TAXATION LAW Reviewer

I. GENERAL PRINCIPLES OF TAXATION

A. Definition and concept of taxation

Taxation is the inherent power of the sovereign, exercised through the legislature, to
impose burdens upon the subjects and objects within its jurisdiction, for the purpose of
raising revenues to carry out the legitimate objects of the government.

It is the power of the sovereign to impose burdens or charges upon persons, property or
property rights for the use and support of the government to be able to discharge its
functions.

It is one of the inherent powers of the state.

B. Nature of taxation

1) Inherent in sovereignty - There is no need to enact a law to exercise that power

as this power springs from the moment a state comes into existence.

2) Legislative in character - Even in the absence of any constitutional provision, the

power falls to the legislature as part of the more general power of law-making.

3) It is subject to constitutional and inherent limitations – To a certain extent,

Congress will abuse that power. To a certain extent, you have that principle also
that the power to tax involves the power to destroy. Congress may abuse that
power given to it by the people through the electoral process.

C. Characteristics of taxation

1) An enforced contribution, for its imposition is in no way dependent upon the

will or assent of the person taxed;

2) It is generally payable in the form of money , although the law may provide
payment in kind;

3) It is laid by some rule of apportionment, which, in case of income taxes, is

usually based on ability to pay;
4) Levied upon persons, property or business, acts, transactions, right or
privileges, In each case, however it is only a person who pays the tax;
 5) It is levied by the State which has jurisdiction over the object taxed. It is
necessary that the State has jurisdiction or control over the objects to be taxed
in order that the tax can be enforced;

6) Levied by the lawmaking body of the State. The power to tax is a legislative
power that only the legislature can exercise. Except:

a) Delegated power of the LGUs pursuant to Art. X, Sec. 5 of the

Consitution;
b) The President pursuant to Art. VI Section 28 (2) on tariff rates, import
an export quotas, tonnage and wharfage dues, and other duties and
imposts;
c) c)Delegation to administrative agencies of the executive branch such as
the BIR, Bureau of Customs and the Department of Finance; and
d) Peoples initiative and referendum under RA 6735 where the people is
granted power to take back the legislative’s authority in enacting tax
laws.

7) Levied for public purpose. A tax levied for private purpose is unconstitutional
and, therefore, void; it constitutes taking of property without due process of
law.

D. Power of taxation compared with other powers

A. TAXATION vs. POLICE POWER vs. EMINENT DOMAIN

1) As to purpose:
Taxation – for the support of the government

Eminent Domain_- for public use

Police Power – to promote general welfare, public health, public morals, and public
safety.

2) As to compensation:
Taxation – Protection and benefits received from the government.

Eminent Domain – just compensation, not to exceed the market value declared by
the owner or administrator or anyone having legal interest in the property, or as
determined by the assessor, whichever is lower.

Police Power – The maintenance of a healthy economic standard of society.

3) As to persons affected:
Taxation and Police Power – operate upon a community or a class of individuals

Eminent Domain – operates on the individual property owner.

4) As to authority which exercises the power:

Taxation and Police Power – Exercised only by the government or its political
subdivisions.

Eminent Domain – may be exercised by public services corporation or public

utilities if granted by law.

5) As to amount of imposition:
Taxation – Generally no limit to the amount of tax that may be imposed.

Police Power – Limited to the cost of regulation

Eminent Domain – There is no imposition; rather, it is the owner of the property

taken who is just paid compensation.

6) As to the relationship to the Constitution:

Taxation and Eminent Domain – Subject to certain constitutional limitations,
including the prohibition against impairment of the obligation of contracts.

Police Power – Relatively free from constitutional limitations and superior to the
non-impairment provisions thereof.

B. TAX vs. LICENSE FEE:

1) As to purpose: Tax imposed for revenue WHILE license fee for regulation. Tax for
general purposes WHILE license fee for regulatory purposes only.

2) As to basis: Tax imposed under power of taxation WHILE license fee under police
power.

3) As to amount: In taxation, no limit as to amount WHILE license fee limited to cost

of the license and expenses of police surveillance and regulation.
 4) As to the time of payment: Taxes normally paid after commencement of business
WHILE license fee before.

5) As to the effect of payment: Failure to pay a tax does not make the business illegal
WHILE failure to pay license fee makes business illegal.

6) as to surrender: Taxes, being lifeblood of the state, cannot be surrendered except

for lawful consideration WHILE a license fee may be surrendered with or without
consideration.

C. IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.

It is necessary to determine whether a particular imposition is a tax or a license
fee, because some limitations apply only to one and not to the other.

Furthermore, exemption from taxes does not include exemption from license fees

D. TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:

1) toll – amount charged for the cost and maintenance of property used;

2) compromise penalty – amount collected in lieu of criminal prosecution in cases of

tax violations;

3) special assessment – levied only on land based wholly on the benefit accruing
thereon as a result of improvements of public works undertaken by government
within the vicinity.

4) license fee – regulatory imposition in the exercise of the police power of the State;

5) margin fee – exaction designed to stabilize the currency

6) custom duties and fees – duties charged upon commodities on their being
imported into or exported from a country;

7) debt – a tax is not a debt but is an obligation imposed by law.

 E. SPECIAL ASSESSMENT vs. TAX
1. A special assessment tax is an enforced proportional contribution from owners
of lands especially benefited by public improvements.

2. A special assessment is levied only on land.

3. A special assessment is not a personal liability of the person assessed; it is

limited to the land.

4. A special assessment is based wholly on benefits, not necessity.

5. A special assessment is exceptional both as to time and place; a tax has general
application.

Republic v. Bacolod, 17 SCRA 632

 A special assessment is a levy on property which derives some special benefit from
the improvement. Its purpose is to finance such improvement. It is not a tax
measure intended to raise revenues for the government. The proceeds thereof
may be devoted to the specific purpose for which the assessment was authorized,
thus accruing only to the owners thereof who, after all, pay the assessment.

Some Rules:

 An exemption from taxation does not include exemption from a special treatment.

 The power to tax carries with it a power to levy a special assessment.

F. TOLL vs. TAX

1. Toll is a sum of money for the use of something. It is the consideration which is
paid for the use of a road, bridge, or the like, of a public nature. Taxes, on the
other hand, are enforced proportional contributions from persons and property
levied by the State by virtue of its sovereignty for the support of the government
and all public needs.

2. Toll is a demand of proprietorship; tax is a demand of sovereignty.

3. Toll is paid for the used of another’s property; tax is paid for the support of
government.
4. The amount paid as toll depends upon the cost of construction or maintenance of
the public improvements used; while there is no limit on the amount collected as
tax as long as it is not excessive, unreasonable, or confiscatory.

5. Toll may be imposed by the government or by private individuals or entities; tax

may be imposed only by the government.

G. TAX vs. PENALTY

1. Penalty is any sanction imposed as a punishment for violation of law or for
acts deemed injurious; taxes are enforced proportional contributions from
persons and property levied by the State by virtue of its sovereignty for the
support of the government and all public needs.

2. Penalty is designed to regulate conduct; taxes are generally intended to

generate revenue.

3. Penalty may be imposed by the government or by private individuals or

entities; taxes only by the government.

H. OBLIGATION TO PAY DEBT vs. OBLIGATION TO PAY TAX

1. A debt is generally based on contract, express or implied, while a tax is based on
laws.

2. A debt is assignable, while a tax cannot generally be assigned.

3. A debt may be paid in kind, while a tax is generally paid in money.

4. A debt may be the subject of set off or compensation, a tax cannot.

5. A person cannot be imprisoned for non-payment of tax, except poll tax.

6. A debt is governed by the ordinary periods of prescription, while a tax is governed

by the special prescriptive periods provided for in the NIRC.
 7. A debt draws interest when it is so stipulated or where there is default, while a
tax does not draw interest except only when delinquent.

Rules re: set off or compensation of debts

 General rule: A tax delinquency cannot be extinguished by legal compensation.

This is so because the government and the tax delinquent are not mutually
creditors and debtors. Neither is a tax obligation an ordinary act. Moreover, the
collection of a tax cannot await the results of a lawsuit against the government.
Finally, taxes are not in the nature of contracts but grow out of the duty to, and
are the positive acts of the government to the making and enforcing of which the
personal consent of the taxpayer is not required. (Francia v. IAC, 162 SCRA 754
and Republic v. Mambulao Lumber, 4 SCRA 622)

 Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re:
claim for payment of unpaid services of a government employee vis-à-vis the
estate taxes due from his estate. The fact that the court having jurisdiction of the
estate had found that the claim of the estate against the government has been
appropriated for the purpose by a corresponding law shows that both the claim of
the government for inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well as fully liquidated.
Compensation therefore takes place by operation of law.

Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)

Philex Mining Corporation was to set off its claims for VAT input credit/refund for
the excise taxes due from it. The Supreme Court disallowed such set off or compensation.

E. Purpose of taxation
PRIMARY

To raise revenue in order to support the government

SECONDARY

1) Used to reduce social inequality

2) Utilized to implement the police power of the State
3) Used to protect our local industries against unfair competition
4) Utilized by the government to encourage the growth of local industries
PAL vs. EDU

 It is possible for an exaction to be both a tax and a regulation. License fees and
charges, looked to as a source of revenue as well as a means regulation. The fees
may properly regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is at least one of the
real and substantial purposes, then the exaction is properly called a tax.

CALTEX vs. CIR

 Taxation is no longer a measure merely to raise revenue to support the existence

of the government. Taxes may be levied with a regulatory purpose to provide
means for rehabilitation and stabilization of a threatened industry which is affected
with public interest as to be within the police power of the State.

F. Principles of sound tax system

1) FISCAL ADEQUACY
VIOLATION – VALID
 Sources of revenue should be sufficient to meet the demands of public expenditure
 Revenues should be elastic or capable of expanding or contracting annually in
response to variations in public expenditure
 Elasticity may be obtained without creating annually any new taxes or any new
tax machinery but merely by changes in the rates applicable to existing taxes
 Even if a tax law violates the principle of Fiscal Adequacy , in other words, the
proceeds may not be sufficient to satisfy the needs of the government, still the tax
law is valid

2) ADMINISTRATIVE FEASIBILITY
- VIOLATION – VALID
 The tax law must be capable of effective or efficient enforcement
 Tax laws should be capable of convenient, just and effective administration
 Tax laws should close-up the loopholes for tax evasion and deter unscrupulous
officials from committing fraud
 There is no law that requires compliance with this principle, so even if the tax law
violates this principle; such tax law is valid.

3) THEORETICAL JUSTICE
- VIOLATION – INVALID
 This principle mandates that taxes must be just, reasonable and fair
 Taxation shall be uniform and equitable
  Equitable taxation has been mandated by our constitution, as if taxes are unjust
and unreasonable then they are not equitable, thus invalid.
 The tax burden should be in proportion to the taxpayers ability to pay (ABILITY
TO PAY PRINCIPLE)

G. Theory and basis of taxation

1. Lifeblood theory
 Taxes are the lifeblood of the nation.
 Without revenue raised from taxation, the government will not survive, resulting
in detriment to society. Without taxes, the government would be paralyzed for lack
of motive power to activate and operate it. (CIR vs. ALGUE)
 Taxes are the lifeblood of the government and there prompt and certain availability
is an imperious need.
 Taxes are the lifeblood of the nation through which the agencies of the
government continue to operate and with which the state effects its functions for
the benefit of its constituents

Illustrations of the lifeblood theory

 Collection of the taxes may not be enjoined by injunction

 Taxes could not be the subject of compensation or set off
 A valid tax may result in destruction of the taxpayer’s property
 Taxation is an unlimited and plenary power

2. Necessity theory

 Existence of a government is a necessity and cannot continue without any means

to pay for expenses

3. Benefits-protection theory (Symbiotic relationship)

 Reciprocal duties of protection and support between State and inhabitants.

Inhabitants pay taxes and in return receive benefits and protection from the State

H. Doctrines in taxation
Imprescriptibility of taxes

GENERAL RULE: Taxes are imprescriptible

EXCEPTION: They are prescriptible if the tax laws provide for statute of limitations

PRESCRIPTIVE PERIODS:
1) Prescriptive periods for the assessment and collection of taxes

 10 years if return is tainted with falsity or fraud

 3 years if there is no fraud

2) TARIFF AND CUSTOMS CODE

 After the expiration of 1 year from the payment of final duties.

 You should impose those custom duties that are supposed to be imposed on the
imported articles within the 1 year period, except if it is in the nature of partial
liquidation, if there is fraud or protest
3) LOCAL GOVERNMENT CODE

 Prescriptive periods for local taxes and real property tax

 5 years
 10 years if fraud has been employed
Progressive system of taxation vs. regressive system of taxation

 A progressive system of taxation means that tax laws shall place emphasis on
direct taxes rather than on indirect taxes, with ability to pay as the principal
criterion.

 A regressive system of taxation exists when there are more indirect taxes imposed
than direct taxes.

 No regressive taxes in the Philippine jurisdiction

I. Classification of Taxes
As to subject matter or object

 Personal, poll or capitation tax

o Tax of a fixed amount imposed on persons residing within a specified
territory, whether citizens or not, without regard to their property or the
occupation or business in which they may be engaged, i.e. community
tax.
 Property tax
o Tax imposed on property, real or personal, in proportion to its value or in
accordance with some other reasonable method of apportionment.
 Excise tax
o A charge imposes upon the performance of an act, the enjoyment of
privilege, or the engaging in an occupation.

As to purpose
 General/fiscal revenue tax is that imposed for the purpose of raising public funds for
the service of the government.

A special or regulatory tax is imposed primarily for the regulation of useful or non-
useful occupation or enterprises and secondarily only for the purpose of raising public
funds.

As to who bears the burden

1. Direct tax

A direct tax is demanded from the person who also shoul,ders the burden of the tax.
It is a tax which the taxpayer is directly or primarily liable and which he or she cannot
shift to another.

2. Indirect tax

An indirect tax is demanded from a person in the expectation and intention that he or
she shall indemnify himself or herself at the expense of another, falling finally upon the
ultimate purchaser or consumer. A tax which the taxpayer can shift to another.

As to the scope of the tax

 National tax
o A national tax is imposed by the national government.
 Local tax
o A local tax is imposed by the municipal corporations or local government
units (LGUs).

As to the determination of amount

1. Specific tax

A specific tax is a tax of a fixed amount imposed by the head or number or by

some other standard of weight or measurement. It requires no assessment other than
the listing or classification of the objects to be taxed.

