corporation, G. R. No. 154993, October 25, 2005)
appeal with the Local Board of Assessment Appeals. c. The decision of the Regional Trial Court should be appealed
d. The Local Board of Assessment Appeals has 120 days from by means of a petition for review directed to the Court of Tax Appeals
receipt of the appeal within which to decide. (Division).
e. The adverse decision of the Local Board of Assessment d. The decision of the Court of Tax Appeals (Division) may be
Appeals should be appealed within thirty (30) days from receipt to the the subject of a review by the Court of Tax Appeals (en banc).
Central Board of Assessment Appeals.
77
e. The decision of the Court of Tax Appeals (en banc) may be law. Solely is synonymous with exclusively. (Lung Center of the Philippines v.
the subject of a petition for review on certiorari on pure questions of law Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)
directed to the Supreme Court.
24. Portions of the land of a charitable institution, such
20. Charitable institutions, churches and as a hospital, leased to private entities as well as those parts of
parsonages or convents appurtenant thereto, mosques, non- the hospital leased to private individuals are not exempt from
profit cemeteries, and all lands, buildings and improvements real property taxes. On the other hand, the portion of the land
that are actually, directly and exclusively used for religious, occupied by the hospital and portions of the hospital used for its patients,
charitable or educational purposes are exempt from taxation. whether paying or non-paying, are exempt from real property taxes. (Lung
[Sec.28 (3) Article VI, 1987 Constitution] Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104,
June 29, 2004)
21. The constitutional tax exemptions refer only to
real property that are actually, directly and exclusively used for religious, 25. As a general principle, a charitable institution does
charitable or educational purposes, and that the only constitutionally not lose its character as such and its exemption from taxes
recognized exemption from taxation of revenues are those earned by non- simply because it derives income from paying patients, whether
profit, non-stock educational institutions which are actually, directly and out-patient, or confined in the hospital, or receives subsidies
exclusively used for educational purposes. (Commissioner of Internal from the government. So long as the money received is devoted or
Revenue v. Court of Appeals, et al., 298 SCRA 83) used altogether to the charitable object which it is intended to achieve; and
The constitutional tax exemption covers property taxes only. What is no money inures to the private benefit of the persons managing or
exempted is not the institution itself, those exempted from real estate taxes operating the institution. (Lung Center of the Philippines v. Quezon City, et al.,
are lands, buildings and improvements actually, directly and exclusively etc., G. R. No. 144104, June 29, 2004)
used for religious, charitable or educational purposes. (Lung Center of the
Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004) 26. Property that are exempt from the payment of
real property tax under the Local Government Code.
22. The 1935 Constitution stated that the lands, a. Real property owned by the Republic of the Philippines or any
buildings, and improvements are “used exclusively” but the of its political subdivisions except when the beneficial use thereof has been
present Constitution requires that the lands, buildings and granted to a taxable person for a consideration or otherwise;
improvements are “actually, directly and exclusively used.” The b. Charitable institutions, churches, parsonages or convents
change should not be ignored. Reliance on past decisions would have appurtenant thereto, mosques, non-profit or religious cemeteries, and all
sufficed were the words “actually” as well as :directly” are not added. There lands, buildings and improvements actually, directly and exclusively used
must be proof therefore of the actual and direct use to be exempt from for religious, charitable and educational purposes;
taxation. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. c. Machineries and equipment, actually, directly and exclusively
144104, June 29, 2004) used by local water districts; and government owned and controlled
corporations engaged in the supply and distribution of water and generation
23. The “actual, direct and exclusive use” of the and transmission of electric power;
property for charitable purposes is the direct and immediate d. Real property owned by duly registered cooperatives;
and actual application of the property itself to the purposes for e. Machinery and equipment used for pollution control and
which the charitable institution is organized. It is not the use of the income environmental protection.
