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04b TOM Taxation Law Bar Reviewer - Pages PDF
04b TOM Taxation Law Bar Reviewer - Pages PDF
395
ON TRANSFER TAXES 4
INCOME TAX (IT) vs. VAT vs. ET vs. DT***** 9
FOUR KINDS OF ESTATES & DONORS 10
KINDS OF PROPERTIES FOR TRANSFER TAXATION 10
WHERE TAX RETURN IS FILED 12
MORE ON ESTATE TAXATION 12
GROSS ESTATE (GE) 12
ESTATE TAX NUANCES 13
NATURE & CHARACTERISTICS OF ESTATE TAX 13
REQUISITES for the imposition of Estate Tax (DANd): 15
TIME & TRANSFER OF PROPERTIES 15
Estate Tax vs. Inheritance tax 15
THEORIES FOR THE IMPOSITION OF ESTATE TAX 16
THEORIES vs. PURPOSES FOR IMPOSING ESTATE TAX 16
ESTATE PLANNING 17
ESTATE TAX RATES 17
A. Some considerations under Sec 84 NIRC: 17
B. Valuation of the Gross Estate 18
C. Payment of Tax [SEC. 91] 21
D. Summary of Effects of non-payment of ET 26
Determination of the Gross Estate 27
A. Types of Estate Taxpayers; Classification of Decedent 27
B. How are their Gross Estate (GE) and Net Estate (NE) determined? 27
***ON SURVIVORSHIP AGREEMENTS 31
ITEMS OF INCLUSIONS IN THE GROSS ESTATE 31
A. Decedent's interest (DI) 32
B. Transfer in contemplation of death (TCD) 34
G. Transfers of insufficient consideration (TIC) 38
C. Revocable transfer (RT) 38
D. Property passing under general power of appointment (GPA); 39
E. Proceeds of life insurance****** 39
F. Prior interests; 39
H. Capital of the Surviving Spouse (misplaced provision) 40
ALLOWABLE DEDUCTIONS FROM THE GE 40
(A) Deductions Allowed to the Estate of Citizen or a Resident. 42
(1) Expenses, losses, indebtedness, and taxes: 42
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RC Y Y Y Y Y Y Y Y Y Y Y 1M 1M 1M 1M Y
NRC Y Y Y Y Y Y Y Y Y Y Y 1M 1M 1M 1M Y
RA Y Y Y Y Y Y Y Y Y Y Y 1M 1M 1M 1M Y
NRA Y N Y iP iP iP iP iP iP Y Y N N N N Y
Philippines.1
ON TRANSFER TAXES
1. Estate and Donor’s taxes are both transfer taxes. They are only paid once.
a. Estate Tax (ET): paid upon death. No death, no ET. It is a tax on the
transfer of property taking effect upon death.
b. Donor’s Tax (DT): paid for every gift given.
*****Transfer Tax: imposed upon the PRIVILEGE of disposing
GRATUITOUSLY private properties. These are levied on the transmission of
properties [Two kinds of transfer taxes]
a. from a decedent to his heirs or [ESTATE TAX; donations mortis causa]2
1 Miguel, a citizen and resident of Mexico, donated US$1,000.00 worth of stocks in Barack Motors
Corporation, a Mexican company, to his legitimate son, Miguelito, who is residing in the
Philippines and about to be married to a Filipino girlfriend. Mexico does not impose any transfer
tax of whatever nature on all gratuitous transfers of property. Is Miguel entitled to the rule of
reciprocity in order to be exempt from the Philippine donor’s tax? Why or why not? (3%)
SUGGESTED ANSWER: No. *****The donation is not subject to the Philippine donor's tax
because the donor is a non-resident alien and the property donated is a property not situated in
the Philippines. The rule of reciprocity applies only if the property transferred by a non-resident
alien is an intangible personal property situated in the Philippines. This is designed to reciprocate
the exemption from donor's tax granted by a foreign country to Filipinos who are not residing
thereat. (Section 104, NIRC). (BAR 2009)
[] Is Miguel entitled to claim a dowry exclusion? Why or why not? (3%) SUGGESTED
ANSWER: Miguel, a non-resident alien, is not allowed any dowry exclusion. *****The dowry applies
only to a donor who is either a citizen or resident of the Philippines (Section 101(AX1), NIRC).
(BAR 2009)
2 DISTINGUISHING CHARACTERISTICS OF A D-MORTIS CAUSA
(1) the transfer conveys no title or ownership to the transferee before the death of the tansferor, or the
transferor (meaning testator) retains the ownership, full or naked (domino absoluto or nuda proprietas) (Vidal
vs. Posadas, 58 Phil. 108; De Guzman vs. Ibea, 67 Phil. 633;
(2) the transfer is revocable before the transferor's death and revocability may be provided for indirectly
by means of a reserved power in the donor to dispose of the properties conveyed (Bautista vs.
Sabiniano, 92 Phil. 244), and
(3) the transfer would be void if the transferor survived the transferee.
*In other words, in a donation mortis causa it is the donor's death that determines that acquisition
of, or the right to, the property donated, and the donation is revocable at the donor's will.
*Where the donation took effect immediately upon the donee's acceptance thereof and it was subject
to the resolutory condition that the donation would be revoked if the donee did not give the donor a
certain quantity of rice or a sum of money, the donation is inter vivos (Zapanta vs. Posadas, Jr., 52 Phil.
557).
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4 *Determinative test of a donation mortis causa (DMC): its EFFECTIVITY, which is from the
moment of death of the decedent. *****Two characteristics to determine if it’s a DMC:
1. It’s effective upon death;
2. It is Revocable.
- Is acceptance required in DMC? No.
- Is delivery of the property required in DMC? No.
- Is there a particular form prescribed under NCC for it to be considered a valid donation? Yes,
if it is by testamentary succession—one has to follow the prescribed form; No, if it is by intestate
succession.
- What if the DMC is invalid? There is no more estate tax; but income tax, yes
(Remember: income is the flow of wealth other than a mere return of capital). If the DMC is valid,
there is NO INCOME TAX because it is an EXCLUSION from the gross income (i.e., gifts,
bequests & devices are excluded).
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5 Notice of Death to be Filed [SEC. 89] - In all cases of transfers subject to tax, or where, though
exempt from tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor,
administrator or any of the legal heirs, as the case may be, within two (2) months after the
decedent's death, or within a like period after qualifying as such executor or administrator, shall
give a written notice thereof to the Commissioner.
6 The Executor or Administrator (E/A) in Estate Tax
1. For the purpose of this Chapter, the term 'executor' or 'administrator' means the: a)
executor or administrator of the decedent, or b) if there is no executor or administrator appointed, qualified,
and acting within the Philippines, then any person in actual or constructive POSSESSION of any
property of the decedent [Sec 91, last par]
2. Discharge of Executor or Administrator from Personal Liability [SEC. 92] - If the
executor or administrator makes a written application to the Commissioner for determination of the
amount of the estate tax and discharge from personal liability therefore, the Commissioner (as soon
as possible, and in any event within one (1) year after the making of such application, or if the application is
made before the return is filed, then within one (1) year after the return is filed, but not after the expiration
of the period prescribed for the assessment of the tax in Section 203 shall not (?) notify the executor or
administrator of the amount of the tax. The executor or administrator, upon payment of the amount
of which he is notified, shall be discharged from personal liability for any deficiency in the tax
thereafter found to be due and shall be entitled to a receipt or writing showing such discharge.
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a. sale of goods
b. sale of service
c. importation of goods
3. Transfer Taxes: Taxability is dependent on the location of the property.
a. ET: based on the value of properties of the decedent upon death; Mortis
causa
b. DT: based on the value of the gift at the moment of donation; Inter
vivos
[] Taxability of a gift is same with estate tax.
i. Dependent on the location of the property: within or outside of
the Philippines.
ii. In the case of a non-resident alien donor/decedent, only the
properties located in the Philippines shall be subject to DT & NT.
7X, a multinational corporation doing business in the Philippines donated 100 shares of stock of
said corporation to Mr. Y, its resident manager in the Philippines. What is the tax liability, if any, of
X corporation? ANSWER: Foreign corporations effecting a donation is subject to donor’s tax only if
the property donated is located in the Philippines. Accordingly, donation of a foreign corporation
of its own shares of stocks in favor of resident employees, is not subject to donor’s tax (BIR
Ruling No. 018-87, January 26, 1987). ******However, if 85% of the business of the foreign
corporation is located in the Philippines or the shares donated have acquired business situs in the
Philippines, the donation may be taxed in the Philippines subject to the rule of reciprocity.
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file it in the place paid by donor; paid at place of residence of donor (not based on location of
where the property is property). In the case of NRA decedent/donor pay at the Office of the
located. Commissioner, since they do not live here.
2. NB: In SpecPro, for judicial settlement of estate of non-resident aliens, you can
file the petition anywhere, in any court which has jurisdiction over any of the
properties of the deceased. We don’t follow that in estate tax or donor’s tax. We
file the return and pay the tax due before the Office of the Commissioner.
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8 A died, survived by his wife and three children. The estate tax was properly paid and the estate
settled and divided and distributed among the four heirs. Later, the BIR found out that the estate
failed to report the income received by the estate during administration. The BIR issued a
deficiency income tax assessment plus interest, surcharges and penalties. Since the 3 children
are residing abroad, the BIR sought to collect the full tax deficiency only against the widow. Is
the BIR correct? (10%) SUGGESTED ANSWER: Yes, the BIR is correct. *****In a case where the
estate has been distributed to the heirs, the collection remedies available to the BIR in collecting tax
liabilities of an estate may either (1) sue all the heirs and collect from each of them the amount of tax
proportionate to the inheritance received or (2) by virtue of the lien created under Section 219, sue only one
heir and subject the property he received from the estate to the payment of the estate tax. The
BIR, therefore, is correct in pursuing the second remedy although this will give rise to the right of
the heir who pays to seek reimbursement from the other heirs. (CIR v. Pineda, 21 SCRA 105).
*****In no case, however, can the BIR enforce the tax liability in excess of the share of the widow
in the inheritance. (BAR 1999)
9 Don Fortunato, a widower, died in May, 2011. In his will, he left his estate of P100 million to his four
children. He named his compadre, Don Epitacio, to be the administrator of the estate. When the BIR
sent a demand letter to Don Epitacio for the payment of the estate tax, he refused to pay claiming that
he did not benefit from the estate, he not being an heir. Forthwith, he resigned as administrator. As a
result of the resignation, who may be held liable for the payment of the estate tax? (2011 Bar Question)
(A) Don Epitacio since the tax became due prior to his resignation. (B) The eldest child who would be
reimbursed by the others.
(C) All the four children, the tax to be divided equally among them.
(D) The person designated by the will as the one liable.
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*NB: The Estate Tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary (RR 2-2003, Sec 3.).
2. Inheritance tax: 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 (Bar
1969).
*NB: Presently, there is no inheritance tax imposed by law. Only estate
taxes are imposed.
*rationale for the abolition of inheritance tax: it is not administratively
feasible (NB: 3 fundamental principles of a sound tax system under General
Principles: FAT: Fiscal adequacy, Administrative feasibility/convenience,
Theoretical justice); BIR had difficulty collecting, hence it is NOT SOUND.
*Bar: A law was passed by Congress abolishing estate tax. Is the law valid?
- A: Yes, it is in the nature of a tax exemption. Settled is the rule that the
power to tax includes the power to grant an exemption.