2. Ad valorem tax

An ad valorem tax is a fixed proportion of the value of the property with respect
to which the tax is assessed. It requires the intervention of assessors or appraisers to
estimate the value of such property before due from each taxpayer can be
determined.
As to graduation or rate

 Proportional tax
o Tax based on a fixed percentage of the amount of the property receipts or
other basis to be taxed. Example: real estate tax.
 Progressive or graduated tax
o Tax the rate of which increases as the tax base or bracket increases.
 Digressive tax rate: progressive rate stops at a certain point. Progression halts at
a particular stage.
 Regressive tax
o Tax the rate of which decreases as the tax base or bracket increases.
There is no such tax in the Philippines.
J. Tax systems
Constitutional mandate

 The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation. [Section 28 (1), Article VI, Constitution]

 Regressivity is not a negative standard for courts to enforce. What Congress is

required by the Constitution to do is to “evolve a progressive system of taxation.”
This is a directive to Congress, just like the directive to it to give priority of the
enactment of law for the enhancement of human dignity. The provisions are put
in the Constitution as moral incentives to legislation, not as judicially enforceable
rights. (Tolentino v. Secretary of Finance.)

Progressive system of taxation vs. regressive system of taxation

 A progressive system of taxation means that tax laws shall place emphasis on
direct taxes rather than on indirect taxes, with ability to pay as the principal
criterion.

 A regressive system of taxation exists when there are more indirect taxes imposed
than direct taxes.

 No regressive taxes in the Philippine jurisdiction

Summary of classification of taxes:

 personal tax – also known as capitalization or poll tax;

 property tax – assessed on property of a certain class;
 direct tax – incidence and impact of taxation falls on one person and cannot be
shifted to another;
 indirect tax – incidence and liability for the tax falls on one person but the
burden thereof can be passed on to another;
 excise tax – imposed on the exercise of a privilege;
  general taxes – taxes levied for ordinary or general purpose of the government;
 special tax – levied for a special purpose;
 specific taxes – imposed on a specific sum by the head or number or by some
standards of weight or measurement;
 ad valorem tax – tax imposed upon the value of the article;
 local taxes – taxes levied by local government units pursuant to validly delegated
power to tax;
 progressive taxes – rate increases as the tax base increases; and
 regressive taxes – rate increases as tax base decreases.

GENERAL RULE:

- Taxes are personal to the taxpayer. Corporation’s tax delinquency cannot be

enforced on the stockholder or transfer taxes on the estate be assessed on the
heirs.

EXCEPTIONS:

1. stockholders may be held liable for unpaid taxes of a dissolved corporation if

the corporate assets have passed into their hands; and
2. heirs may be held liable for the transfer taxes on the estate, if prior to the
payment of the same, the properties of the decedent have been distributed to
the heirs.

K. Limitations on the power of taxation

Inherent limitations
 It must be imposed for a public purpose.
 If delegated either to the President or to a L.G.U., it should be validly delegated.
 It is limited to the territorial jurisdiction of the taxing authority.
 Government entities are exempted.
 International comity is recognized i.e. property of foreign sovereigns are not
subject to tax.

Constitutional limitations

Indirect

a) Due process clause

b) Equal protection clause
c) Freedom of the press
d) Religious freedom
e) Non-impairment clause
f) Law-making process
 One-subject – One-title Rule
 3 readings on 3 separate days Rule except when there is a Certificate of Emergency
 Distribution of copies 3 days before the 3rd reading.
g) Presidential power to grant reprieves, commutations and pardons, and remit fines and
forfeitures after conviction by final judgment.

Direct

a) Revenue bill must originate exclusively in H.R. but the Senate may propose with
amendments.

b) Non-imprisonment for non-payment of poll tax.

c) Taxation shall be uniform and equitable.

d) Congress shall evolve a progressive system of taxation.

e) Tax exemption of charitable institutions, churches and personages or convents

appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and
improvements ADE (actually, directly , exclusively) used for charitable, religious, and
educational purposes.

f) Tax exemption of all revenues and assets used actually directly and exclusively for
educational purposes of:

 Non-profit non-stock educational institutions.

 Proprietary or cooperative educational institutions subject to limitations provided

by law including:
o restriction on dividends
o provisions for re-investments.
g) Tax exemption of grants, endowments, donations or contributions ADE for educational
purposes, subject to conditions prescribed by law.

h) No tax exemption without the concurrence of a majority of all members of Congress.

i) SC power to review judgments or orders of lower courts in all cases involving – Legality
of any tax. Impost or toll, Legality of any penalty imposed in relation thereto.

L. SITUS OF TAXATION
  Place of taxation
 The State where the subject to be taxed has a situs may rightfully levy and collect
the tax
 In determining the situs of taxation, you have to consider the nature of the taxes

Example:

1) Poll tax, capitation tax, community tax

Residence of the taxpayer

2) Real property tax or property tax

Location of the property

 We can only impose property tax on the properties of a person whose residence
is in the Philippines.

EXCEPTIONS TO THE TERRITORIALITY RULE

A) Where the tax laws operate outside territorial jurisdiction

1) TAXATION of resident citizens on their incomes derived from abroad

B) Where tax laws do not operate within the territorial jurisdiction of the State

1) When exempted by treaty obligations

2) When exempted by international comity

Situs of tax on real property

 LEX REI SITUS or where the property is located

REASON:

 The place where the real property is located gives protection to the real property,
hence the property or its owner should support the government of that place

Situs of property tax on personal property

 MOBILIA SEQUNTUR PERSONAM

 movables follow the owner
 movables follow the domicile of the owner
 RULES:
1) TANGIBLE PERSONAL PROPERTY
 Where located, usually the owners domicile

2) INTANGIBLLE PERSONAL PROPERTY

G. R. – Domicile of the owner

EXCEPTION: The situs location not domicile: Where the intangible personal
property has acquired a business situs in another jurisdiction

 The principle of “MobiliaSequnturPersonam” is only for purposes of convenience.

It must yield to the actual situs of such property.
 Personal intangible properties which acquires business situs here in the Philippines:
1) Franchise which is exercised within the Philippines

2) Shares, obligations, bonds issued by a domestic corporation

3) Shares, obligations, bonds issued by a foreign corporation, 85% of its

business is conducted in the Philippines

4) Shares, obligations, bonds issued by a foreign corporation which shares

of stock or bonds acquire situs here

5) Rights, interest in a partnership, business or industry established in the

Philippines

 These intangible properties acquire business situs here in the Philippines, you
cannot apply the principle of “MobiliaSequnturPersonam” because the properties
have acquired situs here.
Situs of income tax

1. Domicillary theory

The location where the income earner resides in the situs of taxation

2. NATIONALITY THEORY

The country where the income earner is a citizen is the situs of taxation

i. SOURCE RULE

The country which is the source of the income or where the activity
that produced the income took place is the situs of taxation.

Situs of sale of personal property

 The place where the sale is consummated and perfected

Situs of tax on interest income

The residence of the borrower who pays the interest irrespective of the place
where the obligation was contracted

CIR vs. BOAC

 Revenue derived by an of-line international carrier without any flight from the
Philippines, from ticket sales through its local agent are subject to tax on gross
Philippine billings

Situs of excise tax

Where the transaction performed

HOPEWELL vs. COM. OF CUSTOMS

 The power to levy an excise upon the performance of an act or the engaging in
an occupation does not depend upon the domicile of the person subject to the
exercise, nor upon the physical location of the property or in connection with the
act or occupation taxed, but depends upon the place on which the act is performed
or occupation engaged in.

Thus, the gauge of taxability does not depend on the location of the office, but
attaches upon the place where the respective transaction is perfected and
consummated

M. Double taxation
 Taxing same property twice when it should be taxed but once. Taxing the same
person twice by the same jurisdiction over the same thing.

 Also known as duplicate taxation

PEPSI COLA vs. CITY OF BUTUAN

 There is no constitutional prohibition against double taxation in the Philippines. It

is something not favored but is permissible, provided that the other constitutional
requirements is not thereby violated

KINDS OF DOUBLE TAXATION

1) DIRECT DOUBLE TAXATION

 Double taxation in the objectionable or prohibited sense
 Same property is taxed twice

REQUISITES:

A) The same property is taxed twice when it should only be taxed once;

B) Both taxes are imposed on the same property or subject matter for the same
purpose;

C) Imposed by the same taxing authority;

D) Within the same jurisdiction;

E) During the same period; and

F) Covering the same kind or character of tax

2) INDIRECT DOUBLE TAXATION

 Not legally objectionable

 If taxes are not of the same kind, or the imposition are imposed for different
taxing authority and this may involve the same subject matter

EXAMPLES:

A) The taxpayers warehousing business although carried on in relation to the

operation of its sugar central is a distinct and separate taxable business

B) A license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax

C) Both a license fee and a tax may be imposed on the same business or
occupation for selling the same article and this is not in violation of the rules
against double taxation

D) When every bottle or container of intoxicating beverages is subject to local tax

and at the same time the business of selling such product is also subject to liquors
license

E) A tax imposed on both on the occupation of fishing and of the fishpond itself

F) A local ordinance imposes a tax on the storage of copra where it appears that
the finished products manufactured out of the copra are subject to VAT
Means employed to avoid double taxation

1) Tax deductions

2) Tax credits

o An amount allowed as a deduction of the Philippine Income tax on account

of income taxes paid or incurred to foreign countries. It is given to a
taxpayer in order to provide a relief from too onerous a burden of taxation
in case where the same income is subject to a foreign income tax and the
Philippine Income tax.
o WHO CAN CLAIM TAX CREDIT
1) Citizens of the Philippines

2) Domestic corporations

CITY OF BAGUIO vs. DE LEON

 The argument against double taxation may not be invoked where one tax is
imposed by the state and the other imposed by the city, it being widely recognized
that there is nothing inherently obnoxious in the requirement that license fees or
taxes be exacted with respect to the same occupation, calling or activity by both
the state and a political subdivision thereof. And where the statute or ordinance in
question applies equally to all persons, firms and corporations placed in a similar
situation, there is no infringement of the rule on equality.

VILLANUEVA vs. CITY OF ILOILO

 An ordinance imposing a municipal tax on tenement houses was challenged

because the owners already pay real estate taxes and also income taxes under the
NIRC. The Supreme Court held that there was no double taxation. The same tax
may be imposed by the National Government as well as the local government.
There is nothing inherently obnoxious in the exaction of license fees or taxes with
respect to the same occupation, calling or activity by both the state and a political
subdivision thereof. Further, a license tax may be levied upon a business or
occupation although the land used in connection therewith is subject to property
tax.

3) Provide for exemption

4) Enter into treatise with other states

5) Allowance on the principle of reciprocity

DOCTRINES ON DOUBLE TAXATION

1) Direct Double Taxation (DDT) is not allowed because it amounts to confiscation of

property without due process of law

2) You can question the validity of double taxation if there is a violation of the Equal
protection clause or Equality or Uniformity of Taxation

3) All doubts as to whether double taxation has been imposed should be resolved in favor
of the taxpayer

Escape from taxation

I. SHIFTING

 Shifting is the transfer of the burden of a tax by the original payer or the one on
whom the tax was assessed or imposed to someone else

 Process by which such tax burden is transferred from statutory taxpayer to another
without violating the law

 It should be borne in mind that what is transferred is not the payment of the tax,
but the burden of the tax

 Only indirect taxes may be shifted; direct taxes cannot be shifted

Ways of shifting the tax burden

1) FORWARD SHIFTING

When the burden of the tax is transferred from a factor of production through the
factors of distribution until it finally settles on the ultimate purchaser or consumer.

Example:

- Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts
it to the retailer, who also shifts it to the final purchaser or consumer

2) BACKWARD SHIFTING

When the burden of the tax is transferred from the consumer or purchaser through
the factors of distribution to the factors of production

Example:
 - Consumer or purchaser may shift tax imposed on him to retailer by purchasing
only after the price is reduced, and from the latter to the wholesaler, or finally to
the manufacturer or producer

2) ONWARD SHIFTING

When the tax is shifted two or more times either forward or backward

Example:

- Thus, a transfer from the seller to the purchaser involves one shift; from the
producer to the wholesaler, then to retailer, we have two shifts; and if the tax is
transferred again to the purchaser by the retailer, we have three shifts in all.

Impact and Incidence of Taxation

 Impact of taxation is the point on which a tax is originally imposed. In so far as

the law is concerned, the taxpayer is the person who must pay the tax to the
government. He is also termed as the statutory taxpayer-the one on whom the tax
is formally assessed. He is the subject of the tax

 Incidence of taxation is that point on which the tax burden finally rests or settle
down. It takes place when shifting has been effected from the statutory taxpayer
to another.

Statutory Taxpayer

 The Statutory taxpayer is the person required by law to pay the tax or the one on
whom the tax is formally assessed. In short, he or she is the subject of the tax.

 In direct taxes, the statutory taxpayer is the one who shoulders the burden of the
tax while in indirect taxes, the statutory taxpayer is the one who pay the tax to
the government but the burden can be passed to another person or entity.

Relationship between impact, shifting, and incidence of a tax

 The impact is the initial phenomenon, the shifting is the intermediate process, and
the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller
(manufacturer) who shifts the burden to the customer who finally bears the
incidence of the tax.

 Impact is the imposition of the tax; shifting is the transfer of the tax; while
incidence is the setting or coming to rest of the tax.

II. CAPITALIZATION
  Reduction is the price of the taxed object equal to the capitalized value of future
taxes on the property sold

 This is a special form of backward shifting, where the burden of future taxes
which the buyer may have to pay is shifted back to the seller in the form of
reduction in the selling price

III. TRANSFORMATION

The manufacturer in an effort to avoid losing his customers, maintains the same
selling price and margin of profit, not by shifting the tax burden to his customers,
but by improving his method of production and cutting down or other production
cost, thereby transforming the tax into or earn through the medium of production.

IV. TAX AVOIDANCE

 Also known as “tax minimization”

 not punished by law
 Tax avoidance is the exploitation of the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable property or income in
order to avoid or reduce tax liability

DELPHERS TRADERS CORP vs. IAC (157 SCRA 349)

 The Supreme Court upheld the estate planning scheme resorted to by the Pacheco
family in converting their property to shares of stock in a corporation which they
themselves owned and controlled. By virtue of the deed of exchange, the Pacheco
co-owners saved on inheritance taxes. The Supreme Court said the records do not
point anything wrong and objectionable about this estate planning scheme
resorted to. The legal right of the taxpayer to decrease the amount of what
otherwise could be his taxes or altogether avoid them by means which the law
permits cannot be doubted.

Example:

Following the “holding period rule” in capital gains transaction, by postponing the
sale of the capital asset until after twelve months from date of acquisition you can
reduce the tax on the capital gains by 50%

V. TAX EXEMPTION

 It is the grant of immunity to particular persons or corporations or to persons or

corporations of a particular class from a tax which persons and corporations
generally within the same state or taxing district are obliged to pay. It is an
 immunity or privilege; it is freedom from a financial charge or burden to which
others are subjected.

 Exemption is allowed only if there is a clear provision there for.

 It is not necessarily discriminatory as long as there is a reasonable foundation or

rational basis.