from the real property that is determinative of whether the property is used
for tax-exempt purposes. 27. Manila International Airport Authority (MIAA) it is
If real property is used for one or more commercial purposes, it is not a government owned or controlled corporation but an
not exclusively used for the exempted purpose but is subject to taxation,. instrumentality of the government that is exempt from
The words “dominant use” or “principal use” cannot be substituted for the taxation.
words “used exclusively” without doing violence to the Constitution and the
78
It is not a stock corporation because its capital is not divided into b. The company’s properties are exempt from tax
shares, neither is it a non-stock corporation because there are no under its franchise.
members. It is instead an instrumentality of the government upon which Resolve the issues raised.
the local governments are not allowed to levy taxes, fees or other SUGGESTED ANSWERS:
charges. a. There is no need to exhaust administrative remedies as the
An instrumentality “refers to any agency of the National appeal to the LBAA is not a speedy and adequate remedy within the law.
Government, not integrated within the department framework vested with This is so because the properties are already scheduled for auction sale.
special functions or jurisdiction by law, endowed with some if not all Furthermore one of the recognized exceptions to the rule on
corporate powers, administering special funds, and enjoying operational exhaustion is that if the issue is purely legal in character which is so in
autonomy, usually through a charter. This term includes regulatory this case.
agencies chartered institutions and government-owned or controlled b. The properties are exempt from taxation. The grant of
corporations.” [Sec. 2 (10), Introductory Provisions, Administrative Code taxing powers to local governments under the Constitution and the Local
of 1987] It is an instrumentality exercising not only governmental but Government Code does not affect the power of Congress to grant tax
also corporate powers. It exercises governmental powers of eminent exemptions.
domain, police power authority, and levying of fees and charges. The term “exclusive of this franchise” is interpreted to mean
Finally, the airport lands and buildings are property owned by the properties actually, directly and exclusively used in the radio or
government that are devoted to public use and are properties of the telecommunications business. The subsequent piece of legislation which
public domain. (Manila International Airport Authority v. City of Pasay, et al., G. reiterated the phrase “exclusive of this franchise” found in the previous
R. No. 163072, April 2, 2009)
tax exemption grant to the company is an express and real intention on
the part of Congress to once against remove from the LGC’s delegated
28. A telecommunications company was granted by taxing power, all of the company’s properties that are actually, directly
Congress on July 20, 1992, after the effectivity of the Local and exclusively used in the pursuit of its franchise. (The City
Government Code on January 1, 1992, a legislative franchise Government of Quezon City, et al., v. Bayan Telecommunications, Inc.,
with tax exemption privileges which partly reads, “The G. R. No. 162015, March 6, 2006)
grantee, its successors or assigns shall be liable to pay the
same taxes on their real estate, buildings and personal 29.The owner operator of a BOT and not the ultimate
property, exclusive of this franchise, as other persons or owner is subject to real property taxes. Consistent with the BOT
corporations are now or hereafter may be required by law to concept and as implemented, BPPC – the owner-manager-operator of
pay.” This provision existed in the company’s franchise prior the project – is the actual user of its machineries and equipment. BPPC’s
to the effectivity of the Local Government Code. A City then ownership and use of the machineries and equipment are actual, direct,
and immediate, while NAPOCOR’s is contingent and, at this stage of the
enacted an ordinance in 1993 imposing a real property on all BOT Agreement, not sufficient to support its claim for tax exemption.
real properties located within the city limits, and withdrawing (National Power Corporation v. Central Board of Assessment Appeals, et al., G,
all tax exemptions previously granted. Among properties R. No. 171470, January 30, 2009)
covered are those owned by the company from which the City
is now collecting P43 million. The properties of the company
were then scheduled by the City for sale at public auction.
The company then filed a petition for the issuance of a
writ of prohibition claiming exemption under its legislative
franchise.
following:
The City defended its position raising the
ADVANCE CONGRATULATIONS
a. There was no exhaustion of administrative
remedies because the matter should have first been filed AND SEE YOU IN COURT
before the Local Board of Assessment Appeals;