*Can Congress pass a law reviving inheritance tax?
- A: Yes. Justification: consistent with the principle of Fiscal adequacy.
ESTATE PLANNING
1. the manner by which a person takes steps
2. to conserve the property to be transmitted to his heirs
3. by decreasing the amount of estate taxes to be paid upon his death.
*It is considered as LAWFUL because, “the legal right of a taxpayer to
decrease the amount of what otherwise would be his taxes or altogether avoid them by
MEANS which the LAW PERMITS, cannot be doubted.”(Delpher Trades
Corporation v. IAC, et al. G.R. No. 73584, Jan. 28, 1988)
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10The estate comprised of properties of only PI.2 million is not liable to any estate tax. *****The
estate is entitled to a standard deduction of PI million deductible from the gross estate without the
benefit of substantiation, thereby placing the net estate at only P200,000. Under the graduated tax
rates of the estate tax, a net estate of P200,000 is exempt. (Section 86(A)(5) and Section 84, NIRC).
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PROPERTY FMV
RIGHT TO Take into account the probable life of the beneficiary in accordance with the
USUFRUCT, USE, latest basic standard mortality table, to be approved by the Secretary of
HABITATION, Finance, upon recommendation of the Insurance Commissioner.
ANNUITY
*In determining the book value of common shares, the following shall
not be considered: 1. Appraisal surplus; 2. The value assigned to preferred shares,
if there are any.
*If there is an improvement, the value of improvement is the construction
cost per building permit or the fair market value per latest tax declaration.
8. Compare with Valuation for Donor’s Taxation: VALUATION OF THE GIFT
[] SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in
property, the fair market value thereof at the time of the gift shall be
considered the amount of the gift. In case of real property, the provisions of
Section 88(B) shall apply to the valuation thereof.
*****The fair market value of the property donated/given at the time of
the donation shall be the value of the gross gifts. NB: same as valuation in estate
taxation.13
13 Mr. L owned several parcels of land and he donated a parcel each to his two children. Mr. L acquired
both parcels of land in 1975 for 200,000.00. At the time of donation, the fair market value of the two
parcels of land, as determined by the CIR, was 2,300,000.00; while the fair market value of the same
properties as shown in the schedule of values prepared by the City Assessors was 2,500,000.00. What
is the proper valuation of Mr. L's gifts to his children for purposes of computing donor's tax? (2015
Bar Question): The valuation of Mr. L’s gift to his children is the fair market value (FMV) of the
property at the time of donation. *****It is the higher of the FMV as determined by the Commissioner or
the FMV as shown in the schedule of values fixed by the provincial or city assessors. In this case, for the purpose
of computing donor’s tax, the proper valuation is the value prepared by the City Assessors amounting
to P2,500,00.00 because it is higher than the FMV determined by the CIR.
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14*More on CIR vs. Pineda: the Government resorted to the administrative remedy of enforcement
of tax lien in trying to collect deficiency income tax of the estate of Atanasio Pineda. Manuel B.
Pineda, the eldest son of the deceased, who was made to pay the full amount of the taxes
assessed questioned the assessment on the ground that as an heir he is liable for unpaid income tax due the estate only
up to the extent of and in proportion to any share he received. HELD: The Government can require Manuel
B. Pineda to pay the full amount of the taxes assessed. Pineda is liable for the assessment as an heir
and as a holder-transferee of property belonging to the estate/taxpayer. As an heir, he is
individually answerable for the part of the tax proportionate to the share he received from the
inheritance. His liability, however, cannot exceed the amount of his share. As a holder of
property belonging to the estate, Pineda is liable for the tax up to the amount of the property in his
possession. The reason is that the Government has a lien on the P2,500 received by him from the estate
as his share in the inheritance for unpaid taxes for which the estate is liable, pursuant to the last
paragraph of Section 315 of the Tax Code (now Section 219, NIRC). By virtue of such lien, the
Government has the right to subject the property in Pineda's possession, i.e., the P2,500 to
satisfy the income tax assessment in the amount of P760.28. XXX The second remedy (tax lien) is
the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue
should be given, in instances like the case at bar, the necessary discretion to avail itself of the
most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax
Code above-quoted, because TAXES ARE THE LIFEBLOOD OF THE GOVERNMENT AND
THEIR PROMPT AND CERTAIN AVAILABILITY IS AN IMPERIOUS NEED.
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17 On September 10, 1991, a Bank Manager of People’s Bank, Inc. (PBI), upon reading an obituary
announcing the death of Mr. Roberto Diaz refused to allow one of his heirs to withdraw Mr. Diaz’
deposit amounting to P2 Million. A week later, immediately following said denial, the administrator of
the estate sued the Bank/Bank Manager to compel them to release the money since such act was
arbitrary and constituted a denial of property/constitutional rights. If you are retained as counsel by
the Bank/Bank Manager to defend their stand in refusing to release the P2 Million to the heirs, what
would you raise as a legal defense? Discuss. ANSWER: I would raise the defense that under Sec. 90 of
the NIRC *****a bank with knowledge of the death of a person who maintains a deposit account
with such bank shall allow withdrawals therefrom only if the mandatory requirement of a
certification from the Commissioner that the taxes due thereon have been paid could be presented by
an heir. Absent such certification, a bank is authorized to withhold the release of deposits of a
decedent.
[] Under the same set of facts, would you, as administrator of the estate, rather file an
administrative appeal with the Commissioner of Internal Revenue or a petition for review with the
Court of Tax Appeals? Explain. ANSWER: *****An administrative appeal to the Commissioner of
Internal Revenue would not be a proper remedy without an original proceeding having first been
filed with the BIR. A petition for review with the Court of Tax Appeals, on the other hand, requires
a final decision of the Commissioner, the CTA being a court of exclusive appellate jurisdiction. As
administrator, I would cause the payment of the proper taxes on the deposits and thereafter, secure
the required certification from the Commissioner. (BAR 1992)
[] If the Commissioner of Internal Revenue allows the administrator of the estate or the heirs
of the decedent to withdraw from the deposit account, what are the conditions under the Tax Code
which have to be met first? ANSWER: Before withdrawals on deposits of a decedent could be
permitted, the proper taxes should first be paid and a certification of such payment secured from
the Commissioner. *****However, the Commissioner may authorize the withdrawal without a
certification provided the amount to be withdrawn shall not exceed P 10,000.00. ALTERNATIVE
ANSWER: Payment of the tax or the filing of a bond would, in substance, be enough for the
Commissioner to allow the withdrawal. (BAR 1992)
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c. Deficiency.18
d. New obligations after payment of Estate tax: SEC. 96. Restitution of
Tax Upon Satisfaction of Outstanding Obligations. - If after the payment
of the estate tax, new obligations of the decedent shall appear, and the persons
interested shall have satisfied them by order of the court, they shall have a right to the
restitution of the proportional part of the tax paid.
18SEC. 93. Definition of Deficiency. - As used in this Chapter, the term "deficiency" means:
(a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax
by the executor, administrator or any of the heirs upon his return; but the amounts so shown on the
return shall first be increased by the amounts previously assessed (or collected without assessment) as a
deficiency and decreased by the amount previously abated, refunded or otherwise repaid in respect of
such tax; or
(b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his
return, or if no return is made by the executor, administrator, or any heir, then the amount by which
the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but
such amounts previously assessed or collected without assessment shall first be decreased by the
amounts previously abated, refunded or otherwise repaid in respect of such tax.
*Sec 104: The term "deficiency" means: (a) the amount by which tax imposed by this Chapter
exceeds the amount shown as the tax by the donor upon his return; but the amount so shown on the
return shall first be increased by the amount previously assessed (or collected without assessment) as a
deficiency, and decreased by the amounts previously abated, refunded or otherwise repaid in respect of
such tax, or (b) if no amount is shown as the tax by the donor, then the amount by which the tax
exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such
amounts previously assessed, or collected without assessment, shall first be decreased by the amount
previously abated, refunded or otherwise repaid in respect of such tax.
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administrator without said certification if the credit is included in the inventory of the
estate of the deceased.
D. Other Prohibitions
1. No Transfer of Shares, Bonds or Rights prior to payment of tax: SEC.
97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights.
- There shall not be transferred to any new owner in the books of any
corporation, sociedad anonima, partnership, business, or industry organized or
established in the Philippines any share, obligation, bond or right by way of gift
inter vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is
shown.
2. No withdrawal of bank deposits: If a bank has knowledge of the death
of a person, who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless
the Commissioner has certified that the taxes imposed thereon by this Title
have been paid: Provided, however, That the administrator of the estate or any
one (1) of the heirs of the decedent may, upon authorization by the
Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(P20,000) without the said certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the joint depositors are still
living at the time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors.
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2. RDO will issue certification to this effect: that the estate of AA has paid, and
therefore, this office interposes no objection on the transfer of the following
properties:
a. Personal: include specs for example preferred shares
b. Real: include TCT #, etc
*those not included in the list will be FROZEN.
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B. How are their Gross Estate (GE) and Net Estate (NE) determined?
1. Summary: Gross estate tax is arrived at after adding all those included and deducting
the exclusions while net estate is arrived at after subtracting the allowable deductions from
the gross estate.
[] SEC. 85. Gross Estate. - the value of the gross estate of the decedent
shall be determined by including the value at the time of his death of all property,
real or personal, tangible or intangible, wherever situated: Provided, however, that
in the case of a nonresident decedent who at the time of his death was not a
citizen of the Philippines, only that part of the entire gross estate which is situated
in the Philippines shall be included in his taxable estate.
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19 Remedios, a resident citizen, died on November 10, 2006. She died leaving three condominium units
in Quezon City valued at P5 Million each. Rodolfo was her only heir. He reported her death on
December 5, 2006 and filed the estate tax return on March 30,2007. Because he needed to sell one unit
of the condominium to pay for the estate tax, he asked the Commissioner of Internal Revenue to give
him one year to pay the estate tax due. The Commissioner approved the request for extension of time
provided that the estate tax be computed on the basis of the value of the property at the time of
payment of the tax. Does the condition that the basis of the estate tax will be the value at the time of
the payment have legal basis? Reason briefly. SUGGESTED ANSWER: No. *****The valuation of
properties comprising the estate of a decedent is the fair market as of the time of death. No other
valuation date is allowed by law. (Section 88, NIRC). (BAR 2007)
20Jose Ceman, Filipino citizen, married to Maria Ceman, died in a vehicular accident in NLEX on July
10, 2007. The spouses owned, among others, a 100-hectare agricultural land in Sta. Rosa, Laguna with
current fair market value of P20 million, which was the subject matter of a Joint Venture
Agreement about to be implemented with Star Land Corporation (SLC), a well-known real estate
development company. He bought the said real property for P2 million fifty years ago. On January 5,
2008, the administrator of the estate and SLC jointly announced their big plans to start conversion and
development of the agricultural lands in Sta. Rosa, Laguna, into first-class residential and commercial
centers. As a result, the prices of real properties in the locality have doubled. The Administrator of the
Estate of Jose Ceman filed the estate tax return on January 9,2008, by including in the gross estate the
real property at P2 million. After 9 months, the BIR issued deficiency estate tax assessment, by
valuing the real property at P40 million. Is the BIR correct in valuing the real property at P40
million? Explain. (3%) SUGGESTED ANSWER: No. The value of the property for estate tax
purposes shall be the fair market value thereof at the time of death. (Section 88(B), NIRC).
b) If you disagree, what is the correct value to use for estate tax purposes? Explain. (3%)
SUGGESTED ANSWER: The correct value to use for estate tax purposes is P20 million which is
the current fair market value of the property at the time of the decedent's death. (Section 88(B),
NIRC). (BAR 2008)
21 Antonia Santos, 30 years old, gainfully employed, is the sister of Eduardo Santos. She died in an
airplane crash. Edgardo is a lawyer and he negotiated with the Airline Company and insurance
company and they were able to agree to a total settlement of P10 Million. This is what Antonia
would have earned as somebody who was gainfully employed. Edgardo was her only heir.