 Exemptions are not presumed, but when public property is involved, exemption is
the rule and taxation is the exemption.

Rationale for granting tax exemptions

 Its avowed purpose is some public benefit or interests which the lawmaking body
considers sufficient to offset the monetary loss entailed in the grant of the
exemption.

 The theory behind the grant of tax exemptions is that such act will benefit the
body of the people. It is not based on the idea of lessening the burden of the
individual owners of property.

Grounds for granting tax exemptions

 May be based on contract. In such a case, the public, which is represented by the
government is supposed to receive a full equivalent therefor, i.e. charter of a
corporation.
 May be based on some ground of public policy, i.e., to encourage new industries
or to foster charitable institutions. Here, the government need not receive any
consideration in return for the tax exemption.
 May be based on grounds of reciprocity or to lessen the rigors of international
double or multiple taxation
Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a
clear provision therefor.

Nature of tax exemption

 It is a mere personal privilege of the grantee.
 It is generally revocable by the government unless the exemption is founded on a
contract which is contract which is protected from impairment.
 It implies a waiver on the part of the government of its right to collect what
otherwise would be due to it, and so is prejudicial thereto.
 It is not necessarily discriminatory so long as the exemption has a reasonable
foundation or rational basis.
  It is not transferable except if the law expressly provides so.
Kinds of tax exemption according to manner of creation

1) Express or affirmative exemption

When certain persons, property or transactions are, by express provision,

exempted from all certain taxes, either entirely or in part.

2) Implied exemption or exemption by omission

When a tax is levied on certain classes of persons, properties, or transactions

without mentioning the other classes.

TN: Every tax statute makes exemptions because of omissions.

 No tax exemption by implication

 It must be expressed in clear and unmistakable language

CALTEX vs. COA

 In claiming tax exemption, the burden of proof lies upon the claimant
 It cannot be created by mere implication
 It cannot be presumed that you are entitled to tax exemption
 You must prove it
RULE:

Taxation is the rule and exemption is the exception

PROPERTY TAX – GOVERNMENT PROPERTY

 Properties owned by the government whether in their proprietary or governmental

capacity are exempt from real estate tax
TEST:

- OWNERSHIP

 Once established that it belongs to the government, the nature of the use of the
property whether proprietary or sovereign becomes immaterial.

 Exemption of public property from taxation does not extend to improvements

therein made by occupants or claimants at their own expense.

Kinds of tax exemptions according to scope or extent

1) TOTAL

When certain persons, property or transactions are exempted, expressly or

impliedly from all taxes

2) PARTIAL

When certain persons, property or transactions are exempted, expressly or

impliedly from certain taxes, either entirely or in part.

3) There can be no simultaneous exemptions under two laws, when one grants partial
exemption while other grants total exemption.

Does provision in a statute granting exemption from “all taxes” include indirect taxes?

 NO. As a general rule, indirect taxes are not included in the grant of such
exemption unless it is expressly stated.

VI. TAX REMISSION OR TAX CONDONATION

 The word “remit” means to desist or refrain from exacting, inflicting or enforcing
something as well as to restore what has already been taken. The remission of
taxes due and payable to the exclusion of taxes already collected does not
constitute unfair discrimination. Such a set of taxes is a class by itself and the law
would be open to attack as class legislation only if all taxpayers belonging to one
class were not treated alike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370]

 The condition of a tax liability is equivalent to and is in the nature of a tax

exemption. Thus, it should be sustained only when expressly provided in the law.
[Surigao Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728]

VII. TAX AMNESTY

 Tax amnesty, being a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation
of a revenue to collect what otherwise would be due it and, in this sense,
prejudicial thereto. It is granted particularly to tax evaders who wish to relent and
are willing to reform, thus giving them a chance to do so and thereby become a
part of the new society with a clean slate. [ Republic v. Intermediate Appellate
Court, 196 SCRA 335]
  Like tax exemption, tax amnesty is never favored nor presumed in law. It is
granted by statute. The terms of the amnesty must also be construed against the
taxpayer and liberally in favor of the government.

Tax amnesty v. tax condonation v. tax exemption

 A tax amnesty, being a general pardon or intentional overlooking by the Statute

of its authority to impose penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by
the Government of its right to collect what otherwise would be due it and, in this
sense, prejudicial thereto, particularly to tax evaders who wish to relent and are
willing to reform are given a chance to do so and therefore become a part of the
society with a clean slate.

 Like a tax exemption, a tax amnesty is never favorednor presumed in law, and is
granted by statute. The terms of the amnesty must be strictly construed against
the taxpayer and literally in favor of the government. Unlike a tax exemption,
however, a tax amnesty has limited applicability as to cover a particular taxing
period or transaction only.

 There is a tax condonation or remission when the State desists or refrains from
exacting, inflicting or enforcing something as well as to reduce what has already
been taken. The condonation of a tax liability is equivalent to and is in the nature
of a tax exemption. Thus, it should be sustained only when expressed in the law.

 Tax exemption, on the other hand, is the grant of immunity to particular persons
or corporations of a particular class from a tax of which persons and corporations
generally within the same state or taxing district are obliged to pay. Tax
exemptions are not favored and are construed strictissimijurisagainst the taxpayer.

CIR vs. RIO TUBA

 > Law granting partial refund partakes the nature of a tax exemption and therefore
must be strictly construed against the taxpayer

CIR vs. TOUR SPECIALIST

 > Gross receipts subject to tax under the tax code do not include monies or
receipts entrusted to the taxpayer which do not belong to it and does not redound
to the taxpayers benefit, and it is not necessary that there must be a law or
regulation which would exempt such monies and receipts within the meaning of
gross receipts.

VIII. TAX EVASION

 It is also known as “tax dodging”

  It is punishable by law
 Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or
lessen the payment of tax.

YUTIVO vs. CTA

Tax evasion is a term that connotes fraud through the use of pretenses or
forbidden devices to lessen or defeat taxes

ELEMENTS OF TAX EVASION

Tax evasion connotes the integration of three (3) factors:

1) The end to be achieved, i.e. payment of less than that known by the taxpayer to be
legally due, or paying no tax when it is shown that tax is due

2) An accompanying state of mind which is described as being “evil”, “in bad faith”,
“willful”, or “deliberate” and not “accidental”

3) A course of action (or failure of action) which is unlawful

INDICIA of FRAUD IN TAX EVASION

1) Failure to declare for taxation purposes true and actual income derived from business
for two (2) consecutive years; or

2) Substantial underdeclaration of income tax returns of the taxpayer for four (4)
consecutive years coupled with unintentional overstatement of deductions

EVIDENCE TO PROVE TAX EVASION

Since fraud is a state of mind, it need not be proved by direct evidence but may
be proved from the circumstances of the case.

REPUBLIC vs. GONZALES (13 SCRA 638)

Failure of the taxpayer to declare for taxation purposes his true and actual income
derived from his business for two (2) consecutive years is an indication of his
fraudulent intent to cheat the government of its due taxes.

N. Construction and interpretation

a) Tax laws
 1. Legislative intent – Tax statutes are to receive reasonably construction with the
view to carry out their purpose and intent. If there is some issue on construction
and interpretation, we determine what was the intent of the legislators. We go
back to the deliberations, debates, arguments.

2. When there is doubt – In case of doubt, they are construed strictly against the
government and liberally in favor of the taxpayer. Tax laws are, therefore, given
liberal construction for the reason that taxes are burdens.

3. Where the language is plain - But when the language of the tax law is plain and
clear, which does not require independent interpretation or construction, the rule
of strict construction against the government is not applicable where the language
of the tax statute is plain and there is not doubt as to its legislative intent.

b) Tax exemption and exclusion

 General rule:

o In the construction of tax statutes, exemptions are not favored and are
construed strictissimijurisagainst the taxpayer. The fundamental theory is
that all taxable property should bear its share in the cost and expense of
the government.

o Taxation is the rule and exemption is the exemption.

o He who claims exemption must be able to justify his claim or right thereto
by a grant express in terms “too plain to be mistaken and too categorical
to be misinterpreted.” If not expressly mentioned in the law, it must be at
least within its purview by clear legislative intent.

 Exceptions

1) When the law itself expressly provides for a liberal construction thereof.

2) In cases of exemptions granted to religious, charitable and educational institutions or

to the government or its agencies or to public property because the general rule is that
they are exempt from tax.

Strict interpretation does not apply to the government and its agencies

 Petitioner cannot invoke the rule on stritissimijuris with respect to the

interpretation of statutes granting tax exemptions to the NPC. The rule on strict
interpretation does not apply in the case of exemptions in favor of a political
subdivision or instrumentality of the government. [Maceda v. Macaraig]
Davao Gulf v. Commissioner, 293 SCRA 76 (1998)

 A tax cannot be imposed unless it is supported by the clear and express language
of a statute; on the other hand, once the tax is unquestionably imposed, “a claim
of exemption from tax payers must be clearly shown and based on language in
the law too plain to be mistaken.” Since the partial refund authorized under Section
5, RA 1435, is in the nature of a tax exemption, it must be
construedstrictissimijurisagainst the grantee. Hence, petitioner’s claim of refund
on the basis of the specific taxes it actually paid must expressly be granted in a
statute stated in a language too clear to be mistaken.

 Exemption of the buyer does not extend to the seller

 Exemption of the principal does not extend to the accessory

SURIGAO vs. COLLECTOR of CUSTOMS

 Tax refunds, condonations and amnesties, they being in the nature of tax
exemptions must be strictly construed against the taxpayer and liberally in favor
of the government.

II. National Internal Revenue Code of 1997, as amended (NIRC)

A. Income taxation

Income is the flow of wealth which goes into the hands of the taxpayer other than
the return of capital.

1. Income tax systems

a) Global tax system

This is also known as the totality or the aggregate approach.The Global System of
Taxation of Income follows the principle that all income are one and the same.
There is no variance as to the type, the purpose, the character and the kind of
income.

b) Schedular tax system

This is also known as differentiated or segregated approach. The Schedular System

of Taxation recognizes that income are different from each other. There is a
distinction and differentiation on tax treatment and character. A type of income
is to be differentiated from another type of income. All income are not one and
the same.Also includes the system of “pay-as-you-go”
 c) Semi-schedular or semi-global tax system

2. Features of the Philippine income tax law

a) Direct tax
b) Progressive
c) Comprehensive
d) Semi-schedular or semi-global tax system

3. Criteria in imposing Philippine income tax

a) Citizenship principle
b) Residence principle
c) Source principle

4. Types of Philippine income tax

a) Compensation income
b) Business/Trade/Professional Income
c) Passive Income
One which the taxpayer merely waits for the amount/income to come in.
Examples: Royalties, Interests, Prizes.
d) Capital Gains
Derived from sale of capital assets (Sec. 22, NIRC) or properties

5. Taxable period

a) Calendar period
b) Fiscal period
c) Short period

6. Kinds of taxpayers and taxes imposed (Sec. 23, NIRC)

a) Individual taxpayers
(i) Citizens

(a) Resident citizens

Taxable on all income derived from sources within and without the
Philippines.

(b) Non-resident citizens

Taxable only on income derived from sources within the Philippines.
But if working abroad, taxable only on income derived from sources
within. TN: Seamen who receives compensation for services
 rendered abroad as a member of the complement of a vessel
engaged exclusively in international trade shall be treated as an
overseas contract worker.

(ii) Aliens
(a) Resident aliens
One who permanently stays in the Philippines or goes out less
than 183 days.
(b) Non-resident aliens
(1) Engaged in trade or business
One who stays in the Philippines for more than 180
days.
(2) Not engaged in trade or business
TN: These persons are taxable only on income derived from sources
within.

(iii) Special class of individual employees

(a) Minimum wage earner
The statutory minimum wage earners are no longer taxable.
They are exempted from payment of income tax. The
determination of statutory wages is determined on a regular
basis by the RTWPB. (R.A. 9504, July 2008)

b) Corporations
(i) Domestic corporations
(ii) Foreign corporations
(a) Resident foreign corporations
(b) Non-resident foreign corporations
(iii) Joint Venture and Consortium

c) Partnerships
In the case of business partnerships, they are taxed like corporations.

d) General professional partnerships

e) Estates and trusts

In the case of estates and trusts, they are taxable like individuals.

f) Co-ownerships

7. GROSS INCOME

A. (Sec. 32, NIRC) Sources of income but not limited to the following:
 (1) Compensation for services in whatever form paid, including, but not limited to
fees, salaries, wages, commissions, and similar items;

(2) Gross income derived from the conduct of trade or business or the exercise of
a profession;

(3) Gains derived from dealings in property;

(4) Interests;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Annuities;

(9) Prizes and winnings;

(10) Pensions; and

(11) Partner's distributive share from the net income of the general professional
partnership.

B) Exclusions from Gross Income (Exempt from Tax):

(1) Life Insurance.- When you are indemnified for such loss or insurance proceeds
are paid for such loss, what you have is a return of capital. That is excluded and not
subject to income tax.

But if such amounts are held by the insurer under an agreement to pay interest,
then, income is earned by way of the interest but not on the principal amount covering
the proceeds of the policy.

(2) Amount Received by Insured as Return of Premium. - These are return of

premiums. They represent return of capital. They are not income.

(3) Gifts, Bequests, and Devises. - The value of property acquired by gift, bequest,
devise, or descent: Provided, however, That income from such property, as well as
gift, bequest, devise or descent of income from any property, in cases of transfers of
divided interest, shall be included in gross income.

(4) Compensation for Injuries or Sickness. - These are forms of indemnity. These
are return of capital. Actual damages in payment for hospitalization and other medical
 expenses are not income. Moral damages are not income. But if they are damages
for payment of loss of income or loss of earning capacity, then, they are taxable
income.

(5) Income Exempt under Treaty. - Income of any kind, to the extent required by
any treaty obligation binding upon the Government of the Philippines.

(6) Retirement Benefits, Pensions, Gratuities, etc.-


Retirement benefits received under Republic Act No. 7641 (Labor Code) and those
received by officials and employees of private firms, whether individual or
corporate, in accordance with a reasonable private benefit plan maintained by the
employer
REQUIREMENTS FOR EXCLUSION:

(1) The private benefit plan must be registered by the employer of with the BIR.

(2) Length of service – the retiring official or employee has been in the service
of the same employer for at least ten (10) years

(3) Age – the retiring official or employee is not less than fifty (50) years of age at
the time of his retirement

(4) That the benefits shall be availed of by an official or employee only once.

Absence of one, the said retirement benefits are taxable.

Suppose there is a higher standard of retirement, which will prevail? If the employer sets
up a higher standard than the one set up by your tax code, it will be standards of the
employer that will be prevail. If you retire lower than the standards set up required by
the tax code, your retirement it will be taxable.


Any amount received by an official or employee or by his heirs from the employer
as a consequence of separation of such official or employee from the service of
the employer because of death, sickness or other physical disability or for any
cause beyond the control of the said official or employee.
This refers to separation pay.As a rule, separation pay is taxable. It becomes excluded
when it is payment by reason of death, sickness or other physical disability or for any
cause beyond the control of the said official or employee.

If you resign and you are given a separation pay, that is taxable because that is a
cause within the control of the employee.
 There are resignations which are beyond the control of the employee such as in the
case of mergers or consolidations. The separation pay given in such circumstances is
excluded because despite the resignation, it is a cause beyond the control of the
employee.

 The provisions of any existing law to the contrary notwithstanding, social security
benefits, retirement gratuities, pensions and other similar benefits received by
resident or nonresident citizens of the Philippines or aliens who come to reside
permanently in the Philippines from foreign government agencies and other
institutions, private or public.
 Payments of benefits due or to become due to any person residing in the
Philippines under the laws of the United States administered by the United States
Veterans Administration.
 Benefits received from or enjoyed under the Social Security System in accordance
with the provisions of Republic Act No. 8282.
 Benefits received from the GSIS under Republic Act No. 8291, including retirement
gratuity received by government officials and employees.
As a rule, prizes and awards are taxable. They are excluded in the instances provided.

(7) Prizes and Awards in Sports Competition. - All prizes and awards granted to
athletes in local and international sports competitions and tournaments whether held in
the Philippines or abroad and sanctioned by their national sports associations.As a rule,
prizes and awards in sports competition are taxable. They are excluded under the
conditions aforementioned.

(8) 13th Month Pay and Other Benefits. - Gross benefits received by officials and
employees of public and private entities: Provided, however, That the total exclusion
under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall
cover:

(i) Benefits received by officials and employees of the national and local
government pursuant to Republic Act No. 6686;

(ii) Benefits received by employees pursuant to Presidential Decree No. 851, as

amended by Memorandum Order No. 28, dated August 13, 1986;

(iii) Benefits received by officials and employees not covered by Presidential

decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986;
and
 (iv) Other benefits such as productivity incentives and Christmas bonus:
Provided, further, That the ceiling of Thirty thousand pesos (P30,000) may be increased
through rules and regulations issued by the Secretary of Finance, upon
recommendation of the Commissioner, after considering among others, the effect on
the same of the inflation rate at the end of the taxable year.

(9) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pag-ibig
contributions, and union dues of individuals.

(10) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness.
- Gains realized from the same or exchange or retirement of bonds, debentures or other
certificate of indebtedness with a maturity of more than five (5) years.

(11) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the investor
upon redemption of shares of stock in a mutual fund company as defined in Section 22
(BB) of this Code.

8. Optional Standard Deduction:

Before, only individuals engaged in business or practice their profession, who are
citizens and resident aliens (excluding non-resident aliens) can avail of OSD. The
availment of the OSD is also now allowed to corporations.

It used to be 10% of the gross income. It is now 40% of the gross income.

9. Personal Exemptions:

Before, we used to have the scaling of the status of the individual – single, head of
the family or married. Now, regardless of your status, you have a personal exemption of
P 50,000.

 Additional Exemptions:
It used to be P 8,000, maximum of 4. It is now increased to P 25,000, maximum of
4.

10. Resident Citizen’s income from outside the Philippines:

The foreign income of the resident citizen is not anymore treated as schedular. It will
be treated as global. All income from foreign source is taxed at 5% to 32%. There is no
distinction as to the kind of income, as long as they are from a foreign source.

11. Corporate income tax

 Income in general – the rate is 35%. Beginning January 1, 2009), the corporate
income tax will be reduced to 30%.

The rate of 30% of non-resident foreign corporations is at gross (without the benefit
of deductions). For the domestic and resident foreign corporations, the 30% tax is based
on taxable income, with the benefit of deductions.

The treatment of the foreign source income of a domestic corporation, regardless of

the nature of that income, is at a global rate of 30%.

In the case of GOCCs, the rule is that they are taxable. Those which are not taxable
are GSIS, SSS, PhilHealth and PCSO. PAGCOR has been removed under RA 9337 as being
exempted. So, PAGCOR is already taxable.

In the case of proprietary educational institutions and hospitals, they are subject, as
a rule, to the regular corporate income tax. Unless, under the predominance test,
where they are entitled to a 10% tax on their taxable income provided that the
predominant income is the educational or hospital income. If the predominant income
(more than 50%) of the proprietary educational or hospital is from unrelated income or
unrelated business, then, it will be subject to regular rates.

12. MINIMUM CORPORATE INCOME TAX or MCIT

Minimum Corporate Income Tax on Domestic Corporations. (Sec. 27, NIRC) —

A minimum corporate income tax of two percent (2%) of the gross income as of the end
of the taxable year, as defined herein, is hereby imposed on a corporation taxable under
this Title, beginning on the fourth taxable year immediately following the year in which
such corporation commenced its business operations, when the minimum income tax is
greater than the tax computed under Subsection (A) of this Section for the taxable year.

Minimum Corporate Income Tax on Resident Foreign Corporations. (Sec. 28, NIRC) —

A minimum corporate income tax of two percent (2%) of gross income, as prescribed
under Section 27(E) of this Code, shall be imposed, under the same conditions, on a
resident foreign corporation taxable under paragraph (1) of this Subsection.

 The MCIT applies to both domestic corporations and to the resident foreign
corporations.
 In its application, the tax due computed during the tax year at 35% is compared
to the 2% of gross income. The tax due payable is whichever is higher.
 When we say that the MCIT applies beginning on the 4th taxable year immediately
following the year in which the corporation commenced business, it means that
 newly established corporations will not yet be subject to the MCIT. When the
corporation has been in the business and operating for 4 years or more at the time
this tax became effective, then, that provision is covered.
 Prior to RA 9337, the MCIT was annualized – you determine the tax to be paid,
whether MCIT or 35%, at the end of the year. When RA 9337 took effect in 2005,
the application of the MCIT is now on a quarterly basis.
 Corporations are required to file quarterly returns. In the case of corporations
subject to MCIT, they have to determine at the end of the quarter the taxable
income computed under the MCIT and under the 35% rate.
 There is no 4th quarter return for you will have the annual return.
13. Imposition of Improperly Accumulated Earnings Tax. (Sec. 29, NIRC)

The improperly accumulated earnings tax is in addition to your income tax.

This actually operates more as a penalty tax or a surtax. It is imposed on the
improperly accumulated taxable income of the corporation. For improperly
accumulating earnings beyond the reasonable needs of the business, the
corporation will be subject to 10% on the improperly accumulated taxable income.

When corporations are set up and it continues to accumulate profits beyond

the reasonable means of the business, the tax code penalizes these corporations
because corporations should not accumulate beyond its business needs. It should
distribute their earnings to the stockholders, to the owners of the corporations,
whether individuals or corporations. Otherwise, if they would accumulate earnings
beyond the reasonable means of the business, then, it would be penalized and
subject at 10% improper accumulated earnings tax on the basis of improperly
accumulated taxable income. This is in addition to the regular corporate income
tax that it will pay.

The improperly accumulated earnings tax shall apply to every corporation

formed or availed for the purpose of avoiding the income tax with respect to its
shareholders or the shareholders of any other corporation by permitting earnings
and profits to accumulate instead of being divided or distributed.

So as not to be penalized, the corporation has to declare dividends. If the

corporation accumulates earnings, there must be a business purpose for it not to
be penalized.

This penalty tax will not apply to:

 1. Publicly-held corporations; (corporations which are traded in the stock
exchange)
2. Banks and other non-bank financial intermediaries
3. Insurance companies

Remember that the distribution of dividends to the individual taxholders is a

taxable distribution, except when the distribution is made to another corporation
where it is tax-free distribution of dividends.

14. DEDUCTIONS (See Sec. 34, 35, 37, and 61)

 Prior to RA 9504, corporate taxpayers were only entitled to avail of the itemized
deductions. Now, under RA 9504, both the individual and corporate taxpayers
may avail the itemized or the optional standard deduction (OSD).
15. ESTATE TAX

1. Basic principles

Transfer taxes - imposed upon the privilege of disposing gratuitously private properties.
These are levied on the transmission of properties from a decedent to his heirs or from a
donor to a donee.

2. Definition

It is an excise tax imposed upon the privilege of transmitting property at the time of
death and on the privilege that a person is given in controlling to a certain extent the
disposition of his property to take effect upon death.

The tax should not be construed as a direct tax on the property of the decedent although
the tax is based thereon.

Estate Tax vs. Inheritance Tax

Inheritance tax - It is the tax on the privilege to receive property from a deceased
person. This has been abolished by P.D. 69 passed on November 24, 1972, effective
January 1, 1973 due to administrative difficulty in its collection.
Note: Presently, there is no inheritance tax imposed by law. Only estate taxes are
imposed.

3. Nature
They are excise taxes; not property taxes.
Note: They are not property taxes because their imposition does not rest upon general
ownershipbut rather they are privilege tax since they are i
4. Purpose or object
1. Generate additional revenue for the government
2. Reduce the concentration of wealth
3. Provide for an equal distribution of wealth
4. Compensate the government for the protection given to the decedent that enabled
him to prosper and accumulate wealth
Note: Generally, the purpose of the estate tax is to tax the shifting of economic benefits
and enjoyment of property from the dead to the living

5. Time and transfer of properties

Q: When are the properties and rights transferred to successors?
A: The properties and rights are transferred to the successors at the time of death.
(Art. 777, Civil Code)
Q: What law governs the imposition of the estate tax?
A: The statute in force at the time of death of the decedent.
Q: When does estate tax accrue?
A: The estate tax accrues as of the death of the decedent. The accrual of the tax is
distinct from the obligation to pay the same which is 6 months after the death of the
decedent.

6. Classification of decedent
Q: Who are the taxpayers liable to pay estate tax?
A: Only individuals -
1. Resident citizen
2. Non-resident citizen
3. Resident alien
4. Non-resident alien

Note: Domestic and foreign corporations are subject only to donor’s tax and not to estate
tax because it is not capable of death but may enter into a contract of donation.
7. Gross estate vis-à-vis net estate

Q: What is the estate tax formula?

Gross estate(Sec. 85)

Less: (1) Deductions (Sec 86)
(2) Net share of the surviving spouse___
Net Estate
x Tax rate(Sec. 84)
Estate tax due
Less: Tax credit (if any) (Sec. 86(E) or 110(B))
Estate Tax Due, if any
8. Determination of gross estate and net estate

Q: How is the gross estate determined?

1. If the decedent is a resident or non-resident citizen, or a resident alien – All properties,
real or personal, tangible or intangible, wherever situated.
2. If the decedent is a non-resident alien – Only properties situated in the Philippines
provided that, intangible personal property is subject to the rule of reciprocity provided
for under Section 104 of the NIRC. (Section 85, NIRC)

9. Composition of gross estate

1. Decedent's interest
2. Transfer in contemplation of death
3. Revocable transfer
4. Property passing under general power of appointment
5. Proceeds of life insurance
6. Prior interests
7. Transfers of insufficient consideration

Note: Nos. 2, 3, 4 and 7- properties not physically in the estate (these have already been
transferred during the lifetime of the decedent but are still subject to payment of estate
tax) - are transfers inter-vivoswhich are considered part of gross estate.

10. Items to be included in gross estate

A: If the decedent is a resident If the decedent is a non-resident alien

citizen, non-resident citizen, or
resident alien
Value at the time of death of all: Value at the time of death of all:
1. Real property wherever situated 1. Tangible personal property situated in the
2. Personal property, tangible or Philippines
intangible, wherever situated 2. Intangible personal property with situs in
3. To the extent of the interest therein of the Philippines unless exempted on the basis
the decedent at the time of his death. of reciprocity

F. Tax remedies under the NIRC

What are the remedies available to the taxpayer?

1. Administrative
 Before payment of taxes:
a. Dispute Assessment (Protest)
i. Request for reconsideration
ii. Request for reinvestigation
 b. Entering a compromise agreement
 After payment of taxes:
a. Claim for Tax Refund
2. Judicial
a. Civil
b. Criminal
3. Substantive
a. Question validity of tax statute/ regulation
b. Non-retroactivity of rulings
c. Must be informed of the legal and factual bases of assessment
d. Preservation of books of accounts and examination once a year

Importance of tax remedies:

1. To the government - For the regular collection of revenue necessary for the existence
of the government.
2. To the taxpayer - They are safeguards of the taxpayer’s rights against arbitrary action.

Subjects of tax remedies in internal revenue taxation

They include the action of the BIR where there may be controversy between the taxpayer
and the State such as:
1. Assessment of internal revenue taxes
2. Collection of internal revenue taxes
3. Refund of internal revenue taxes
4. Imposition of administrative or civil fines, penalties, interests or surcharges;
promulgation and/or enforcement of administrative rules and regulations for the effective
and efficient enforcement of internal revenue laws
5. Prosecution of criminal violations of internal revenue laws.

Q: State the “No injunction to restrain tax collection rule.”

A: GR: Under this rule, “No court shall have the authority to grant an injunction to restrain
the collection of any national internal revenue, tax, fee or charge.” (Sec. 219, R.A. 8424)
XPN: The CTA can issue injunction in aid of its appellate jurisdiction if in its opinion the
same may jeopardize the interest of the government and/or the taxpayer. In this instance,
the court may require the taxpayer either to deposit the amount claimed or file a surety
bond for not more than double the amount with the court. (RA 1125 as amended by RA
9282)
Note: The Lifeblood doctrine requires that the collection of taxes cannot be enjoined,
without taxation, a government can neither exist nor endure.

Assessment
 It is a written notice to a taxpayer to the effect that the amount stated therein is
due as tax and containing a demand for the payment. It is a finding by the taxing
agency that the taxpayer has not paid his correct taxes.

Note: A notice of assessment contains not only a computation of tax liabilities but also a
demand for the payment within a prescribed period. It also signals the time when
penalties and interests begin to accrue.

Importance of a tax assessment

AS TO THE GOVERNMENT
1. In the proper pursuit of judicial and extrajudicial remedies
2. To enforce taxpayer liabilities and certain matters that relate to it, such as the
imposition of surcharges and interests;
3. To inform the taxpayer of his liabilities;
4. In the establishment of tax liens; and
5. In estimating the revenues that may be collected by the government.

AS TO THE TAXPAYER
1. In the proper pursuit of judicial and extrajudicial remedies
2. In the application of the Statute of Limitations;
3. To determine the period within which to protest.
4. To determine prescription of government claim.

Nature of an assessment

It is merely a notice to the effect that the amount stated therein is due as tax and
containing a demand for the payment. (Alhambra Cigar Mfg. Co. v. CIR, GR L-23226,
Nov. 28, 1967)

Q: Who has the burden of proof in pre-assessment proceedings?