Is the P10 Million subject to estate tax? Reason briefly. SUGGESTED ANSWER: No. *****The
estate tax is a tax on the privilege enjoyed by an individual in controlling the disposition of her
properties to take effect upon her death. The P10M is not a property existing as of the time of
decedent’s death; hence, it cannot be said that she exercised control over its disposition. Since the
privilege to transmit the property is not exercised by the decedent, the estate tax cannot be imposed
thereon. (Definition of Estate Tax p. 184, Vitug, Compendium of Tax Law and Jurisprudence, Third
Revised Edition). (BAR 2007)
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22 Don Sebastian, single but head of the family, Filipino, and resident of Pasig City, died intestate on
November 15, 2009. He left the following properties and interests: House and lot (family home) in
Pasig Vacation house and lot in Florida, USA; Agricultural land in Naic, Cavite which he inherited from
his father; Car which is being used by his brother in Cavite; Proceeds of life insurance where he named
his estate as irrevocable beneficiary; Household furnitures and appliances; Claims against a cousin who
has assets of P10,000 and liabilities of P100,000;Shares of stock in ABC Corp, a domestic enterprise
*The expenses and charges on the estate are as follows: Funeral Expenses; Legal fees for the
settlement of the estate; Medical expenses of last illness; Claims against the estate.
*The compulsory heirs of Don Sebastian approach you and seek your assistance in the
settlement of his estate for which they have agreed to the above-stated professional fees. Specifically,
they request you to explain and discuss with them the following questions. You oblige:
a. What are the properties and interests that should be included in the computation of the gross
estate of the decedent? Explain. (2.5%): All the properties and interest enumerated in the problem
should be included in the gross estate of the decedent. The decedent is a citizen of the Philippines and
the law requires that the composition in the gross estate of the decedent shall include *****all kinds
of properties wherever situated and to the extent of the interest that he has thereon at the time
of his death.
b. What is the net taxable estate of the decedent? Explain. (2.5%): The net taxable estate of the
decedent is Php 3.7M. From the gross estate of Php 7.0M, ******the following deductions are
allowed: (1) Funeral expenses of Php 200K which is the maximum allowed by law, (2) legal fees amounting
to Php 500K; (3) medical expenses not to exceed Php 500K incurred one year prior to death and
substantiated with receipts; (4) claims against the estate of Php 300K; (5) family home equivalent to its FMV
(not to exceed Php 1.0M) of Php 800K and (6) standard deduction of Php 1.0M or a total allowable
deduction of Php 3.3M. The claim against the cousin amounting to Php 100K although
includible in the gross estate cannot be claimed as a deduction because the debtor is not yet declared
insolvent. Likewise, the inherited property cannot give rise to a vanishing deduction for want of
sufficient factual basis.
c. When is the due date for filing and payment of the applicable tax return and tax? Are these
dates extendible? If so, under what conditions or requirements? (2.5%): ******The tax return and the
payment of the estate tax are both due within six (6) months from death. The filing of the return is
extendible for a maximum period of 30 days under meritorious cases as maybe determined by the
CIR. Whereas, the payment of the estate tax may also be extended when the CIR finds that the
payment thereof would impose undue hardship upon the estate or any of the heirs. The period of
extension to pay shall not exceed 5 years from death if the estate is settled through the courts or shall not
exceed 2 years from death if settled extra-judicially. The CIR may require the executor or
administrator or the beneficiary to furnish a bond in an amount not more than double the amount of
the estate tax due.
d. If X, one of the compulsory heirs, renounces his share in the inheritance in favor of the
other co-heirs, is there any tax implication of X’s renunciation? What about the other coheirs? (2.5%)
(2010 Bar Question): *****If the renunciation is a general renunciation (in favor of co-heirs in
accordance with their respective interest in the inheritance), the law on accretion applies and the
property waived is considered to pass through the other co-heirs by inheritance; hence, it has no tax
implication. There is no donation of property because the property had never become the property of the
donor. Such being the case, the renunciation is not subject to donor’s tax. If it is not a general
renunciation in favor of the other co-heirs, the heir renouncing his right is considered to have
made a donation and the renunciation is subject to donor’s tax. In both cases, however, the
renunciation has no tax implication to the other co-heirs.
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23Cliff Robertson, an American citizen, was a permanent resident of the Philippines. He died in
Miami, Florida. He left 10,000 shares of Meralco, a condominium unit at the Twin Towers Building at
Pasig, Metro Manila and a houseand lot in Los Angeles, California.What assets shall be included in the
Estate Tax Return to be filed with the BIR? (1994) A: Being a resident alien, all the properties of Cliff
Robinson, wherever situated, will be included in the Estate Tax Return.
24 Bar 2005: Ralph Donald, an American citizen, was a top executive of a U.S company in the
Philippines until he retired in 1999. He came to like the Philippines so much that following his
retirement, he decided to spend the rest of his life in the country. He applied for and was granted
permanent resident status the following year. In the spring of 2004, while vacationing in Orlando
Florida USA, he suffered a heart attack and died. At the time of his death he left the following
properties:
a. Bank deposits with Citibank Makati and Citibank Orlando Florida;
b. Rest house in Orlando, Florida;
c. A condominium unit in Makati;
d. Shares of stock in the Phil subsidiary of the U.S company where he worked;
e. Shares of stock in San Miguel Corporation and PLDT;
f. Shares of stock in Disney World in Florida;
g. U.S treasury bonds;
h. Proceeds from a life insurance policy issued by a US corporation.
Which of the foregoing assets shall be included in the taxable gross estate in the
Philippines? Explain. A: ******All of the properties enumerated except (h: proceeds from life
insurance). He is considered a resident alien for tax purposes since he is an American citizen and was a
permanent resident of the Philippines at the time of his death. The value of the gross estate of a resident
alien decedent shall be determined by including the value at the time of his death of all property, real
or personal, tangible or intangible, wherever situated. (Sec. 85, NIRC) The other item, (h) proceeds
from a life insurance policy, may be included in his gross estate only when
i. it was Ralph Donald who took out the insurance upon his own life,
ii. payable upon his death to his estate,
iii. or when the beneficiary is a third person other than his estate who is not designated as an
irrevocable beneficiary (Sec. 85[E], NIRC).
25Bar 2011: Tong Siok, a Chinese billionaire and a Canadian resident, died and left assets in China
valued at P80 billion and in the Philippines assets valued at P20 billion. For Philippine estate tax
purposes the allowable deductions for expenses, losses, indebtedness, and taxes, property previously
taxed, transfers for public use, and the share of his surviving spouse in their conjugal partnership
amounted to P15 billion. Tong's gross estate for Philippine estate tax purposes is? A: P20 billion. Being
a non-resident alien, the estate tax to be paid will be based on his properties situated in the Philippines. The
deductions are not included since the question pertains to gross estate, not the net estate.
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26*****Rule of thumb in Estate Tax: If the decedent had control/interest on the property at the time
of his death, it would form part of his GE.
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1. Decedent’s Interest
B. Properties not in the estate27
1. Transfers in contemplation of death;
2. Revocable transfers;
3. Properties passing under a general power of appointment, and;
4. Transfers for an insufficient consideration.
*The 4 transfers enumerated above have the following commonalities:
1. They are ostensible transfers, usually with the purpose to evade the estate
tax; 2. They are extension of interests; 3. If the transfers are in fact for a
bona fide consideration, then they will not form part of the gross estate (this proviso is
present in all the provisions regarding these transfers)
C. Proceeds of life insurance;
D. Prior interests;
————————————————
27 *these are properties not physically in the estate (because they have already been transferred during
the lifetime of the decedent; but they are still subject to payment of estate tax). They are transfers
inter-vivos which are considered part of gross estate. Why are they considered in the enumeration?
Because they are transfers INTER VIVOS IN FORM but MORTIS CAUSA IN SUBSTANCE.
In effect, they are SUBSTITUTES for testamentary dispositions. Hence, as such, the gross estate,
for purposes of the estate tax, may exceed the actual value of his assets at the time of his death as
it includes the value of transfers of property made by him during his lifetime that partake of the nature of
testamentary dispositions.
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rent income from the lease of the building or fruits of the land.28
c. Contract of lease (LEASE: when decedent is the lessor). Lessor
requires 1-year payment of rental and the lessee paid accordingly.
i. If the lessor died, the value of the property (house & lot) leased is
his DI.
ii. If it’s the lessee who died, say in May (the lease being from January
to December), his DI is the eight months rental from May to December.
d. PARTNERSHIP: include his interests as a partner, which consists of
profits & surplus shares [Art 1812 NCC]29
e. CORPORATION’s DIVIDENDS: when decedent was a shareholder
entitled to a dividend; to determine which is part of his GE, check the stock &
transfer book; if it was declared before his death and about to be distributed
but he died, YES, it is part of his GE. Determining factor: time of
declaration of the dividend. Hence, the CONSTRUCTIVE RECEIPT (the
date he acquired VESTED RIGHT over the income) of income applies. NB:
investments are part of the GE
f. MORTGAGE: when decedent is the mortgagor
g. FORECLOSED PROPERTY: sold in public auction: yes, it is included
in the GE because of his RIGHT OF REDEMPTION. NB: Inheritance
includes RIGHTS & properties.
h. SALE: include contracts to sell (CTS); when he acquires ownership
after delivery, when he becomes the owner (the latter refers to Contract of Sale,
but the professor mentioned CTS too.)
i. BONDS: the value of bonds constitutes decedent’s interest and should be
included in the gross estate, since it is capable of pecuniary estimation and it was
acquired before the decedent’s death.
28 *Bar 1994: Jose Ortiz owns 100 hectares of agricultural land planted with coconut trees. He died on
May 30, 1994. Prior to his death, the government, by operation of law, acquired under the
Comprehensive Agrarian Reform Law all his agricultural lands except five (5) hectares. Upon the
death of Ortiz, his widow asked you how she will consider the 100 hectares of agricultural land in the
preparation of the estate tax return. What advice will you give her? A: The 100 hectares of land that
Jose Ortiz owned but which prior to his death on May 30, 1994 were acquired by the government
under CARP are no longer part of his taxable gross estate, with the exception of the remaining five (5)
hectares which under Sec. 78{a) of the Tax Code still forms part of "decedent's interest”.
29[] Art. 1812. A partner's interest in the partnership is his share of the profits and surplus.
***NB: only profits and capital that accrued before his death are part of his gross estate and
therefore taxable. They are part of the decedent’s interest because he acquired them before his death.
His share in the partnership includes those surplus profits and capital. He still has control over them
before his death, hence, they are part of his gross estate.
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transferred will not be considered in determining the gross estate.33 What if the price/
consideration is grossly inadequate? [] Art 1470 NCC: GROSS INADEQUACY of a
price does NOT affect a contract of sale, except as it MAY indicate a defect in
the consent, or that the parties really intended a donation or some other act of
contract.