A: The burden of proof is on the taxpayer for there is a presumption of correctness on

the part of the CIR. Otherwise, the finding of the CIR will be conclusive and the CIR will
assess the taxpayer. If the taxpayer does not controvert, such finding is conclusive,
even if the CIR is wrong.

Principles governing tax assessments (PAD3)

Assessments are:

a. Prima facie presumed correct and made in good faith;

b. Should be based on actual facts; (estimates can also be a basis given that it is not
arrived at arbitrarily or capriciously)

c. Discretionary on the part of the Commissioner;

d. Must be directed to the right party;

e. Authority to assess maybe delegated.

Q: Is the assessment made by the CIR subject to judicial review?

A: No, for such power is discretionary. What may be the subject of a judicial review is
the decision of the CIR on the protest against the assessment, not the assessment
itself.

Q: Are taxes self-assessing?

A: GR: Taxes are generally self-assessing and do not require the issuance of an
assessment notice in order to establish the tax liability of a taxpayer.

XPNs:

1. Improperly Accumulated Earnings Tax (Sec. 29, NIRC)

2. When the taxable period of a taxpayer is terminated (Sec. 6 [D], NIRC)

3. In case of deficiency tax liability arising from a tax audit conducted by the BIR (Sec.
56 [B], NIRC)

4. Tax lien (Sec. 219, NIRC)

5. Dissolving corporation (Sec. 52 [c], NIRC)

Requisites for Valid Assessment

1. Be in writing and signed by the BIR;

2. Contain the law and the facts on which the assessment is made; and

3. Contain a demand for payment within the prescribed period. (Sec. 228, NIRC)

Different kinds of assessments

1. Pre-Assessment – informs the taxpayer of the findings of the examiner who

recommends a deficiency assessment. The taxpayer is usually given 10 days from
notice within which to explain his side.
2. Self-Assessment – one in which the tax is assessed by the taxpayer himself.

3. Official Assessment – issued by the BIR in case the taxpayer fails to respond to the
pre-assessment, or his explanation is not satisfactory to the CIR.

4. Illegal and Void Assessment – tax assessor has no power to assess at all.

5. Erroneous Assessment – assessor has power to assess but errs in the exercise
thereof.

6. Jeopardy Assessment – a delinquency tax assessment made without the benefit of a

complete or partial investigation by a belief that the assessment and collection of a
deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to:

a. Comply with audit and investigation requirements to present his books of accounts
and/or pertinent records, or

b. Substantiate all or any of the deductions, exemptions or credits claimed in his return.

Note: This is issued when the revenue officer finds himself without enough time to
conduct an appropriate or thorough examination in view of the impending expiration of
the prescriptive period for assessment. To prevent the issuance of a jeopardy
assessment, the taxpayer may be required to execute a waiver of the statute of
limitations.

Powers of the Commissioner in the assessment of taxes

The CIR or his duly authorized representative is authorized to use the following powers:
(Sec. 6, NIRC)

1. Examination of return and determination of tax due

2. Use of the best evidence available

3. Authority to conduct inventory taking, surveillance and prescribe gross sales and
receipts if there is reason to believe that the taxpayer is not declaring his correct
income, sales or receipts for internal revenue purposes

4. Authority to terminate taxable period in the following instances:

a. Taxpayer is retiring from business subject to tax;

b. Taxpayer is intending to leave the Philippines or to remove his property

therefrom or to hide or conceal his property and
 c. Taxpayer is performing any act tending to obstruct the proceedings for the
collection of taxes.

5. Authority to prescribe real property values

6. Authority to inquire into bank deposits accounts in the following instances:

a. A decedent to determine his gross estate;

b. Any taxpayter who has filed an application for compromise of his tax liability
by reason of financial incapability to pay;

c. A specific taxpayer/s is subject of a request for the supply of tax information a

foreign tax authority pursuant to an intentional convention or agreement on tax matters
to which the Philippines is a signatory or a party of. Provided that the requesting
foreign tax authority is able to demonstrate the foreseeable relevance of certain
information required to be given to the request. (Sec. 3 & 8, RA 10021)

d. Where the taxpayer has signed a waiver authorizing the Commissioner or his
duly authorized representative to inquire into the bank deposits.

7. Authority to accredit and register tax agents

8. Authority to prescribe additional procedural or documentary requirements.

When is Assessment Made

When it is released, mailed or sent by the collector of internal revenueto the taxpayer
within the three-year or ten-year period, as the case may be. (CIR v. Pascor, GR
128315, June 29, 1999)

Q: A notice of assessment was mailed within the period prescribed by law but the same
was received by the taxpayer beyond the period. Was there a valid assessment?

A: Yes. There was an assessment made within the period. If the notice is sent through
registered mail, the running of the prescriptive period is “stopped”. What matters is the
sending of the notice is made within the period of prescription. It is the sending of the
notice and not the receipt that tolls the prescriptive period. (Basilan v. CIR, GR L-22492,
Sept. 5, 1967)

Prescriptive Periods

Rationale
To secure the taxpayers against unreasonable investigation after the lapse of the period
prescribed. They are beneficial to the government because tax officers will be obliged to
act promptly in the assessment and collection of the taxes, for when such period have
lapsed their right to assess and collect would be barred by the statute of limitations.

Rules on prescription

1. When the tax law itself is silent on prescription, the tax is imprescriptible;

2. When no return is required, tax is imprescriptible and tax may be assessed at any
time as the prescriptive periods provided in Sec. 203 and 222, NIRC are not applicable.
Remedy of the taxpayer is to file a return for the prescriptive period to commence.

Note: Limitation on the right of the government to assess and collect taxes will

not be presumed in the absence of a clear legislation to the contrary.

3. Prescription is a matter of defense, and it must be proved or established by the party

(taxpayer) relying upon it.

4. Defense of prescription is waivable, such defense is not jurisdictional and must be

raised seasonably, otherwise it is deemed waived.

5. The law on prescription, being a remedial measure, should be interpreted liberally in

order to protect the taxpayer.

6. If the last day of the period falls on a Saturday, a Sunday or a legal holiday in the
place where the Court sits, the time shall not run until the next working day. (Sec. 1,
Rule 22, Rules of Court)

Note: Assessment and collection by the government of the tax due must be made
within the prescribed period as provided by the Tax Code; otherwise, the right of the
government to collect will be barred.

Computation of prescriptive period

It is computed based on the Administrative Code. Sec. 31 of the Administrative Code of

1987 provides that a “year” shall be understood to be 12 calendar months. Both Article
13 of the Civil Code and Sec. 31 of the Administrative Code of 1987 deal with the same
subject matter — the computation of legal periods. Under the Civil Code, a year is
equivalent to 365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar months and
the number of days is irrelevant. There obviously exists a manifest incompatibility in the
manner of computing legal periods under the Civil Code and the Administrative Code of
1987. For this reason, Sec. 31, Chapter VIII, Book I of the Administrative Code of 1987,
being the more recent law governs the computation of legal periods. (CIR v. Primetown
Property Group, Inc., GR 162155, Aug. 28, 2007)

Prescriptive Period for Assessment

1. Where a return was filed:

GR: The period for assessment is within 3 years after the date the return was due or if
the return is filed after the due date prescription will start on the date the return was
filed.

XPNS:

a. If there is failure to file the required return, the period is within 10 years after
the date of discovery of the omission to file the return.

Note: Date of discovery must be made within the three-year period following the
general rule.

b. If the return is filed but it is false or fraudulent and made with intent to evade
the tax, the period is 10 years from the date of discovery of the falsity or fraud.

Note: Nothing in Sec. 222 (A) shall be construed to authorize the examination
and investigation or inquiry into any tax return filed in accordance with the
provisions of any tax amnesty law or decree.

c. Where the CIR and taxpayer, before the expiration of the 3-year period have
agreed in writing to the extension of the period, the period so agreed upon may
thereafter be extended by subsequent agreements in writing made before the
expiration of the period previously agreed upon.

d. Where there is a written waiver or renunciation of the original 3-year limitation

signed by the taxpayer.

Note: Requests for reconsideration of tax assessments, as required by the BIR,

must be accompanied by a waiver of statute of limitations accomplished by the
taxpayer.
2. The return was amended substantially – The prescriptive period shall be counted
from the filing of the amended return.

Q: What is the effect of filing a defective return?

A: If the return was defective, it is as if no return was filed. The corollary prescription
will be 10 years from and after the discovery of the failure or omission and not the 3
year prescriptive period. There is an omission when the taxpayer failed to file a return
for the particular tax required by law. (Butuan Sawmill v. CTA, GR L-20601, Feb. 28,
1966)

False, Fraudulent and Non-filing of Returns

Prescriptive period where the return was false, fraudulent or there was no return filed -
The prescription period is 10 years from the discovery of the falsity, fraud or from the
omission to file the return. (Sec. 222, NIRC)

Q: When is a return considered fraudulent?

A: Fraud is never presumed and the circumstances constituting it must be alleged and
proved to exist by clear and convincing evidence. It may be established by the:

1. Intentional and substantial understatement of tax liability by the taxpayer;

2. Intentional and substantial overstatement of deductions of exemptions; and/or

3. Recurrence of the above circumstances

Q: When is a return considered false?

A: When there is a deviation from the truth due to mistake, carelessness or ignorance.

Q: Distinguish a false return from a fraudulent return.

A: False Return is a deviation from the truth or fact whether intentional or not; while
fraudulent return is intentional and deceitful with the sole aim of evading the correct tax
due

(Aznar v. CIR, GR L-20569, Aug. 23, 1974)

Substantial Amendments
1. There is under declaration (exceeding 30% of that declared) of taxable sales,
receipts or income;
2. There is overstatement (exceeding 30% of deductions) (Sec. 248, NIRC)

Q: Is it necessary that the notice of assessment be received by the taxpayer within the
prescriptive period?

A: No, notice of the assessment must be released, mailed or sent to the taxpayer within
the 3 year period. It is not required that the notice be received by the taxpayer within
the prescribed period, but the sending of the notice must clearly be proven. (Basilan
Estate, Inc. v. CIR, GR L-22492, Sept. 5, 1967)

Suspension of Running of Statute of Limitations

Grounds

When taxpayer cannot be Located in the address given by him in the return, unless he
informs the CIR of any change in his address thru a written notice to the BIR;

2. When the taxpayer is Out of the Philippines (Sec. 223, NIRC)

3. When the Warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative or a member of his household with sufficient discretion and
no property is located (proper only for suspension of the period to collect);

4. Where the CIR is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court for 60 days thereafter, such as where there is a Pending
petition for review in the CTA from the decision on the protested assessment (Republic
v. Ker & Co., GR L-21609);

5. Where CIR and the taxpayer Agreed in writing for the extension of the assessment,
the tax may be assessed within the period so agreed upon (Sec. 222 [b], NIRC);

6. When the taxpayer Requests for reinvestigation which is granted by the

Commissioner (Collector v. Suyoc Consolidated Mining Co., GR L-11527, Nov. 25,
1958);

Note: A request for reconsideration alone does not suspend the period to assess/collect.

7. When there is an Answer filed by the BIR to the petition for review in the CTA
(Hermanos v. CIR, GR. No. L-24972.Sept. 30, 1969) where the court justified this by
saying that in the answer filed by the BIR, it prayed for the collection of taxes.

Waiver of the Satute of Limitations

Requisites:
1. Entered before the expiration of the 3 year period for assessment of the tax;

2. In writing;

3. Signed by the taxpayer;

4. Must specify a definite date agreed upon between the parties within which to assess
and collect taxes;

5. Signed and accepted by the CIR or his duly authorized representative; and

6. Date of acceptance must be indicated. (RMC 06-05)

Pre-assessment Notice

It is a communication issued by the Regional Assessment Division, or any other

concerned BIR Office, informing a taxpayer who has been audited of the findings of the
RO, following the review of these findings.

If the taxpayer disagrees with the findings stated in the PAN, he have 15 days from
receipt of the PAN, to file a written reply contesting the proposed assessment. (Sec.
3.1.2, RR 12-99)

Otherwise, the taxpayer shall be considered in default, in which case a formal letter of
demand and assessment notice shall be issued by the BIR. (Sec. 3.1.2, RR 12-99)

Requisites:

1. In writing; and

2. Should inform the taxpayer of the law and the facts on which the assessment is made
(Sec. 228, NIRC)

Note: This is to give the taxpayer the opportunity to refute the findings of the examiner
and give a more accurate and detailed explanation regarding the assessments. The
absence of any of the requirements shall render the assessment void.

Exceptions to Issuance of PAN

1. When the finding for any deficiency tax is the result of Mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer; or

2. When the Excise tax due on excisable articles has not been paid; or
3. When a Discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or

4. When an article locally purchased or imported by an Exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded
or transferred to non-exempt persons; or

5. When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have Carried over and
automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year. (Sec 3.1.3, RR 12-99)

Notice of Assessment/Formal Letter of Demand (FAN)

 It is a declaration of deficiency taxes issued to a taxpayer who fails to respond to

a PAN within the prescribed period of time, or whose reply to the PAN was found
to be without merit.
 It shall be issued by the Commissioner or his duly authorized representative.
 It must be:
1. In writing; and

2. Shall state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise, the FANshall be void. (Sec. 228,
NIRC; Sec. 3.1.4 RR 12-99)

 The taxpayer may protest the assessment within 30 days from receipt otherwise
the assessment becomes final, executory, demandable and not appealable to the
CTA.
Protesting Assessment

It is the act by the taxpayer of questioning the validity of the imposition of the
corresponding delinquency increments for internal revenue taxes as shown in the notice
of assessment and letter of demand.

Prescriptive period provided by law to make collection by distraint or levy or by a

proceeding in court is interrupted once a taxpayer protests the assessment and requests
for its cancellation.

Kinds of protest to an assessment

1. Request for reconsideration - a claim for re-evaluation of the assessment based on
existing records without need of additional evidence. It may involve a question of fact or
law or both. It does not toll the statute of limitations.

2. Request for reinvestigation - a claim for re-evaluation of the assessment based on

newly-discovered or additional evidence. It may also involve a question of fact or law or
both. It tolls the the statute of limitations.

Note: Under Sec. 223, NIRC, the running of the prescriptive period can only be suspended
by a request for reinvestigation, not a request for reconsideration.

Requisites of a protest

1. In writing;

2. Addressed to the CIR;

3. Accompanied by a waiver of the Statute of Limitations in favor of the Government.

Without the waiver the prescriptive period will not be tolled; (BPI v. CIR, GR 139736, Oct.
17, 2005)

4. State the facts, applicable law, rules and regulations or jurisprudence on which the
protest is based otherwise the protest would be void; and

5. Must contain the following:

a. Name of the taxpayer and address for the immediate past 3 taxable years;

b. Nature of the request, specifying the newly discovered evidence to be

presented;

c. Taxable periods covered by the assessment;

d. Amount and kind of tax involved and the assessment notice number;

e. Date of receipt of the assessment notice or letter of demand;

f. Itemized statement of the finding to which the taxpayer agrees (if any) as basis
for the computation of the tax due, which must be paid upon filing of the protest;

g. Itemized schedule of the adjustments to which the taxpayer does not agree;

h. Statements of facts or law in support of the protest; and

 i. Documentary evidence as it may deem necessary and relevant to support its
protest to be submitted 60 days from the filing thereof.

Procedure

1. BIR issues assessment notice.

2. The taxpayer files an administrative protest against the assessment. Such protest may
either be a request for reconsideration or for reinvestigation. The protest must be filed
within 30 days from receipt of assessment.

3. All relevant documents must be submitted within 60 days from filing of protest;
otherwise, the assessment shall become final and unappealable.

4. In case the CIR decides adversely or if no decision yet at the lapse of 180 days, the
taxpayer may appeal to the CTA Division, 30 days from the receipt of the decision or from
the lapse of the 180 days otherwise the decision shall become final, executory and
demandable. (RCBC v. CIR, GR 168498, Apr. 24, 2007)

5. If the decision is adverse to the taxpayer, he may file a motion for reconsideration or
new trial before the same Division of the CTA within 15 days from notice thereof.

6. In case the resolution of a Division of the CTA on a motion for reconsideration or new
trial is adverse to the taxpayer, he may file a petition for review with the CTA en banc.

7. The ruling or decision of the CTA en banc may be appealed with the Supreme Court
through a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules
of Civil Procedure.

In Case of Inaction by Commissioner within 180 days from Submission of

Documents

The taxpayer has two alternative options:

1. File a petition for review with the CTA within 30 days after the expiration of the 180-
day period; or

2. Wait for the final decision of the CIR on the disputed assessment and appeal the final
decision to the CTA within 30 days from the receipt of the decision.

What are the administrative remedies of the government for collection of

delinquent taxes under the NIRC? (CELCED)

1. Distraint of personal property

2. Levy of real property
3. Enforcement of forfeiture
4. Enforcement of tax lien
5. Compromise and Abatement
6. Civil penalties

Distraint

It is a summary remedy whereby the collection of tax is enforced on the goods, chattels
or effects of the taxpayer (including other personal property of whatever character as
well as stocks and other securities, debts, credits, bank accounts and interest in or rights
to personal property.) The property may be offered in a public sale, if taxes are not
voluntarily paid.

Requisites (DeF–DeP)

1. Taxpayer is Delinquent in payment of tax;

2. There must be subsequent Demand to pay;
3. Taxpayer Failed to pay delinquent tax on time; and
4. Period within which to assess and collect the tax due has not yet prescribed.

Kinds

1. Actual – resorted to when there is actual delinquency in tax payment.

2. Constructive – a preventive remedy which aims at forestalling a possible dissipation of

the taxpayer’s assets when delinquency sets in. Hence, no actual delinquency in payment
is necessary.

Procedure:

1. Commencement of distraint proceedings by the CIR or his duly authorized

representatives or by the revenue district officer as the case may be
2. Service of warrant of distraintupon taxpayer or upon any person in possession of the
property
3. Posting of notice in not less than 2 public places in the municipality or city and notice
to taxpayer specifying the time and place of sale and the articles distrained
4. Sale at public auction to be held not less than 20 days after notice to the owner or
possessor of the property and publication or posting of such notice
5. Disposition of proceeds of the sale
6. Residue over and above what is required to pay the entire claim, including expenses,
shall be returned to the owner of the property sold

Levy
It is the seizure of real property and interest in or rights to such properties for the
satisfaction of taxes due from the delinquent taxpayer.

How made:

It may be effected by serving upon the taxpayer a written notice of levy in the form of a
duly authenticated certificate prepared by Revenue District Officer containing: [DNA]
1. Description of the property upon which levy is made;
2. Name of the taxpayer;
3. Amount of tax and penalty due.

TN: Its timely service suspends the running of the prescriptive period to collect the tax
deficiency in the sense that the disposition of the attached properties might well take
time to accomplish, extending even after the lapse of the statutory period for collections.
In those cases, the BIR did not file any collection case but merely relied on the summary
remedy of distraint and levy to collect the tax deficiency. Thus, the enforcement of tax
collection through summary proceedings may still be carried out as the service of warrant
of distraint or levy suspends the prescriptive period for collection. (RP v. Hizon, GR
130430, Dec. 13, 1999)

Procedure:

1. Preparation of a duly authenticated certificate which shall operate with force of a

legal execution throughout the Philippines.
2. Service of the written notice to the:
a. Delinquent taxpayer, or
b. If he is absent from the Philippines, to his agent or the manager of the
business in respect to which the liability arose, or
c. If there be none, the occupant of the property.
d. The Registry of Deeds of the place where the property is located shall also be
notified;
3. Advertisement of the time and place of sale within 20 days after the levy by posting
of notice and by publication for three consecutive weeks.
4. Sale at a public auction.
5. Disposition of proceeds of sale.
6. Residue to be returned to the owner.

Possession of the property levied

The owner shall not be deprived of the property until the expiration of the redemption
period and shall be entitled to rents and other income until the expiration of the period
for redemption. (Sec. 214, NIRC)

Redemption by the taxpayer

It shall entitle the taxpayer, the delivery of the certificate issued to the purchaser and a
certificate from the Revenue District Officer that he has redeemed the property. The
Revenue District Officer shall pay the purchaser the amount by which such property has
been redeemed and said property shall be free from lien of such taxes and penalties.
(Sec. 214, NIRC)

Similarities of Distraint and Levy

1. Summary in nature
2. Requires notice of sale
3. May not be resorted to if the amount involved is less than P100

Distinctions among warrants of distraint, levy and garnishment

DISTRAINT LEVY GARNISHMENT

Personal property owned by
and in possession of the
taxpayer
Acquisition by the Government
Personal property distrained
are purchased by the
Government and resold to
meet deficiency
No newspaper publication
required
Subject matter
Real property owned and in Personal property owned by
the possession of the the taxpayer but in the
taxpayer possession of the third party
Real property subject to Personal property garnished
levy is forfeited to the are purchased by the
Government then sold to Government and resold to meet
meet the deficiency. deficiency
Advertisement of Sale
The sale of realty subject No newspaper publication
to levy is required to be required
published once a week for
3 consecutive weeks in a
newspaper of general
circulation in the
municipality or city where
the property is located.

Forfeiture

 It is the divestiture of property without compensation, in consequence of a default

or offense.

 Property forfeited is transferred to another without consent of the defaulting

taxpayer or wrongdoer.
  Forfeiture transfers the title to the specific thing from the owner to the
government. Also there would no longer be any further levy for such would be for
the total satisfaction of the tax due. (Sec 215, NIRC)

Procedure

1. In case of personal property – By seizure and sale or destruction of property (Secs.

224 and 225, NIRC)
2. In case of real property – By judgment of condemnation and sale in a legal action or
proceeding (Sec. 224, NIRC)

Difference between forfeiture and seizure to enforce a tax lien

FORFEITURE SEIZURE
Ownership
Ownership is transferred to the Taxpayer retains ownership of property
Government seized
Disposition of the proceeds of sale
Excess not returned to the taxpayer Excess returned to taxpayer

Rules on forfeiture

1. If there is no bidder in the public sale or if the amount of the highest bid is
insufficient to pay the taxes, penalties and costs, the real property shall be forfeited to
the government.
2. The Register of Deeds shall transfer the title of forfeited property to the Government
without necessity of a court order.
3. Within 1 year from the date of sale, the property may be redeemed by the
delinquent taxpayer or any one for him, upon payment of taxes, penalties and interest
thereon and cost of sale; if not redeemed within said period, the forfeiture shall become
absolute. (Sec. 215, NIRC)

Enforcement of Tax Lien

Tax Lien

 It is a legal claim or charge on property, personal or real, established by law as a

sort of security for the payment of tax obligations.

 It is enforced as payment of tax, interest, penalties, costs upon the entire

property and rights to property of the taxpayer. However, to be valid against any
mortgagee, purchaser or judgment creditor, notice of such lien has to be filed by
CIR with the Registry of Deeds. (Sec. 219, NIRC)
  It is applied when:

 With respect to personal property – Tax lien attaches when

the taxpayer neglects or refuses to pay tax after demand
and not from the time the warrant is served (Sec. 219,
NIRC)
 With respect to real property – from time of registration with
the register of deeds.

Note: A valid assessment is required to be issued before a tax lien shall be annotated at
the proper registry of property.

Extinguishment

1. Bypayment orremissionof the tax

2. Byprescription of the right of government to assess or collect
3. Byfailure to file notice of such tax lien in the office of Register of Deeds
4. Bydestruction of property subject to tax lien
5. By replacing it with a bond

Note: A buyer in an execution sale acquires only the rights of the judgment creditor.

Lien vs. Distraint

LIEN DISTRAINT
Directed against what?
The property subject to Need not be directed
the tax against the property
subject to tax
To whom directed?
The property itself The property should be
regardless of the present presently owned by the
owner of the property taxpayer

Compromise and Abatement

Compromise

 It is an agreement between two or more persons who,amicably settle their

differences on such terms and conditions as they may agree on to avoid any
lawsuit between them. It implies the mutual agreement by the parties in regard
to the thing or subject matter which is to be compromised.
 It is a contract whereby the parties, by reciprocal concessions avoid litigation or
put an end to one already commenced
  Made when:
o Criminal cases – Compromise must be made prior to the filing of the
information in court.
o Civil cases – Before litigation or at any stage of the litigation, even during
appeal, although legal propriety demands that prior leave of court should
be obtained.

Requisites

1. Tax liability of the taxpayer;

2. An offer of the taxpayer of an amount to be paid by him; and
3. The acceptance (the CIR or the taxpayer) of the offer in the settlement of the claim

Note: If the offer to compromise was rejected by the taxpayer, the compromise penalty
cannot be enforced thru an action in court, or by distraint or levy. If the CIR wants to
enforce a penalty he must file a criminal action in the courts. (CIR v. Abad GR L-19627,
June 27, 1968)

Cases which may be compromised

1. Delinquent accounts
2. Cases under Administrative protest after issuance of the Final Assessment Notice to
the taxpayer which are still pending in the RO, RDO, Legal Service, Large Taxpayer
Service, Collection Service, Enforcement Service, and other offices in the National Office
3. Civil tax cases disputed before the courts
4. Collection cases filed in courts
5. Criminal violations except:
a. Those already filed in courts; and
b. Those involving criminal tax fraud. (Sec.3, RR 30-2002)

Cases which cannot be compromised

1. Criminal tax Fraud cases, confirmed as such by the CIR or his duly authorized
representative.
2. Cases where Final reports of reinvestigation or reconsideration have been
issued resulting to reduction in the original assessment and the taxpayer is
agreeable to such decision by signing the required agreement form for the
purpose.
3. Cases which become Final and executory after final judgment of a court,
where compromise is requested on the ground of doubtful validity of the
assessment.
4. Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer.
 5. Withholding tax cases, unless the applicant – taxpayer invokes provisions of
law that cast doubt on the taxpayer’s obligation to withhold.
6. Criminal violations already filed in courts.
7. Delinquent accounts with duly approved schedule of instalment payments.

Note: The CTA may issue an injunction to prevent the government from collecting taxes
under a compromise agreement when such would be prejudicial to the government.

Grounds

1. Doubtful validity of assessment;

2. Financial incapacity

Requisites

1. Clear inability to pay the tax; and

2. The taxpayer must waive in writing his privilege of the secrecy of bank deposit under
RA 1405 or other general or special laws, which shall constitute as the CIR’s authority
to inquire into said bank deposits (Sec. 6 [F], NIRC)

Who may compromise

 The CIR may compromise with respect to criminal and civil cases arising from
violations of the NIRC as well as the payment of any internal revenue tax when:
o A reasonable doubt as to the validity of the claim against the taxpayer
exists provided that the minimum compromise entered into is equivalent
to 40% of the basic tax; or
o The financial position of the taxpayer demonstrates a clear inability to pay
the assessed tax provided that the minimum compromise entered into is
equivalent to 10% of the basic assessed tax.

Note: In these instances, the CIR is allowed to enter into a compromise only if the
basic tax involved does not exceed P1M and the settlement offered is not less than the
prescribed percentages. (Sec. 204 [A], NIRC) If the basic tax involves exceeds P1
million or when the settlement offered is less than the prescribed minimum rates the
approval of the Evaluation Board is needed.
A preliminary compromise may be entered into by subordinate officials subject to
review by the CIR.

 The Regional Evaluation Board (REB) may compromise:

o Tax assessments by revenue officers involving basic deficiency taxes of
P500,000 or less; and
o For minor criminal violations (RR 7-2001)
Note: The REB shall becomposed of:
a. The Regional Director as Chairman;
b. The Assistant Regional Director;
c. Chief, Legal Division;
d. Chief, Assessment Division;
e. Chief, Collection Division; and
f. Revenue District Officer having jurisdiction over the taxpayer-applicant

Prescription

As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer
enters into a compromise with the BIR, the obligation of the taxpayer becomes one based
on contract.

Compromise is a contract whereby the parties, by reciprocal concessions, avoid litigation

or put an end to one already commenced. (Art. 2028 NCC) Since it is a contract, the
prescriptive period to enforce the same is 10 years based on Art. 1144 NCC reckoned
from the time the cause of action accrued.

Abatement

 Cancellation of a tax liability.

 It is made when:

o The tax or any portion thereof appears to be unjustly or excessively

assessed; or
o The administration and collection costs involved do not justify the collection
of the amount due. (Sec. 204[B], NIRC)

Abatement vs. Compromise

Compromise
Involves a reduction of the taxpayer’s
liability.
Officers authorized to compromise:
CIR and Regional Evaluation Board
Grounds:
2. Reasonable doubt as to the validity
of assessment;
3. Financial incapacity of the taxpayer
Abatement
Involves the cancellation of the entire
tax liability of a taxpayer.
Officer authorized to abate or cancel tax,
penalties and/or interest: CIR
Grounds:
1. The tax or any portion thereof
appears to be unjustly or excessively
assessed; or

JUDICIAL REMEDIES
GOVERNMENT
1. Must follow and observe the legal
parameters set forth in the law. (e.g. An
action for collection by the BIR (Sec. 205,
NIRC) must be filed within the
prescriptive period (Sec. 222, NIRC);
2. Must be approved by the CIR (Sec.
220, NIRC)
If implied
May avail of the usual judicial remedies
for convenience and expediency.
Action
2. The administration and collection
costs involved do not justify the
collection of the amount due
TAXPAYER
If express
Judicial remedies are “exclusive.” Thus,
the CIR decision must be appealed to
the CTA and the CTA en banc decision
must be appealed to the SC.
Civil
May resort to the laws of general
application. Thus, a declaratory relief
may be availed of if the law does not
provide for judicial remedies.
For tax remedy purposes, these are actions instituted by the government to collect
internal revenue taxes in the regular courts after assessment by CIR has become final
and executory.