2. Circumstances (FACTORS)34 to be taken into account in determining
whether the transfer is one in contemplation of death:
(a) Age of the decedent at the time the transfers were made;
(b) Decedent’s health, as he knew it at or before the time of the transfers;
*is he terminally ill?
(c) The interval between the transfers and the decedent’s death;
(d) The amount of property transferred in proportion to the amount of
property retained;
(e) The nature and disposition of the decedent;
(f) The existence of a general testamentary scheme of which the transfers
were a part;
(g) The relationship of the donee(s) to the decedent;35
(h) The existence of a desire on the part of the decedent to escape the
burden of managing property by transferring the property to others;
(i) The existence of a long established gift-making policy on the part of
the decedent;
(j) The existence of a desire on the part of the decedent to vicariously
enjoy the enjoyment of the donees for the property transferred;
(k) The existence of the desire by the decedent of avoiding estate taxes
by means of making inter vivos transfers of property. (Estate of Oliver Johnson v.
Commissioner, 10 T.C. 680);
33***Mr. Agustin, 75 years old and suffering from an incurable disease, decided to sell for valuable
and sufficient consideration a house and lot to his son. He died one year later. In the settlement of
Mr. Agustin's estate, the BIR argued that the house and lot were transferred in contemplation of death
and should therefore form part of the gross estate for estate tax purposes. Is the BIR correct? (2013
Bar Question): The BIR is not correct. Pursuant to Section 85(B) of the NIRC, properties that are
transferred in contemplation of death form part of the gross estate of the decedent. ****An
exception to this is a bona fide sale for an adequate and full consideration in money. Therefore,
the house and lot which Mr. Agustin sold to his son for a valuable and sufficient consideration should
not be considered as forming part of Mr. Agustin’s gross estate.
34The common ones are: a. Age; b. Medical condition of seller at the time of sale; c. Period of
time between transfer and time of death; d. Relationship between the seller and the buyer;
35 *****Dizon vs. Posadas: the Court considered two factors: (i) the interval between the transfer and
the decedent’s death (only 12 days elapsed); and (ii) the relationship of the donee to the decedent (son-
father). FACTS: A deed of gift covering 22 tracts of land was executed by Felix Dizon in favor of his
son Luis on 9 Apr 1928, reserving the usufruct to the donor; formal acceptance in writing was acknowledged
before the notary public on April 20. Felix died the next day, April 21. The transfer was INTER
VIVOS but for the purpose of taxation, it was a TRANSFER IN CONTEMPLATION OF
DEATH.
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(l) Concurrent making of will or making a will within a short time after
the transfer (De Roces v. Posadas, 58 Phil. 108). FACTS: Esperanza Tuazon
donated certain parcels of land to the plaintiffs on March 10 & 12, 1925; she died
on January 5, 1926 with a will where she bequeathed to the same donees
legacies of P5K each. HELD: When the donor makes a will within a short
period of time or simultaneously with the making of gifts, the said gifts are
considered to have been made in CONTEMPLATION of death. The
intention of the donor is obviously the avoidance of the imposition of estate tax, and
since the donees are likewise FORCED HEIRS who are called upon to
inherit, it will create a PRESUMPTION JURIS TANTUM36 that said
donations were made mortis causa, hence, the said properties must be
36 *Bar 2001: AA, aged 90 years and suffering from incurable cancer, on August 1, 2001 wrote a will
and, on the same day, made several inter-vivos gifts to his children. Ten days later, he died. In your
opinion, are the inter-vivos gifts considered transfers in contemplation of death for purposes of
determining properties to be included in his gross estate? A: Yes. *****When the donor makes his will
within a short time of, or simultaneously with, the making of gifts, the gifts are considered as having been
made in contemplation of death. (Roces v. Posadas, 58 Phil. 108). Obviously, the intention of the
donor in making the inter-vivos gifts is to avoid the imposition of the estate tax and since the donees
are likewise his forced heirs who are called upon to inherit, it will ******create a presumption juris
tantum that said donations were made mortis causa, hence, the properties donated shall be included as part
of A's gross estate.
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37Five instances which constitutes transfer in contemplation of death according to Prof. Thomas
Matic:
a. Secondary Life Estate – Retention by the grantor for life of the right to enjoy the income or
the fruits of the property transferred in trust constitute what is called reservation of a primary life
estate. There is no question in this case that the property would be included in the gross estate of the
grantor upon his death. EG: AA creates a trust to pay the income to himself for life, remainder to BB
or his estate. Since enjoyment of the property remains in AA, the transferor, throughout his lifetime,
the value of the entire property is included in A’s estate at death.
b. Interests Analogous to Life Estates – where the decedent had transferred certain shares of
stock to his daughter “subject to your giving me the first dividends on these P15,000,” and part of the
P15,000 was still unpaid when the decedent died, it was held that the entire value of the securities
was properly included in the decedent’s gross estate since he had retained the income for a period
which did not in fact end before his death.
c. Discharging Legal obligation to transferor – a transfer with the right retained to have the
income used to discharge a legal obligation of the transferor or otherwise for his pecuniary benefit is
equivalent to a reservation of the right to the income. EG: where a man created a trust with the
provision that the income should be paid to his wife for her “support and maintenance”, remainder to
their children, it was held that the property was includible in his gross estate. But there is no inclusion
required if the grantor’s dependent is free to use the income for any purpose without restriction, the reason
being that inclusion is required only where the transfer relieves the grantor of his duty to support.
d. Right Retained Alone or with another to designate who shall enjoy property or income therefrom –
The situation contemplated here usually occurs when the settlor or grantor designates himself as
trustee or co-trustee with another.
e. Retention of Power to distribute or accumulate trust income – where the grantor, either
alone as trustee or as co-trustee with others, reserved the power to accumulate or distribute income
and exercised such power by accumulating and adding income to principal and this power he held until
the moment of his death with respect to both the original principal as well as the accumulated
income, this requires the inclusion in the decedent settlor’s gross estate.
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matter. It is the thought of his impending death that made him transfer the
property, hence, it should be included in the gross estate.
b. What if X did not die of cancer but of a car accident? That will NOT
change the character of the property as one transferred in contemplation of
death. What’s important is that at the time of transfer, the two factors are present.
*proceed to transfers for insufficient consideration for the next item.
INCOME/ CGT (5/10%) Sec. 127 (1/2 of 1%) CGT (6%) NIT
GAIN
F. Prior interests;
1. [] Sec 85 (F) Prior Interests. - Except as otherwise specifically provided
therein, Subsections (B), (C) and (E) of this Section shall apply to the transfers,
trusts, estates, interests, rights, powers and relinquishment of powers, as
severally enumerated and described therein, whether made, created, arising,
existing, exercised or relinquished before or after the effectivity of this Code.
2. What: all transfers, trusts, estates, interests, rights, powers and relinquishment of powers
made, created, arising, existing, exercised or relinquished before or after the
effectivity of the Tax Code. (Sec. 85, NIRC).
3. Coverage of prior interest:
a. Transfers in contemplation of death;
b. Revocable transfers;
c. Life insurance proceeds to the extent of the amount receivable by the
estate of the deceased, executor or administrator under policies taken out by the
decedent upon his own life or to the extent of the amount receivable by any
beneficiary not expressly designated as irrevocable
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38 [] Bar 2000: Mr. Felix de la Cruz, a bachelor resident citizen, suffered from a heart attack while on
a business trip to the USA. He died intestate on June 15, 2000 in New York City, leaving behind real
properties situated in New York; his family home in Valle Verde, Pasig City; an office condominium in
Makati City; shares of stocks in San Miguel Corporation; cash in bank; and personal belongings. The
decedent is heavily insured with Insular Life. He had no known debts at the time of his death. As the
sole heir and appointed Administrator, how would you determine the gross estate of the decedent?
What deductions may be claimed by the estate and when and where shall the return be filed and estate
tax paid? A: The gross estate of the decedent will include the value at the time of his death of all the
properties mentioned because he is a Filipino citizen.
a. *****With respect to the life insurance proceeds, the amount includible in the gross estate
for Philippine tax purposes would be to the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, under policies taken out by decedent upon his own life,
irrespective of whether or not the insured retained the power of revocation, or to the extent of the
amount receivable by any beneficiary designated in the policy of insurance, except when it is
expressly stipulated that the designation of the beneficiary is irrevocable. [Sec. 85 (E) NIRC of
1997]
b. The *****DEDUCTIONS that may be claimed by the estate are:
i. The actual funeral expenses or in an amount equal to five percent (5%) of the gross
estate, whichever is lower, but in no case to exceed two hundred thousand pesos (P200.000.00). [Sec. 86
(A) (1) (a). NIRC of 1997];
ii. The judicial expenses in the testate or intestate proceedings. (Sec. 86(A)(1))
iii. The value of the decedent's family home located in Valle Verde, Pasig City in an
amount not exceeding one million pesos (P1,000,000.00), and upon presentation of a certification
of the barangay captain of the locality that the same have been the decedent's family home. [Sec. 86 (A)
(4), Ibid]
iv. The standard deduction of P1,000,000. (Sec. 86(A)(5))
v. Medical expenses incurred within one year from death in an amount not exceeding
P500,000 (Sec. 86(A)(6))
b. The ESTATE TAX RETURN shall be filed within six (6) months from the decedent's
death (Sec. 90 (B), NIRC of 1997], provided that the Commissioner of Internal Revenue shall have
authority to grant in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing
the return (Sec. 90 (c), Ibid]
c. Except in cases where the Commissioner of Internal Revenue otherwise permits, the estate
tax return shall be filed with an authorized agent bank, or Revenue District Officer, Collection
Officer, or duly authorized Treasurer of Pasig City, the City in which the decedent Mr. de la Cruz
was domiciled at the time of his death. [Sec. 90 (D). NIRC of 1997]
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39Mr. X, a Filipino residing in Alabama, U.S.A., died on January 2, 2013 after undergoing a major heart
surgery. He left behind to his wife and two (2) kids several properties, to wit: (4%) (1) Family home in
Makati City; (2) Condominium unit in Las Piñas City; (3) Proceeds of health insurance from Take
Care, a health maintenance organization in the Philippines; and (4) Land in Alabama, U.S.A.
The following expenses were paid: (1) Funeral expenses; (2) Medical expenses; and (3) Judicial
expenses in the testate proceedings.
(A) What are the items that must be considered as part of the gross estate income of Mr. X?
SUGGESTED ANSWER: All the items of properties enumerated in the problem shall form part of
the gross estate of Mr. X. The composition of the gross estate of a decedent who is a Filipino citizen
shall include all of his properties, real or personal, tangible or intangible, wherever situated (Section 85,
NIRC).
(B) What are the items that may be considered as deductions from the gross estate? (2014 Bar
Question) All the items of expenses are deductible from his gross estate. *****However, the allowable
amount of funeral expenses shall be 5% of the gross estate or actual , whichever is lower, but in
no case shall the amount deductible go beyond Php 200,000.00. Likewise, the deductible medical
expenses must be limited to those incurred within one year prior to his death but not to exceed
Php 500,000.00 (Section 86, NIRC).
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40On the first anniversary of the death of Y, his heirs hosted a sumptuous dinner for his doctors,
nurses, and others who attended to Y during his last illness. The cost of the dinner amounted to Php
50,000.00. Compared to his gross estate, the Php 50.000.00 did not exceed five percent of the estate. Is
the said cost of the dinner to commemorate his one year death anniversary deductible from his gross
estate? Explain your answer. (5%) SUGGESTED ANSWER: No. This expense will not fall under any
of the allowable deductions from gross estate. Whether viewed in the context of either funeral
expenses or medical expenses, the same will not qualify as a deduction. Funeral expenses may include
medical expenses of the last illness but not expenses incurred after burial nor expenses incurred
to commemorate the death anniversary. (De Guzman V. De Guzman, 83 SCRA 256). Medical
expenses, on the other hand, are allowed only if incurred by the decedent within one year prior to
his death. (Section 86(A)(6), NIRC). (BAR 2001)
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CAE CAIP
41 *Q: During the proceeding for the probate of Jose Fernandez’s estate, Dizon, the administrator,
requested the probate court's authority to sell several properties forming part of the estate, for the
purpose of paying its creditors. However, the BIR issued an Estate Tax Assessment Notice
demanding payment of the deficiency estate tax. Dizon claims that in as much as the valid claims of
creditors against the estate are in excess of the gross estate, no estate tax was due. CTA ordered that
the estate should pay the estate tax liability with interest. May the actual claims of the creditors be
fully allowed as deductions from the gross estate of Jose despite the fact that the claims were
reduced or condoned through compromise agreements entered into by the Estate with its
creditors? A: No. The claims against the estate which the law allows as deduction from the gross estate
are existing claims against the estate. An indebtedness that has been condoned is in legal effect no
indebtedness at all. If there is no more indebtedness by reason of the condonation, there is no more claim against
the estate which may be allowed as a deduction. (Dizon, et. al v. CA, G.R. No. 140944, Apr. 30, 2008)
*NB for (c) & (e): The deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that
they were contracted bona fide and for an adequate and full consideration in money or money's worth.
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b. Tort
ic. by Operation of Law
4. Claims against the estate may be claimed as a deduction by a Filipino citizen,
whether resident or not, or of a resident alien decedent provided that:42
a. At the time the indebtedness was incurred the debt instrument was
duly notarized; and [iow, if the claim arose out of a debt instrument, the debt
instrument must be notarized; ******EXCEPT for loans granted by financial
institutions where notarization is not part of the business practice or policy
of the institution. If a monetary claim against the decedent did not arise out of a
debt instrument, the requirement of a notarized debt instrument does not apply.]
ii. If the loan was contracted within three (3) years before the death of
the decedent, the administrator or executor shall submit a statement showing
the disposition of the proceeds of the loan. (Sec 86[A][1][c], NIRC)
5. *****There is no requirement to add the amount to the gross estate (as compared to claims
against insolvent persons/mortgage). This is a DIRECT DEDUCTION (unless the loan
has not been disposed of)
43During his lifetime, Mr. Sakitin obtained a loan amounting to P10 million from Bangko Uno for
the purchase of a parcel of land located in Makati City, using such property as collateral for the loan.
The loan was evidenced by a duly notarized promissory note. Subsequently, Mr. Sakitin died. At the
time of his death, the unpaid balance of the loan amounted to P2 million. The heirs of Mr.
Sakitin deducted the amount of P2 million from the gross estate, as part of the "Claims against the Estate."
Such deduction was disallowed by the Bureau of Internal Revenue (BIR) Examiner, claiming that the
mortgaged property was not included in the computation of the gross estate. Do you agree with the
BIR? Explain. (2014 Bar Question): Yes. ******Unpaid mortgages upon, or any indebtedness with
respect to property are deductible from the gross estate only if the value of the decedent’s
interest in said property, undiminished by such mortgage or indebtedness, is included in the
gross estate (Section 86(A)(1)(e)). In the instant case, the interest of the decedent in the property
purchased from the loan where the said property was used as the collateral, was not included in the
gross estate. Accordingly, the unpaid balance of the loan at the time of Mr. Sakitin’s death is not
deductible as “Claims against the Estate.”
44*****The mortgage or indebtedness will be claimed as a deduction from the gross estate. EG:
PP died leaving real property with a FMV of P1M, subject to a mortgage in the amount of P600k.
Before he can deduct the P600k, he has to include the total FMV of his property to the gross
income.
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45 Vanishing deduction is availed of by taxpayers to: a. correct his accounting records to reflect the
actual deductions made b. reduce his gross income; c. reduce his output value-added tax liability
d. reduce his gross estate. Choose the correct answer. Explain. 5% SUGGESTED ANSWER: I choose
(d), reduce his gross estate. Vanishing deduction or property previously taxed is one of the items of
deduction allowed in computing the net estate of a decedent [Section 86(AX2) and 86(3X2), NIRC]).
(BAR 2006)
46 *****Explain the concept of vanishing deductions in estate-taxation? (1994) A: Vanishing deductions
or property previously taxed in estate taxation refers to the diminishing deducibility/exemption, at
the rate of 100% - 20% over a period of five (5) years until it is lost after the fifth year, of any property
situated in the Philippines forming part of the gross estate, acquired by the decedent from a prior
decedent through gift, bequest, devise, inheritance or exchange, the donor’s or estate tax having
been paid by the donor or the prior decedent or on his behalf, and the prior decedent having
been dead, or the property transferred within a period of five (5) years from the decedent's death.
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47 In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000.00. The fair market value
(FMV) of the painting at the time of the purchase was PI-million. Yuri paid all the corresponding taxes
on the transaction. In 2001, Xavier died. In his last will and testament, Xavier bequeathed the
painting, already worth PI.5- million, to his only son, Zandro. The will also granted Zandro the
power to appoint his wife, Wilma, as successor to the painting in the event of Zandro’s death.
Zandro died in 2007, and Wilma succeeded to the property. May a vanishing deduction be allowed in
either or both of the estates? Explain. (3%) SUGGESTED ANSWER: Vanishing deduction shall be
allowed to the estate of Xavier but only to the extent of Ya (sic) of the property which is the portion
acquired by gift (Section 100, NIRC), The donation took place within 5 years (1999 to 2001) from the
death of Xavier; hence, there is a vanishing deduction. *****However, Zandro’s estate will not be
entitled to claim vanishing deduction because, first and foremost, the property previously taxed is
not includable in his gross estate and second, even if it is includable, the present decedent died
more than 5 years from the death of the previous decedent, and that a vanishing deduction is
already claimed by the previous estate involving the same property. (BAR 2009)
[] [b] Should the painting be included in the gross estate of Zandro in 2007 and thus, be
subject to estate tax? Explain. (3%) SUGGESTED ANSWER: No. *****The transmission from the
first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the
predecessor is an exempt transfer (Section 87, NIRC), Zandro has no control over the disposition
of the property at the time of his death; hence, the estate tax which imposed the privilege of
transmitting properties upon his death will not apply.
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48Which among the following reduces the gross estate (not the net estate) of a citizen of the
Philippines for purposes of estate taxation? (2011 Bar Question): (A) Transfers for public use (B)
Property previously taxed (C) Standard deduction of P1 million (D) Capital of the surviving spouse
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EXEMPTIONS
1. Sources of Exemptions:
a. Income Tax: Sec. 32 (B)
b. Estate Tax: Sec. 87
2. Exemptions under [] SEC. 87 Exemption of Certain Acquisitions and
Transmissions. - The following shall not be taxed:******
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of which inures
to the benefit of any individual: Provided, however, That not more than thirty
percent (30%) of the said bequests, devises, legacies or transfers shall be used by
such institutions for administration purposes.
*****This applies to non-stock, non-profit organizations. If it is a
transfer for public use, apply Sec. 87
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49In the settlement of the estate of Mr. Barbera who died intestate, his wife renounced her
inheritance and her share of the conjugal property in favor of their children. The BIR determined
that there was a taxable gift and thus assessed Mrs. Barbera as a donor. Was the BIR correct? (2013 Bar
Question) SUGGESTED ANSWER: The BIR is not correct in imposing donor’s tax on the renounced
inheritance of Mrs. Barbera from Mr. Barbera. According to Section 11 of the RR No. 2-2003:
“General renunciation by an heir, including the surviving spouse, of his/her share in the hereditary
estate left by the decedent is not subject to donor’s tax, unless specifically and categorically done in
favor of identified heir/s to the exclusion or disadvantage of other co-heirs in the hereditary
estate.” *****On the other hand, the BIR is correct in imposing donor’s tax on the renounced
conjugal share of Mrs. Barbera. This is because Section 11 of RR No. 2-2003 provides that
“renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any
other person/s is subject to donor’s tax.” This proceeds from the rule that the share of the
conjugal property is the share of the surviving spouse. Thus, the surviving spouse is effectively
donating property when he or she makes a renunciation.
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year only50):
a. For non-strangers: 2-15%;
b. For strangers: 30%
[] SEC. 99. Rates of Tax Payable by Donor. - (A) In General. - The tax
for each calendar year shall be computed on the basis of the total net gifts made
during the calendar year in accordance with the following schedule:
50 Kenneth Yusoph owns a commercial lot which he bought many years ago for PI Million. It is
now worth P20 Million although the zonal value is only P15 Million. He donates one-half pro-
indiviso interest in the land to his son Dino on 31 December 1994, and the other one-half pro-
indiviso interest to the same son on 2 January 1995.
[] How much is the value of the gifts in 1994 and 1995 for purposes of computing the gift tax?
Explain. ANSWER: The value of the gifts for purposes of computing the gift tax shall be P 7.5
million in 1994 and P7.5millionin 1995. In valuing a real property for gift tax purposes the property
should be appraised at the higher of two values as of the time of donation which are (a) the fair
market value as determined by the Commissioner {which is the zonal value fixed pursuant to Section
16(e) of the Tax Code), or (b) the fair market value as shown in the schedule of values fixed by the
Provincial and City Assessors. *****The fact that the property is worth P20 million as of the time
of donation is immaterial unless it can be shown that this value is one of the two values
mentioned as provided under Section 81 of the Tax Code.
[] The Revenue District Officer questions the splitting of the donations into 1994 and 1995.
He says that since there were only two (2) days separating the two donations they should be treated as
one. having been made within one year. Is he correct? Explain: The Revenue District Officer is not
correct because the computation of the gift tax is cumulative but only insofar as gifts made
within the same calendar year. Therefore, there is no legal justification for treating two gifts effected
in two separate calendar years as one gift.
[] Dino subsequently sold the land to a buyer for P 20 Million. How much did Dino gain
on the sale? Explain. Dino gained an income of 19 million from the sale. *****Dino acquires a carry-
over basis which is the basis of the property in the hands of the donor or PI million. The gain
from the sale or other disposition of property shall be the excess of the amount realized therefrom
over the basis or adjusted basis for determining gain (Sec. 34(a), NIRC). Since the property was
acquired by gift, the basis for determining gain shall be the same as if it would be in the hands of the
donor or the last preceding owner by whom the property was not acquired by gift. Hence, the gain is
computed by deducting the basis of PI million from the amount realized which is P20 million.
[] Suppose, instead of receiving the lot by way of donation, Dino received it by inheritance.
What would be his gain on the sale of the lot for P20 Million? Explain. *****If the commercial lot was
received by inheritance the gain from the sale for P20 million is P5 million because the basis is the
fair market value as of the date of acquisition. The stepped-up basis of P15 million which is the
value for estate tax purposes is the basis for determining the gain (Sec. 34(b)(2), NIRC).