It includes, however, the filing by the government of claims against the deceased
taxpayer with the probate court.

Once an action is filed with the regular courts, the taxpayer can no longer assail the
validity or legality of assessment.

Form and Procedure

1. Civil actions shall be brought in the name of the Government of the Philippines.
2. It shall be conducted by legal officers of the BIR.
3. The approval by the Solicitor General together with the approval of the CIR for civil
actions for collection of delinquent taxes is required before they are filed. (Sec. 220
NIRC)

Note: BIR legal officers deputized as Special Attorneys who are stationed outside Metro
Manila may file verified complaints with the approval of the Solicitor General. Provided
that a copy of the complaint is furnished to the Solicitor General. The Solicitor General
must file a notice of appearance in the court where it was filed.

Court Jursidiction

COURTS AMOUNT OF TAXES INVOLVED

Municipal Trial Courts outside Metro Manila Amount does not exceed 300,000
Municipal Trial Courts within Metro Manila Amount does not exceed 400,000
Regional Trial Courts outside Metro Manila 300,001 to 999,999
Regional Trial Courts within Metro Manila 400,001 to 999,999

Criminal Action

Criminal complaint is instituted not to demand payment but to penalize taxpayer for the
violation of the NIRC.

Criminal action is resorted to not only for collection of taxes but also for enforcement of
statutory penalties of all sorts.

Crimes Punishable

1. Willful attempt to evade or defeat tax (Sec. 254, NIRC)

2. Failure to file return, supply correct and accurate information, pay tax, withhold and
remit tax and refund excess taxes withheld on compensation (Sec. 255, NIRC)

Filing of the Information

1. CTA - on criminal offenses arising from violations of the NIRC or Tariff and Customs
Code and other laws administered by the BIR and the BOC where the principal amount
of taxes and fees, exclusive of charges and penalties claimed is P1 million and above.

2. RTC, MTC, MeTC- on criminal offenses arising from violations of the NIRC or
Tariff and Customs Code and other laws administered by the BIR and the BOC where
the principal amount of taxes and fees, exclusive of charges and penalties claimed is
less than P1 million. (Sec. 7, RA 9282)

Prescriptive Period

The period is 5 years from commission or discovery of the violation, whichever is later.
(Sec. 281, NIRC)

The cause of action for willful failure to pay deficiency tax occurs when the final notice
and demand for the payment thereof is served upon the taxpayer.

The 5-year prescriptive period commences to run only after receipt of the final notice
and demand and the taxpayer refuses to pay.

Note: In addition to the fact of discovery of the filing of a fraudulent return, there must
be a judicial proceeding for the investigation and punishment of the tax offense before
the 5-year limiting period to institute a criminal action for filing a fraudulent return begins
to run. The crime of filing false returns can be considered "discovered" only after the
manner of commission, and the nature and extent of the fraud have been definitely
ascertained. Note the conjunctive word “and” between the phrases “the discovery
thereof” and “the institution of judicial proceedings for its investigation and proceedings.”
(Lim, Sr. v. CA, GR 48134-37, Oct. 18, 1990)

IV. Jurisdiction of the Court of Tax Appeals

The CTA was originally created under RA 1125. The law creating the Court of Tax
Appeals was under RA 1125 way back in 1954. The objectives of the creation of the
court are:
1) to entrust tax cases to a specialize court composed of men technically qualified in the
field of taxation and to develop expertise on the subject;

2) to expedite the disposition of tax cases and collection of taxes and provide adequate
and speedy remedy to the taxpayers.

The objective was addressed to enforce collection of taxes and to provide protection
also and remedy to the taxpayers.

The Court under RA 1125 was sitting like the RTC. And the adjudicator sitting in the
court was called a judge. Since it was then like the RTC, the adjudicators then were
called judges. The RTC was then was only exercising what we call exclusive appellate
jurisdiction. And the cases that are decided by the CTA are decisions of the Commissioner
of the Internal Revenue and the decisions of the Commissioner of Customs.

While it used to include the Central Board of Assessment Appeals, but when the Real
Property Tax Code took effect, it changed the jurisdiction where the decisions of the
Central Board of Assessment Appeals were no longer brought to the CTA but to the Court
of Appeals.

The taxes then that were handled by the Court of Tax Appeals were the decisions of
the Commissioner of the Internal Revenue and of the Commissioner of Customs. Such
that from the CIR or the Commissioner of Customs, it is brought to the CTA, to the CA
and then, the Supreme Court. This was the flow of the remedies on the tax cases.

The local tax cases have their own separate remedies. The venue was not the CTA.
It had a separate venue. Likewise, on the decisions of the Central Board on the Real
Property Tax, also provided a different avenue where to pursue the cases, but not to the
CTA under RA 1125.

In March 2004, the entire picture of the CTA was completely changed. RA 9282
expanded the jurisdiction of the CTA. The CTA was treated as an equivalent of the CA.
As an effect, the tax cases will no longer pass through the CA because the CTA now was
sitting as an equivalent of the CA.

While you have here (RA 1125) the adjudicators called judges equivalent to the RTC,
you have now here (RA 9282) justices. And its jurisdiction, by reason of that expansion
of its jurisdiction, was now exclusive appellate and original jurisdiction. It has an exclusive
original jurisdiction as well as an exclusive appellate jurisdiction.

So, under the new law, the CTA now sits as an equivalent of the Court of Appeals.
So, you have justices there, no longer called judges. The jurisdiction has been expanded,
not only exclusive appellate jurisdiction but also exclusive original jurisdiction. Such that
when cases are brought to the CTA, it is CTA by division, then, CTA en banc then, you
have the Supreme Court. The mode of appeal, we will follow Rule 43 in the petition
brought before the CTA. And when it is brought to the Supreme Court, we follow Rule
45 – a petition or appeal by way of certiorari.

Rule 43 Rule 45
CTA (division) CTA (en banc) SC

Under RA 9282, the law here provides that:

SECTION 1.Court; Justices; Qualifications; Salary; Tenure.— There is hereby

created a Court of Tax Appeals (CTA) which shall be of the same level as the Court of
Appeals, possessing all the inherent powers of a Court of Justice, and shall consist of a
Presiding Justice and five (5) Associate Justices. xxx

This court sits in 2 divisions. It sits en banc and in 2 divisions, consisting of 3 justices
per division.

For en banc purposes, 4 justices shall constitute a quorum and 2 justices for session
by division.

SECTION. 2. Sitting En Banc or Division; Quorum; Proceedings. — The CTA may

sit en banc or in two (2) Divisions, each Division consisting of three (3) Justices.

Four (4) Justices shall constitute a quorum for sessions en banc and two (2) Justices
for sessions of a Division: Provided, That when the required quorum cannot be constituted
due to any vacancy, disqualification, inhibition, disability, or any other lawful cause, the
Presiding Justice shall designate any Justice of other Divisions of the Court to sit
temporarily therein.

The affirmative votes of four (4) members of the Court en banc or two (2) members
of a Division, as the case may be, shall be necessary for the rendition of a decision or
resolution.

The place of office for the CTA will be based in Metro Manila.

SEC. 6. Place of Office. — The CTA shall have its principal office in Metro Manila
and shall hold hearings at such time and place as it may, by order in writing, designate

In cases brought to the CTA en banc:

SEC. 18. Appeal to the Court of Tax Appeals En Banc. — No civil proceeding
involving matters arising under the National Internal Revenue Code, the Tariff and
Customs Code or the Local Government Code shall be maintained, except as herein
provided, until and unless an appeal has been previously filed with the CTA and disposed
of in accordance with the provisions of this Act.

A party adversely affected by a resolution of a Division of the CTA on a motion for

reconsideration or new trial, may file a petition for review with the CTA en banc.

So, from the CTA by division, it is brought again to the CTA en banc. From the decision
of the CTA en banc, any adverse party, whether you are government or the taxpayer,
your last resort will be the Supreme Court and the mode is under Rule 45.

Under RA 9282:

SEC. 19. Review by Certiorari. — A party adversely affected by a decision or ruling

of the CTA en banc may file with the Supreme Court a verified petition for review on
certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.

Then, we have this jurisdiction of the Court of Tax Appeals. What are the cases
brought to the CTA?

One, you have the exclusive appellate jurisdiction of the CTA to review by appeal:

1. Decisions of the Commissioner of Internal Revenue involving disputed assessment,

refunds and all other matters arising under the NIRC or other laws administered by the
BIR

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenuein cases involving

disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue;

Remember that in Section 228 (NIRC), when the taxpayer protests the assessment, it
is filed with the Commissioner of Internal Revenue. From the decision of the
Commissioner of Internal Revenue, you have 30 days to appeal to the CTA.
Protest
Assessment, CIR CTA
Refunds

You also have cases of refunds. It is as well filed with the Commissioner of Internal
Revenue and from the decision of the Commissioner, it is filed with the CTA. This includes
all other matters in the NIRC which are decided by the Commissioner. So, they are all
appealed to the CTA, including all other laws administered by the BIR. So, you have
these controversies to be resolved by the Commissioner. The decision of the
Commissioner is appealed also to the CTA.

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds, etc.

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relations thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;

What are these? Inaction by the Commissioner of Internal Revenue.

Remember in the assessment cases, the protest is filed with the CIR and the CIR has
180 days to decide. In Section 228 (NIRC), the period within which the Commissioner
has to decide is 180 days. If there is no decision within 180 days, the taxpayer should
appeal to the CTA within 30 days from the lapse of the 180-day period to decide.

In case of inaction by the Commissioner, you are given 30 days from the lapse of the
180-day period to go now to the CTA.

Assessment CIR (180 days to decide) CTA (w/n 30 days from lapse)

In the case also of refunds in the NIRC, you have the date of payment where you file
your claim for refund with the CIR and finally to the CTA, it is required that from the date
of payment and up to the time the case will reach the CTA, it should be within the 2-year
period from payment.

Remember that in Section 229 (NIRC):

SECTION 229. Recovery of Tax Erroneously or Illegally Collected. — No suit

or proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or collected,
or of any penalty claimed to have been collected without authority, or of any sum alleged
to have been excessively or in any manner wrongfully collected, until a claim for refund
or credit has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.

In other words, the claim for refund is lodged, at the outset, administratively before
the Commissioner. And then, from that claim, it is converted into a judicial action when
you bring now the case to the CTA. And you bring the case to the CTA when it will be
denied by the Commissioner.

In the event that the denial is still forthcoming, your claim is pending with the
Commissioner and the 2-year period from payment is about to lapse, do not wait for the
2-year period to expire. You must now bring the action within reasonable time to the
CTA because of the inaction of the Commissioner on your claim for refund.

So, the law provides a prescriptive period. You have now inaction by the
Commissioner on these refund cases, when the 2-year period is about to prescribe and
the Commissioner has not yet decided and you believe that his decision is that it will be
denied. So, you can appeal to the CTA.

Refunds Date of Payment CIR CTA

Then, on other matters where the law provides that there is a period within which to
bring the action and to decide and when there is no decision, then, you now go and
appeal to the CTA from the lapse of the period.

In the claim for refund, do not wait for the lapse of the period, unlike in the other
cases meronkang waiting time for the decision. Kung walang decision, you are given
generally 30 days to appeal to the CTA. In the claim for refund, do not wait for the 2-
year period to expire, otherwise, your petition to the CTA will be barred or dismissed.

You have that jurisdiction – inaction by the CIR.

3. Decisions, orders, or resolutions of the RTC in local tax cases originally decided or
resolved in its appellate jurisdiction.

(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
 Take note, dati 2 langiyong jurisdiction. Now, it has expanded its jurisdiction. Now,
it includes local tax cases.

What are the local taxes where it will fall or pass through the RTC?

i. issue on the legality of the ordinance

When you have a case involving the legality of the ordinance, it is filed with the DOJ.
From the DOJ, the action is brought to the regular courts since this involves a case not
subject to pecuniary estimation, the jurisdiction is with the RTC. From the RTC, it is
brought to the CTA.

DOJ RTC CTA

So, you have local tax cases where the RTC decides in its original jurisdiction.

ii. protest local tax assessments.

You also have the protest. In protesting local tax assessments, the action is initiated
with the local treasurer. So, you file your protest with your local treasurer. From the
local treasurer, it is filed either to the RTC or to the MTC, depending on the jurisdictional
amount. If the assessment involves within such amount falling within the RTC, it is filed
with the RTC. If the amount is less, it is filed with the MTC.

From the RTC, in its original jurisdiction, it is filed with the CTA. From the MTC, it will
not go directly to the CTA but it will pass through the regular procedures. From MTC to
RTC, deciding now in its appellate jurisdiction.Then, to the CTA.

So, you have the case of protesting tax assessments. You file your protest with the
local treasurer. The local treasurer will decide or there is a lapse or inaction. But
nevertheless, the flow of the remedy is to bring it to the next level, whether to the RTC
or MTC, depending on the jurisdictional amount.

RTC CTA

Protesting Local Local

Tax Assessments Treasurer MTC RTC CTA

iii. local tax refunds

You also have the local tax refunds. With the local tax refunds, again, it is initiated
with the local treasurer, your claim for refund. When there is a denial or inaction,
depending on the jurisdictional amount, it shall be filed with the RTC then to the CTA;
MTC to the RTC then to the CTA.

RTC CTA

Local Tax Local

Refunds Treasurer MTC RTC CTA

You have this flow chart or flow of the remedies.

These are the local tax cases where the RTC will decide either in its original jurisdiction
or decide in its appellate jurisdiction. But nevertheless, the decision of the RTC is
appealed to the CTA, whether the RTC is deciding in its original or appellate jurisdiction.

4. Decisions of the Commissioner of Customs on protest cases, seizure and forfeiture,

and other matters arising under the Tariff and Customs Code and other laws administered
by the Bureau of Customs

(4) Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention or release of property affected,
fines, forfeitures or other penalties in relation thereto, or other matters arising under the
Customs Law or other laws administered by the Bureau of Customs;

So, you have the decisions of the Commissioner of Customs on protest cases involving
liability for customs duties, seizure and forfeiture cases or other matters under the Tariff
and Customs Code and all other laws administered by the Bureau of Customs.

Whether it involves seizure or protest cases, the action is originally initiated with the
collector. From the Collector of Customs, it is brought to the Commissioner of Customs.
From the Commissioner of Customs, to the CTA.

Collector of Customs Commissioner of Customs CTA

5. Decisions of the Central Board of Assessment Appeals (CBAA)

(5) Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real property
originally decided by the provincial or city board1 of assessment appeals;

What are the decisions of the Central Board of Assessment Appeals?