ALTERNATIVE ANSWER: If Dino held on to the property as a capital asset in that it is neither for
sale in the ordinary course of business nor used in Dino’s business, then upon sale thereof there is
presumed to be realized an income of P20 million which is the gross selling price of the property. (Sec.
21(e), NIRC). The same would be subject to the 5% [now 6%] capital gains tax. (BAR 1995)
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51 Your bachelor client, a Filipino residing in Quezon City, wants to give his sister a gift of Php
200,000.00. He seeks your advice, for purposes of reducing if not eliminating the donor’s tax on
the gift, on whether it is better for him to give all of the Php 200,000.00 on Christmas 2001 or to give
Php 100,000.00 on Christmas 2001 and the other Php 100,000.00 on January 1, 2002. Please explain
your advice. (5%) SUGGESTED ANSWER: I would advise him to split the donation. Giving the
Php200,000 as a one-time donation would mean that it will be subject to a higher tax bracket under the
graduated tax structure thereby necessitating the payment of donor's tax. *****On the other hand,
splitting the donation into two equal amounts of Php100,000 given on two different years will totally
relieve the donor form (sic) the donor is tax because the first Php l00, 000 donation in the graduated
brackets is exempt. (Section 99, NIRC). While the donor is tax is computed on the cumulative
donations, the aggregation of all donations made by a donor is allowed only over one calendar
year. (BAR 2001)
52 When the donee or beneficiary is a stranger, the tax payable by the donor shall be 30% of the net
gifts. For purposes of this tax, who is a stranger? (2%) SUGGESTED ANSWER: *****A stranger is a
person who is not a: Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant; or Relative by consanguinity in the collateral line within the fourth degree of
relationship." [Sec. 98 (B), NIRC of 1997] (BAR 2000)
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3. If the net gift does not exceed P100,000.0053 the same shall be exempt. This is
not equivalent to an exemption of 100K.
DONATIVE INTENT
1. Basic rule in donation: Donor’s tax is a tax imposed on transfer of property
gratuitously made with donative intent. That’s a basic rule on NCC’s law on
donations. Hence, if you do not have donative intent, there is no donor’s tax to be
imposed.
2. ON THE ANIMUS DONANDI:54 CTA Case Sps. Hordon H. Evono and
Maribel C. Evono v. CIR, et al., [CTA EB No. 705, (CTA Case No. 7573),June 4,
2012]: the inclusion of the minor children’s names in the transfer of the titles/
properties shall be deemed a donation or gift from their parents. This is so
because the minor children, at an early age, have no source of income. There is a
clear animus donandi. Therefore, the imposition of donor’s tax is in accordance
with Section 98 of the NIRC.
[] EG: Your marriage is annulled. Presumptive legitimes are distributed to
children. There is no donative intent, but the law provides that you should
distribute them. Hence, if BIR requires you to make a Deed of Donation, you
can argue that you do not have donative intent—you are required by law to
distribute their presumptive legitimes, hence, you should not be asked to pay DT.
54 The spouses Jun and Elvira Sandoval purchased a piece of land for P5,000,000 and included their
two (2) minor children as co-purchasers in the Deed of Absolute Sale. The Commissioner of
Internal Revenue (CIR) ruled that there was an implied donation and assessed donors' taxes against
the spouses. Rule on the CIR's action. (1%)(2013 Bar Question) (A) The CIR is wrong; a donation must
be express. (B) The CIR is wrong; financial capacity is not a requirement for a valid sale. (C) The CIR is
correct; the amount involved is huge and ultimately ends up with
the children. (D) The CIR is correct; there was animus donandi since the children had no
financial capacity to be co-purchasers. The present case is similar to the case of Sps. Hordon H.
Evono and Maribel C. Evono v. CIR, et al., [CTA EB No. 705, (CTA Case No. 7573),June 4, 2012]. The
CTA held that the inclusion of the minor children’s names in the transfer of the titles/properties shall
be deemed a donation or gift from their parents. This is so because the minor children, at an early age,
have no source of income. There is a clear animus donandi. Therefore, the imposition of donor’s tax is
in accordance with Section 98 of the NIRC.
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63 In May 2010, Mr. And Mrs. Melencio Antonio donated a house and lot with a fair market value
of P10 Million to their son, Roberto, who is to be married during the same year to Josefina
Angeles. Which statement below is INCORRECT? (2012 BAR)
a) There are four (4) donations made – two (2) donations are made by Mr. Melencio Antonio to
Roberto and Josefina, and two (2) donations are made by Mrs. Antonio;
b) The four (4) donations are made by the Spouses Antonio to members of the family, hence, subject
to the graduated donor’s tax rates (2%-15%);
c) Two (2) donations are made by the spouses to members of the family, while two (2) other donations
are made to strangers;
d) Two (2) donations made by the spouses to Roberto are entitled to deduction from the gross gift as
donation proper nuptias.
SUGGESTED ANSWER:
d) Two (2) donations made by the spouses to Roberto are entitled to deduction from the gross
gift as donation proper nuptias. Section 101, NIRC; Tang Ho v. Court of Appeals.
[] Spouses Jose San Pedro and Clara San Pedro, both Filipino citizens, are the owners of a
residential house and lot in Quezon City. After the recent wedding of their son, Mario, to Maria, the
spouses donated said real property to them. At the time of donation, the real property has a fair
market value of P2 million. Are Jose and Clara subject to donor’s tax? If so, how much is the taxable
gift of each spouse and what rate shall be applied to the gift? Explain. (4%) SUGGESTED
ANSWERS: Yes. Jose and Clara are subject to donor’s tax. *****Since the real property is either
conjugal or absolute community property, each spouse is deemed to have made separate
donation of one-half of the value of the property [Tang Ho v. Board of Tax appeals, 97 Phil. 899
[1955]). For Jose, he is considered to have made two donations: one, is in favor of his son who is a
relative, and two, in favor of his son’s wife who is a stranger. The taxable gift to the son is
P490,000 computed by deducting from the gross gift the dowry exclusion of P10,000. The net
gift is subject to the graduated tax rates of 2% to 15%. The taxable gift to his son’s wife is
P500,000 subject to the 30% flat rate on donation to strangers. (Sections 99 and 101, NIRC). Clara is
subject to the donor’s tax in exactly the same manner as Jose, being considered to have effected
likewise two donations. (BAR 2008)
64Dowries or gifts made on account of marriage and before its celebration or within one year
thereafter by parents to each of their legitimate, recognized natural, or adopted children to the extent
of the first P10,000.00.
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65Celia donated P110,000.00 to her friend Victoria who was getting married. Celia gave no other gift
during the calendar year. What is the donor's tax implication on Celia’s donation? (2011 Bar Question):
*****Celia shall pay a 30% donor's tax on the P110,000.00 donation. She is considered a stranger. It’s
not a dowry as the elements are not present.
66Mr. Bill Morgan, a Canadian citizen and a resident of Scarborough, Ontario, sends a gift check of
$20,000.00 to his future Filipino daughter-in-law who is to be married to his only son in the
Philippines. Is the donation by Mr. Morgan subject to tax? Explain. ANSWER: Yes. *****While the gift
has been made on account of marriage, to qualify for exemption to the extent of the first P10, 000
(now P50.000.00) [sic] of the value thereof, such gift should have been given to a legitimate,
recognized natural or adopted child of the donor. ALTERNATIVE ANSWER: It is not subject to
tax because the gift was made outside the Philippines.
[] What is the tax consequences, if any, to the donee (Filipino daughter-in-law of Mr. Morgan)?
ANSWER: The gift, with respect to the donee, is excluded from gross income and is exempt from
Income taxation. There is no donee’s gift tax. (BAR 1992)
67Exempted from donor’s taxation are gifts made: (2011 Bar Question) (A) for the use of the
barangay.(B) in consideration of marriage.(C) to a school which is a stock corporation. (D) to a for-
profit government corporation.
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68Can you name one kind of gift that is exempt from donor’s tax which is extendible to both
residents and nonresidents or non-citizens of the Philippines? Include qualifications, If any.
ANSWER: *****Gifts made to or for the use of the National Government or any entity created by
any of its agencies which is not conducted for profit, or to any political subdivision of the said
Government are exempt from gift tax with respect to both residents and non-residents. (BAR 1992)
69 On January 10, 2011, Maria Reyes, single-mother, donated cash in the amount of P50,000.00 to her
daughter Cristina, and on December 20, 2011, she donated another P50,000.00 to Cristina. Which
statement is correct? (2012 BAR) a) Maria Reyes is subject to donor’s tax in 2011 because gross gift is
P100,000.00; b) Maria Reyes is exempt from donor’s tax in 2011 because gross gift is P100,000.00;c)
Maria Reyes is exempt from donor’s tax in 2011 only to the extent of P50,000.00; d) Maria Reyes is
exempt from donor’s tax in 2011 because the donee is minor. SUGGESTED ANSWER: b) Maria
Reyes is exempt from donor’s tax in 2011 because gross gift is P100,000.00 Section 99(A), NIRC.
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*EG: It has been held that a real estate tax and the tenement tax imposed
by local ordinance although imposed by the same taxing authority are not of the same kind
or character. (Villanueva vs. Iloilo City 26 SCRA 578)
[] *****To lessen the impact of double taxation, the following are
implemented: a. tax credit; b. tax sparing rule; c. other exemptions in tax
treaties.
4. *****In order to reduce the impact of double taxation in the broad sense,
the law provides for the following remedies:
a. Tax Credit
b. Reciprocity Rule under Sec. 104 of the Tax Code
c. In addition, for ET, Property Previously Taxed is an additional remedy.
*Summary of remedies:
INCOME TAX ESTATE TAX
71[] Bar 1995: Mr. X borrowed P10,000 from his friend Mr. Y payable in one year without interest.
When the loan became due, Mr. X told Mr. Y that he (Mr.X) was unable to pay because of business
reverses. Mr. Y took pity on Mr. X and CONDONED the loan. Mr. X was solvent at the time he
borrowed the P10,000 and at the time the loan was condoned. Did Mr. X derive any income from the
cancellation or condonation of his indebtedness? NO. A: No, ****Mr. X did not derive any income from
the cancellation or condonation of his indebtedness. Since it is obvious that the creditor merely
desired to benefit the debtor. In view of the absence of consideration for the cancellation, the
amount of the debt is considered as a GIFT from the creditor to the debtor and need not be
included in the latter’s gross income.
72Mr. Gipit borrowed from Mr. Maunawain P100,000.00, payable in five (5) equal monthly installments.
Before the first installment became due, Mr. Gipit rendered general cleaning services in the entire
office building of Mr. Maunawain, and as compensation therefor, Mr. Maunawain cancelled the
indebtedness of Mr. Gipit up to the amount of P75,000.00. Mr. Gipit claims that the cancellation of
his indebtedness cannot be considered as gain on his part which must be subject to income tax, because
according to him, he did not actually receive payment from Mr. Maunawain for the general cleaning
services. Is Mr. Gipit correct? Explain. (2014 Bar Question) SUGGESTED ANSWER: No. Section 50
of Rev. Regs. No. 2, otherwise known as Income Tax Regulations, provides that *****if a debtor
performs services for a creditor who cancels the debt in consideration for such services, the
debtor realizes income to that amount as compensation for his services. In the given problem,
the cancellation of Mr. Gipit’s indebtedness up to the amount of Php 75,000.00 gave rise to
compensation income subject to income tax, since Mr. Maunawain condoned such amount as
consideration for the general cleaning services rendered by Mr. Gipit.
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1. Fundamental Principles 74
Legislative power of LGUs [taken from Poli Notes] 74
Requisites for valid ordinance 76
ORDINANCE vs. RESOLUTION 80
2. Nature and Source of Taxing Power 83
a. Grant of Local Taxing Power under the Local Government Code 83
b. Authority to Prescribe Penalties for Tax Violations 85
c. Authority to Grant Local Tax Exemption 86
d. Withdrawal of Exemptions 88
e. Authority to Adjust Local Tax Rates 89
f. Residual Taxing Power of Local Governments 89
g. Authority to Issue Local Tax Ordinances 90
3. Local Taxing Authority 90
a. Power to Create Revenues Exercised through Local Government Units 90
b. Procedure for Approval and Effectivity of Tax Ordinances 91
4. Scope of Taxing Power 91
5. Specific Taxing Power of Local Government Units 92
a. Taxing Powers of Provinces 92
b. Taxing Power of Cities 100
c. Taxing Powers of Municipalities 102
Rules on Payment of Business Tax 109
Fees and Charges for Regulation & Licensing 110
6. Common Limitations on the Taxing Powers of LGUs 116
7. Collection of Business Tax 120
a. Tax Period and Manner of Payment 121
b. Accrual of Tax 121
c. Time of Payment 121
d. Penalties on Undpaid Taxes, Fees or Charges 121
e. Authority of Treasurer in Collection and Inspection of Books 122
8. Taxpayer’s Remedies 122
a. Periods of Assessment of Local Taxes, Fees or Charges 126
b. Protest of Assessment 126
c. Claim for Refund of Erroneuosly or Illegally Collected Tax, Fee or Charge 128
9. Civil Remedies by the LGU for Collection of Revenues 130
a. Local Government's Lien for Delinquent Taxes, Fees or Charges 131
b. Civil Remedies, in General 131
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———————————————————————————————
1. Fundamental Principles
1. Local Taxes are taxes that are imposed and collected by the local
government units in order to raise revenues to enable them to perform the
functions for which they have been organized.
2. Fundamental principles of local taxation governing the exercise of the taxing
and other revenue-raising powers of local government units
a. Taxation shall be uniform in each local government unit;
b. Taxes, fees, charges and other impositions shall: i) be equitable and based
as much as possible on the taxpayer's ability to pay; ii) be levied and collected only
for public purposes; iii) shall not be unjust, excessive, oppressive, or confiscatory;
c. The collection of local taxes, fees, charges and other impositions shall in
no case be let to any private person;
d. The revenues collected pursuant to the provisions of the LGC shall inure
solely to the benefit of, and be subject to the disposition by, the local government
unit levying the tax, fee, charge or other imposition unless otherwise specifically
provided herein; and
e. Each local government unit shall, as far as practicable, evolve a
Progressive system of taxation. (Sec. 130, LGC) NB: The fundamental principles
of taxation are also known as the requisites of municipal taxation.
73Which statement is correct? (2012 BAR) a) Legislative acts passed by the municipal council in the
exercise of its lawmaking authority are denominated as resolutions and ordinances; b) Legislative acts
passed by the municipal council in the exercise of its lawmaking authority are denominated as
resolutions; c) Legislative acts passed by the municipal council in the exercise of its lawmaking authority
are denominated as ordinances; d) Both ordinances and resolutions are solemn and formal acts.
SUGGESTED ANSWER: c) Legislative acts passed by the municipal council in the exercise of its
lawmaking authority are denominated as ordinances. Section 2227, Revised Administrative Code of 1917.
74Under Sections 54 (a) and 55 (c) of the Local Government Code, the local legislative assembly can
override the veto of the local chief executive by two-thirds vote of all its members.
75Under Section 55(a) of the Local Government Code, the local chief executive may veto an ordinance
on the ground that It is ultra vires or prejudicial to the public welfare.
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76Pursuant to Section 54(b) of the Local Government Code, an ordinance vetoed by the local chief
executive shall be deemed approved if he does not communicate his veto to the local legislative
assembly within fifteen days in the case of a province and ten days in the case of a city or a
municipality. Likewise, if the veto by the local executive has been overridden by the local legislative
assembly, a second veto will be void. Under Section 55(c) of the Local Government Code, the local
chief executive may veto an ordinance only once.
77Gamboa Jr v. Aguirre Jr 1999: when the VG takes over the position of Governor, even just in a
temporary capacity, he cannot head the Sanggunian as a legislative body. Because by the nature of
his duty as Governor requires full attention; the creation of a temporary vacancy in the office of
Gov creates a corresponding temporary vacancy in the position of VG; hence his role as
presiding office of SP is suspended in the meantime. So who shall preside in the meantime? Not the
highest ranking SP member. Apply Sec 49-b LGC: (b) In the event of the inability of the regular
Presiding officer to preside at a Sanggunian session, the members present and constituting a
quorum shall elect from among themselves a temporary presiding officer. He shall certify within
ten (10) days from the passage of ordinances enacted and resolutions adopted by the Sanggunian in
the session over which he temporarily presided. Hence, one cannot apply the rule on permanent vacancy
because there is a specific provision of law for this purpose.
78 Assume that under the charter of the City of Manila, the City Mayor has the power to investigate
city officials and employees appointed by him and in connection therewith, administer oath, take
testimony and issue subpoenas. The mayor issued an executive order creating a committee,
chaired by “X”, to investigate anomalies involving licensed inspectors of the License Inspection
Division of the Office of the City Treasurer. In the course of its investigation, “X” subpoenaed “Y”, a
private citizen working as bookkeeper of Asia Hardware. “Y” refused to appear contending that the
Committee of “X” has no power to issue subpoenas. Decide. (1989 Bar Question). SUGGESTED
ANSWER: Yes, the committee has no power to issue subpoenas according to Carmelo vs. Ramos, 6
SCRA 836. In creating the committee, the mayor did not grant it the power to issue subpoenas.
Besides, the mayor cannot delegate his power to issue subpoenas.
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79 (Magtajas v. Pryce Properties Corporation, Inc., G.R. No. 111097, July 20, 1994).
80 Validity of a Tax Ordinance
1. As to the VALIDITY of a tax ordinance; it is valid if it does NOT violate:
a. PUBLIC PURPOSE;
b. Observe DUE PROCESS, EQUAL PROTECTION clause;
c. PROGRESSIVE SYSTEM of taxation.
2. *****“NO LET” PRINCIPLE
a. a rule common to both LGT and RPT;
b. it means that a collection of local and real property tax shall NOT be DELEGATED to a
private person.
3. Common LIMITATIONS:*****
a. LGU may NOT impose excise tax on petroleum products (Sec 133h);
b. 70%-30% sales allocation irrespective of place of sale; meaning:
i. 70% of local tax goes to LGU where the factory/plantation is located;
ii. 30% of the local tax goes to LGU where principal office is located.
5. RESIDUAL POWERS of LGU; requirements under Sec 186:
a. as long as it does NOT violate inherent constitutional limitations; and
b. the common limitations under Sec 133 LGC;
c. there is PUBLIC HEARING for such tax ordinance.
6. PROFESSIONAL FEE: one payment will suffice [Sec 139]; you can practice legal profession
ANYWHERE in PH.
7. *****Meaning of IN LIEU OF OTHER TAXES: SC said it is AMBIGUOUS; SC said that those
who invoke it (NPC, ABSCBN, Meralco, PLDT) must show that the law clearly and unequivocally
exempts them from payment of OTHER TAXES; The "in lieu of all taxes" clause is strictly
limited to the kind of taxes, taxing authority, and object of taxes specified in the law; Any doubt
as to whether a tax exemption exists is resolved against the taxpayer.
81Since there are many footnotes, here’s the summary:
1) It must not contravene the constitution or any statute.
2) It must not be unfair or oppressive.
3) It must not be partial or discriminatory.
4) It must not prohibit but may regulate trade.
5) It must be general in application and consistent with public policy.
6) It must not be unreasonable.
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82 Johnny was employed as a driver by the Municipality of Calumpit, Bulacan. While driving
recklessly a municipal dump truck with its load of sand for the repair of municipal streets, Johnny hit
a jeepney. Two passengers of the jeepney were killed. The Sangguniang Bayan passed an ordinance
appropriating P300.000.00 as compensation for the heirs of the victims. Is the municipal ordinance
valid? (1994 Bar Question). SUGGESTED ANSWER: The ordinance appropriating P300.000.00 for
the heirs of the victims of Johnny is void. This amounts to appropriating public funds for a
private purpose. Under Section 335 of the Local Government Code, no public money shall be
appropriated for private purposes. SUGGESTED ANSWER 2: Upon the foregoing considerations, the
municipal ordinance is null and void for being ultra vires. The municipality not being liable to pay
compensation to the heirs of the victims, the ordinance is utterly devoid of legal basis. It would in fact
constitute an illegal use or expenditure of public funds which is a criminal offense. What is more,
the ordinance does not meet one of the requisites for validity of municipal ordinances, i.e., that it must
be in consonance with certain well-established and basic principles of a substantive nature, to
wit: It does not contravene the Constitution or the law, it is not unfair or oppressive, it is not partial or
discriminatory, it is consistent with public policy, and it is not unreasonable.
83Tatel v. Municipality of Virac, as cited in MAYOR MAGTAJAS vs. PRYCE PROPERTIES, INC. &
PACGOR, G.R. No. 111097, July 20, 1994, CRUZ, J.
84State whether or not the following city ordinances are valid and give reasons in support of your
answers: (1987 Bar Question). A. An ordinance prescribing the use of the local dialect as medium of
instruction in the primary grades. SUGGESTED ANSWER: The ordinance, which prescribes the use
of the local dialect as medium of instruction in the primary grades, is invalid. The Constitution
provides in Art. XIV, Sec. 7 for the use of regional dialect as AUXILIARY medium of
instruction. If the ordinance prescribes the use of local dialect not as auxiliary, but as EXCLUSIVE
language of instruction, then it is yiolative of the Constitution for this additional reason. The
ordinance would thus allow more dialects to be used than it is desirable and make the quest for national
unity more difficult.
85***The mere fact that there is already a general statute covering an act or omission is insufficient
to negate the legislative intent to empower the municipality to enact ordinances with reference
to the same act or omission under the ‘general welfare clause’ of the Municipal Charter (United
States v. Pascual Pacis, G.R. No. 10363, September 29, 1915).
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86Jose Y. Sabater is a real estate developer. He acquires raw lands and converts them into
subdivisions. After acquiring a lot of around 15 hectares in Cabanatuan City, he caused the
preparation of a subdivision plan for the property. Before he was able to submit the subdivision
plan to the Bureau of Lands and/or Land Registration Commission for verification and/or approval,
he was informed that he must first present the plan to the City Engineer who would determine
whether the zoning ordinance of the Cabanatuan City had been observed. He was surprised when he
was asked to pay the city government a service fee of P0.30 per square meter of land, covered by
his subdivision plan. He was even more surprised when informed that a fine of P200.00 and/or
imprisonment for not exceeding six months or both, have been fixed in the ordinance as penalty
for violation thereof. Believing that the city ordinance is illegal, he filed suit to nullify the same.
Decide the case with reasons. (1988 Bar Question). SUGGESTED ANSWER: The ordinance is null
and void. In Villacorta v. Bernardo, 143 SCRA 480 (1986) the Supreme Court held that a municipal
ordinance cannot amend a national law in the guise of implementing it. In this case, the
requirement actually conflicts with sec. 44 of Act No. 496 because the latter does not require
subdivision plans to be submitted to the City Engineer before they can be submitted for approval to,
and verification by, the Land Registration Commission and/or the Bureau of Lands.