1
Or what we call the local board of assessment appeals
i. You have the property assessments; issues involving property assessments

When the issue involves property assessment on the valuation of real properties, the
issue is lodged with the Local Board of Assessment Appeals. From the Local Board of
Assessment Appeals, you have the Central Board of Assessment Appeals, then, to the
CTA.

ii. Issues involving special levy

In the case of a special levy ,it is also brought to the Local Board of Assessment
Appeals, to the Central Board and then, to the CTA.

Special levy LBAA CBAA CTA

ii. Protesting payments of the real property tax

You have to pay under protest, indicating in your receipt that you are paying under
protest. Where do you lodge your protest? You lodge that with the local treasurer. From
the local treasurer, it is appealed to the Local Board of Assessment Appeals, to the Central
Board, and then, to the CTA.

Protesting Local LBAA CBAA CTA

Payments of RPT Treasurer

iii. Refunds on Real Property Tax

Again, claim for refunds is filed with the Local Treasurer. From the Local Treasurer,
you file with the Local Board of Assessment Appeals, to the Central Board and then, to
the CTA.

Refunds Local LBAA CBAA CTA

on RPT Treasurer

These are the decisions in real property taxation made by the Central Board of
Assessment Appeals. From the decision of the Central Board, it is appealed to the Court
of Tax Appeals

6. Decisions of the Secretary of Finance on customs cases elevated by automatic review

from the decisions of the Commissioner of Customs adverse to the government.
(6) Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs which
are adverse to the Government under Section 2315 of the Tariff and Customs Code;

There are decisions rendered by the Collector of Customs which are adverse to the
government in customs cases. The decision of the Collector of Customs is elevated to
automatic review to the Commissioner of Customs. When the Commissioner of Customs
decides adverse to the government, it is elevated to the Secretary of Finance for
automatic review. The decision of the Secretary of Finance is appealed now to the CTA.

Here, at the outset, you have the collector, the Commissioner of Customs, the DOF
and the CTA. These are in cases where the decisions are adverse to the government.

In customs cases, when decisions are adverse to the government, it still passes
through the regular procedure. Sa next rank of the administrative officer who will decide.

Collector CoC DoF CTA

If it is not adverse to the government, etoang proceedings, from CoC, to the CTA, if
it is adverse to the taxpayer.

But since it is adverse to the government, it will pass first through the DOF. From the
DOF to the Court of Tax Appeals.

7. Decisions of the DTI or DA on cases involving dumping duty and countervailing or

safeguard measure

(7) Decisions of the Secretary of Trade and Industry, in the case of non-
agricultural product, commodity or article, and the Secretary of Agriculture in
the case of agricultural product, commodity or article, involving dumping and
countervailing duties under Section 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act No. 8800, where either
party may appeal the decision to impose or not to impose said duties.

The DTI or the DA on cases involving dumping duty, countervailing or safeguard

measure will come in depending on the product.

If it involves non-agri products, cases involving dumping duty, countervailing or

safeguard measure, the protest is filed with DTI.

Non-agri products DTI CTA

 If it involves agri products, where the dumping duty, countervailing or safeguard
measure is imposed, the remedy or the protest is lodged with the Department of
Agriculture.

Agri products DA CTA

Such that the decision of the DTI or the DA is appealed to the CTA. Depending on
what is the product, whether agricultural or non-agricultural, you file that with the DA or
DTI. When government imposes a dumping duty and there is an importer who would
protest that imposition or the imposition of a countervailing or a safeguard measure, the
importer may bring that action to the proper office, whether DTI if non-agri and DA if it
involves agri products.

From that decision of the Secretary of the DTI or DA, it is appealed to the Court of
Tax Appeals.

The other one is the exclusive original jurisdiction.

The CTA has exclusive original jurisdiction on:

1. criminal offenses for violation of the NIRC or the Tariff and Customs Code and other
laws administered by the BIR/BoC where the principal amount of taxes and fees is more
than P1 Million or more

Take note that the amount is insofar as the taxes and fees. Therefore, it excludes
penalties, interests and other surcharges.

(b) Jurisdiction over cases involving criminal offenses as herein provided:

(1) Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs Code
and other laws administered by the Bureau of Internal Revenue or the Bureau
of Customs: Provided, however, That offenses or felonies mentioned in this paragraph
where the principal amount of taxes and fees, exclusive of charges and
penalties, claimed is less than One million pesos (P1,000,000.00) or where
there is no specified amount claimed shall be tried by the regular Courts and the
jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to
the contrary notwithstanding, the criminal action and the corresponding civil action for
the recovery of civil liability for taxes and penalties shall at all times be simultaneously
instituted with, and jointly determined in the same proceeding by the CTA, the filing of
the criminal action being deemed to necessarily carry with it the filing of the civil action,
and no right to reserve the filling of such civil action separately from the criminal action
will be recognized.

(2) Exclusive appellate jurisdiction in criminal offenses:

(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts
in tax cases originally decided by them, in their respected territorial jurisdiction.

(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax cases originally decided by
the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in
their respective jurisdiction.

The criminal offense is filed directly with the Court of Tax Appeals in its exclusive
original jurisdiction.

2. Tax collection cases on final and executory assessments where the principal amount
of taxes and fees is P 1 Million or more.

This is a collection proceeding initiated when the assessment has become final and
executory.

So, the original jurisdiction is with the CTA.

(c) Jurisdiction over tax collection cases as herein provided:

(1) Exclusive original jurisdiction in tax collection cases involving final and
executory assessments for taxes, fees, charges and penalties: Provided,
however, That collection cases where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than One million pesos
(P1,000,000.00) shall be tried by the proper Municipal Trial Court,
Metropolitan Trial Court and Regional Trial Court.

(2) Exclusive appellate jurisdiction in tax collection cases:

(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts
in tax collection cases originally decided by them, in their respective territorial jurisdiction.

(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the Exercise of their appellate jurisdiction over tax collection cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts, in their respective jurisdiction."
Less than P 1 Million on the criminal offenses or tax collection cases

It is filed with the RTC or MTC, depending on the amount therein. From RTC, CTA.
From MTC, RTC, CTA in the exercise of its appellate jurisdiction. (gi-number 3 itosa
original jurisdiction sa board, pero appellate man siya)

RTC CTA

Criminal Offenses/

Tax Collection Cases MTC RTC CTA

So, you have that exclusive original jurisdiction of the Court of Tax Appeals.

Another matter is that there are cases where when it is processed with the CTA, it is
filed originally by division.

However, there are cases when it is brought to the CTA, en banc na. Hindi
nadadaansa division.

What are the cases when it will be directly brought to the CTA, en bancna and
not passing thru the division? We have only 2.

1. Decision of the Central Board of Assessment Appeals

In the case of the decision of the Central Board of Assessment Appeals, from the
Central Board of Assessment Appeals, it is now with the CTA en banc, not by division.
And then, to the Supreme Court.

2. RTC deciding in its appellate jurisdiction of the local tax cases

In the local tax cases, where it is brought to the MTC, then to the RTC and then, the
CTA. The CTA here is en banc. Then, to the Supreme Court.

In local tax cases where the decision of the RTC is in its appellate jurisdiction, the
appeal to the CTA is not by division. It is CTA by en banc na. But when it is in the RTC
in its original jurisdiction, dadaanmunasa division bago mag-en banc.
 Only when the RTC decides in its appellate jurisdiction where the appeal to the CTA
is already en banc. As to the rest, except for the two, it will have to pass through the
CTA by division, and then, en banc and then, Supreme Court, including in the original
action.

In the original action, ganun pa rin – CTA by division, CTA by en banc and then,
Supreme Court.

Local Taxes MTC RTC CTA SCen banc

So, you have this exclusive appellate and original jurisdiction of the Court of Tax
Appeals.

Appeal

The Commissioner of Customs or the Commissioner of Internal Revenue shall appeal

to the Court of Tax Appeals. The matter that is brought on appeal is the party adversely
affected by the decision or ruling.

This same provision is carried under the new law, under the amended provision of
Section 11 of RA 125, as amended by RA 8292. Under this provision:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party
adversely affected by a decision, ruling or inaction2 of the Commissioner of Internal
Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade
and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals
or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after
the receipt of such decision or ruling or after the expiration of the period fixed by law for
action as referred to in Section 7(a)(2) herein.

Appeal shall be made by filing a petition for review under a procedure analogous to
that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within
thirty (30) days from the receipt of the decision or ruling or in the case of inaction as
herein provided, from the expiration of the period fixed by law to act thereon. A Division
of the CTA shall hear the appeal: Provided, however, That with respect to decisions or
rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the
exercise of its appellate jurisdiction, appeal shall be made by filing a petition for review
under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil
Procedure with the CTA, which shall hear the case en banc.

2
Inaction is now a matter which upon the lapse of that period, it will now be brought on appeal before the Court of Tax Appeals
 All other cases involving rulings, orders or decisions filed with the CTA as provided for
in Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order
or decision of a Division of the CTA may file a motion for reconsideration of new trial
before the same Division of the CTA within fifteen (15) days from notice thereof: Provide,
however, That in criminal cases, the general rule applicable in regular Courts on matters
of prosecution and appeal shall likewise apply.

No appeal taken to the CTA from the decision of the Commissioner of Internal
Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or
municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry or
the Secretary of Agriculture, as the case may be, shall suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability
as provided by existing law: Provided, however, That when in the opinion of the Court
the collection by the aforementioned government agencies may jeopardize the interest
of the Government and/or the taxpayer the Court any stage of the proceeding may
suspend the said collection and require the taxpayer either to deposit the amount claimed
or to file a surety bond for not more than double the amount with the Court.

In criminal and collection cases covered respectively by Section 7(b) and (c) of this
Act, the Government may directly file the said cases with the CTA covering amounts
within its exclusive and original jurisdiction.

In other words, the CTA has this exclusive appellate jurisdiction and exclusive original
jurisdiction.

You have the criminal offenses involving taxes and fees involving the amount of P 1
Million or more or the tax collection cases or assessments which have become final and
executory in the amount of P 1 Million or more, the filing should be made directly to the
CTA in its exclusive original jurisdiction.

From the decision of the CTA by division, the next mode is to appeal that to the CTA
en banc.

A party adversely affected by the decision or the resolution of the division of the CTA
on a motion for reconsideration or new trial may file a petition for review with the CTA
en banc.

What do we have in these provisions?

In other words, decisions, rulings and inactions of the Commissioner of Internal

Revenue, Commissioner of Customs, Department of Finance, DTI, DA and the RTC in its
original jurisdiction, the appeal is to the CTA by division. And the mode is Rule 42, file a
petition for review.

Decisions/ CIR/COC Appeal Rule 42 CTA Rule 43

Rulings/ DOF/DTI to CTA Petition en Petition SC
Inaction DA & RTC division for banc for
w/ original Review Review
jurisdiction

But the decisions and rulings of the Central Board of Assessment Appeals and the RTC
in its appellate jurisdiction, the appeal is to the CTA en banc by way of petition for review
under Rule 43.

Decisions/Rulings Appeal to Rule 43

of CBAA & RTC in CTA Petition for Review
its appellate en banc
jurisdiction
From the division, you are not precluded to file a motion for reconsideration. From
the denial of the motion for reconsideration, you can now go to the CTA en banc. Here,
the mode is Rule 43. From the en banc, to the Supreme Court under Rule 45.

Here, from the en banc to the Supreme Court, Rule 45 – appeal by certiorari.

Now, take note that the appeal that is brought to the CTA are not only decisions but
you also have rulings.

You have cases like taxpayer confronted with a tax problem. So, he writes to the BIR
for a particular tax query and asks for a ruling. So, he writes to the Commissioner for a
tax query asking for a tax ruling in particular transaction, whether you will be taxable or
not, exempted or not. The ruling or the reply of the CIR may either be to grant the query
or not. The reply of the Commissioner may involve to have the transaction, either it will
be taxable or not exempted or it may be not taxable or exempted.

Taxable/ Adverse Ruling CTA

Tax writes CIR Reply Not Exempted Appeal
Query for tax ruling of CIR
Non-Taxable/
Exempted
 If it is not taxable or you are exempted, there is no problem. The taxpayer will not
pursue anymore kasi he will not be taxable. He will be declared exempted from the tax
transaction.

What if he receives an adverse ruling, wherein there will be a ruling from the
Commissioner that in that transaction he will be taxable or that he will not be exempted?
Can you appeal the ruling? If it is yes, where will you appeal the ruling? Remember that
this is (not ?) a tax case, which is not an ordinary tax case when you compare it to
assessments or refunds.

In this situation, when the taxpayer is confronted with a tax problem and lodged it
with the BIR regarding his query of his taxability or exemption in a transaction and he
gets an adverse ruling, the law allows the taxpayer to appeal the ruling.

Where will he appeal the ruling? The appeal is with the CTA, not with any other courts
or even the regional trial courts because the provision in the law is not only the decisions
but also rulings. So, the rulings therefore include tax queries asked by the taxpayer
asking for a ruling, kung taxable basiya or exempted basiya in a transaction.

In the event that he gets an adverse ruling, his remedy is to appeal that ruling to the
Court of Tax Appeals.

Again, the basis is found under the law. And this provision is found not only in the
old law but it is carried over in the amended law.

The decided case here is the LEAL vs. COMMISSIONER. (Not sure but I think it is
the Commissioner vs. Leal November 18, 2002 case, walakasingbinigaynacitation
.. check it out ) Josefina Leal was the operator of a pawnshop and wrote to the BIR
with regard to the business of her pawnshop, whether she would be subject to the VAT
or the percentage tax or to this type of business tax.

The BIR made a reply that the business is taxable and she should pay the percentage
tax or now, the VAT (not sure if tama pagdinigko)

With that adverse ruling, she went to the RTC to question the ruling of the
Commissioner. With the denial, she went to the Court of Appeals and then, finally to the
Supreme Court.

Of course, the petition was dismissed because it was the wrong remedy.

While the taxpayer is allowed to question a tax ruling made by the Commissioner, the
mode of where to pursue the action is not with the regular courts. It should be, as in the
case of Leal, it should be brought to the CTA or the Court of Tax Appeals,
 In the case of Leal, it cited the statutory provision. Even under the old law, under RA
1125, the matter that is brought on appeal to the CTA, any party adversely affected by a
decision or ruling. So, it includes therefore, the rulings of the Commissioner of Internal
Revenue or his administrative officers. So, you could appeal the ruling therefore to the
CTA.

And under the jurisdiction of the Court of Tax Appeals, its exclusive appellate
jurisdiction, involves the decisions of the CIR in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, then, you have, or other matters arising under the National Internal Revenue
Code or other law or part of law administered by the Bureau of Internal Revenue.

That provision is allowing the taxpayer to appeal that to the CTA and not to any other
courts.

You have that legal basis to pursue your appeal for that ruling, not to the regular
courts, but to the CTA.