87 PAGCOR decided to operate a casino in Tacloban City under authority of P.D. No. 1869. It leased a
portion of a building belonging to Ellen McGuire and renovated and equipped it in preparation for its
inauguration. The Sangguniang Panlungsod of Tacloban City enacted an ordinance prohibiting
the operation of casinos in the City and providing penalty for its violation. Ellen McGuire and
PAGCOR assailed the validity of the ordinance in court. How would you resolve the issue? Discuss
fully. (1995 Bar Question). SUGGESTED ANSWER: The ordinance should be declared invalid. As
held in Magtajas vs. Pryce Properties Corporation, Inc., 234 SCRA255, such an ordinance
contravenes Presidential Decree No. 1869, which authorizes the Philippine Amusement and
Gaming Corporation to operate casinos within the territorial jurisdiction of the Philippines, because
it prevents the said corporation from exercising the power conferred on it to operate a casino in
Tacloban City. The power of Tacloban City to suppress gambling and prohibited games of
chance excludes of chance permitted by law. Implied repeals are not favored. [Basco v.
PAGCOR).
88The City of Makati, in order to solve the traffic problem in its business districts, decided to impose a
tax, to be paid by the driver, on all private cars entering the city during peak hours from 8:00
a.m. to 9:00 a.m. from Mondays to Fridays, but exempts those cars carrying more than two
occupants, excluding the driver. Is the ordinance valid? Explain. SUGGESTED ANSWER: *****The
ordinance is in violation of the Rule of Uniformity and Equality, which requires that all subjects or
objects of taxation, similarly situated must be treated alike in equal footing and must not classify
the subjects in an arbitrary manner. In the case at bar, the ordinance exempts cars carrying more
than two occupants from coverage of the said ordinance. Furthermore, the ordinance only imposes
the tax on private cars and exempts public vehicles from the imposition of the tax, although both
contribute to the traffic problem. There exists no substantial standard used in the classification by
the City of Makati. Another issue is the fact that the tax is imposed on the driver of the vehicle
and not on the registered owner of the same. The tax does not only violate the requirement of
uniformity, but the same is also unjust because it places the burden on someone who has no
control over the route of the vehicle. The ordinance is, therefore, invalid for violating the rule of
uniformity and equality as well as for being unjust. (BAR 2003)
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89State whether or not the following city ordinances are valid and give reasons in support of your
answers(1987 Bar Question): C. An ordinance prohibiting barbershop operators from rendering
massage service to their customers in a separate room. SUGGESTED ANSWER: C. The ordinance is
valid, in Velasco v. Villegas, 120 SCRA 658 (1983) such ordinance was upheld on the ground that it is a
means of enabling the City of Manila to collect a fee for operating massage clinics and of
preventing immorality which might be committed by allowing the construction of separate
rooms in barbershops.
90 Q: Which of the following statements is NOT a test of a valid ordinance? a. It must not contravene
the Constitution or any statute; b. It must not be unfair or oppressive; c. It must not be partial or
discriminatory; d. It may prohibit or regulate trade. (2012 Bar) Answer: d. It may prohibit or regulate
trade. To be valid, an ordinance must not prohibit but may regulate trade. (Magtajas v. Pryce
Properties Corporation, Inc., G.R. No. 111097, July 20, 1994). NB: A city can validly tax the sales to
customers outside the city as long as the orders were booked and paid for in the company’s branch
office in the city. A different interpretation would defeat the tax ordinance in question or encourage tax
evasion by simply arranging for the delivery at the outskirts of the city (Philippine Match Company v.
City of Cebu, G.R. No. L-30745, January 18, 1978).
91State whether or not the following city ordinances are valid and give reasons in support of your
answers: (1987 Bar Question): B. An ordinance on business establishments to raise funds for the
construction and maintenance of roads in private subdivisions, which roads are open for use by
segments of the public who may have business inside the subdivision. SUGGESTED ANSWER:
B. The ordinance is valid. The charge on the business establishments is not a tax but a special
assessment. Hence, the holding in Pascual v. Secretary of Public Works, 110 Phil. 331 (1960), that
public funds cannot be appropriated for the construction of roads in a private subdivision, does
not apply. As held in Apostolic Prefect v. City Treasurer of Baguio, 71 Phil. 547 (1941), special
assessments may be charged to property owners benefited by public works, because the
essential difference between a tax and such assessment is precisely that the latter is based wholly on
benefits received. However, if the ordinance levies a tax on all business establishments located
outside the private subdivision, then it is objectionable on the ground that it appropriates private
funds for a public purpose. (Pascual v. Secretary of Public Works, supra)
92 The Sangguniang Panlungsod of Pasay City passed an ordinance requiring all disco pub owners
to have all their hospitality girls tested for the AIDS virus. Both disco pub owners and the hospitality
girls assailed the validity of the ordinance for being violative of their constitutional rights to privacy
and to freely choose a calling or business. Is the ordinance valid? Explain. (5%) (2010 Bar Question)
SUGGESTED ANSWER: The ordinance is a valid exercise of police power. The right to privacy yields
to certain paramount rights of the public and defers to the exercise of police power. The ordinance is
not prohibiting the disco pub owners and the hospitality girls from pursuing their calling or business
but is merely regulating it. (Social Justice Society v. Dangerous Drugs Board, 570 SCRA 410 [2008].)
The ordinance is a valid exercise of police power, because its purpose is to safeguard public health .
(Beltran vs. Secretary of Health, 476 SCRA 168 [2005].)
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93The municipal council of the municipality of Guagua, Pampanga, passed an ordinance penalizing
any person or entity engaged in the business of selling tickets to movies or other public
exhibitions, games or performances which would charge children between 7 and 12 years of age
the full price of admission tickets instead of only one-half of the amount thereof. Would you hold
the ordinance a valid exercise of legislative power by the municipality? Why? (2003 Bar Question).
SUGGESTED ANSWER: The ordinance is void. As held in Balacuit v. Court of First Instance of
Aqusan del Norte. 163 SCRA 182 [1988], the ordinance is unreasonable. It deprives the sellers of
the tickets of their property without due process. A ticket is a property right and may be sold for
such price as the owner of it can obtain. There is nothing pernicious in charging children the same
price as adults.
94It is drafted, prepared, promulgated by such authorities for the information of all concerned, under
and by virtue of powers conferred upon them by law (United States v. Pablo Trinidad, G.R. No.
L-3023, January 16, 1907).
95It has been held that even where the statute or municipal charter requires the municipality to act by
an ordinance, if a resolution is passed in the manner and with the statutory formality required in the
enactment of an ordinance, it will be binding and effective as an ordinance. Such resolution may
operate regardless of the name by which it is called (Favis v. City of Baguio, G.R. No. L-29910, April
25, 1969).
96There is nothing in the LGC which prohibits the three readings of a proposed ordinance
from being held in just one session day. It is not the function of the courts to speculate that the
councilors were not given ample time for reflection and circumspection before the passage of the
proposed ordinance by conducting three readings in just one day (Malonzo v. Zamora, G.R. No.
137718, July 27, 1999).
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the ground97 that the ordinance is ultra vires and prejudicial to public
welfare. The veto must be communicated to the sanggunian within:
a. 15 days for a province
b. 10 days for a city or municipality (Secs. 54 and 55, LGC)
***NB: the Punong Barangay has no veto power.98
6. Items that the local chief executive can veto
a. Item/s of an appropriation ordinance.
b. Ordinance/resolution adopting local development plan and public
investment program
c. Ordinance directing the payment of money or creating liability (Sec. 55,
LGC)
7. Approval of ordinances
a. By affixing the signature of the local chief executive on each and every
page thereof if he approves the same
b. By overriding the veto of the local chief executive by 2/3 vote of
all members of the sanggunian if the local chief executive vetoed the same
(Sec. 54, LGC).
**NB: A sanggunian may provide for a vote requirement different (not
majority vote) from that prescribed in the LGC for certain (but not all) ordinances
as in amending a zoning ordinance (Casino v. Court of Appeals, G.R. No. 91192,
December 2, 1991).
8. Effectivity of ordinance or resolution
a. GR: After 10 days from the date a copy is posted in a bulletin board at
the entrance of the capitol or city, municipal or barangay hall and in at least 2
conspicuous spaces (Sec. 59 (a) LGC).
b. XPN: Unless otherwise stated in the ordinance or resolution (Sec. 59
(a), LGC).
9. Ordinances requiring publication for its effectivity
a. Ordinances that carry with them penal sanctions (Sec. 59(c) LGC).
***NB: for violations of barangay ordinances, a fine not exceeding
Php1,000.00 only is allowed under Sec. 391(a)(14) LGC. For municipal ordinances,
the Sangguniang Bayan can approve ordinances imposing a fine not exceeding
Php2,500, or an imprisonment for a period not exceeding six (6) months, or both,
in the discretion of the court, for the violation of municipal ordinance [Sec. 447(a)
97While “to veto or not to veto involves the exercise of discretion,” a mayor exceeded his/her
authority in an arbitrary manner when he/she vetoes a resolution where there exists sufficient
municipal funds from which the salary of the officer could be paid. The Mayor’s refusal in complying
with the directive of the Director of the Bureau of Local Government that the salary could be
provided for is oppressive (Pilar v. Sangguniang Bayan of Dasol, Pangasinan, G.R. No. L-63216, March
12, 1984).
Ordinances enacted by the sangguniang barangay shall, upon approval by a majority of all its
98
members be signed by the punong barangay. The latter has no veto power.
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(1)(iii).99
b. Ordinances and resolutions passed by highly urbanized and
independent component cities (Sec. 59(d), LGC).
10. Effect of the enforcement of a disapproved ordinance or resolution: It shall
be a sufficient ground for the suspension or dismissal of the official or
employee (Sec. 58, LGC).
11. Review of ordinances or resolutions
COMPONENY CITIES AND MUNICIPAL
ORDINANCES OR RESOLUTIONS BARANGAY ORDINANCES
Who reviews
Within 30 days after the receipt; 1. Examine, Within 30 days after the receipt.
or 2. Transmit to the provincial attorney or
provincial prosecutor. If it is transmitted, the
provincial attorney or prosecutor must
submit his comments or recommendations
within 10 days from receipt of the document.
When declared valid
If no action has been taken within 30 days If no action has been taken within 30 days after
after submission. submission.
When invalid (grounds)
If it is beyond the power conferred on the If inconsistent with the law or city or municipal
sangguniang panlungsod or sangguniang ordinance. Effect: Barangay ordinance is suspended until
pangbayan (Sec. 56, LGC). such time as the revision called is effected (Sec. 57, LGC).
99The municipality of Alcoy, Cebu, passed Ordinance No. 10, series of 1991, requiring owners,
administrators, or tenants of buildings and premises to keep and maintain them in sanitary condition,
and should they fail to do so, cause them to be cleared and kept in sanitary condition and the cost
thereof to be assessed against the owner, administrator or tenant, as the case maybe, which cost shall
constitute a lien against the property. It further penalizes violation thereof with a fine not
exceeding One Thousand Pesos (P1.000.00) or imprisonment for one (1) year at the discretion
of the court. Is the ordinance valid? (1991 Bar Question). SUGGESTED ANSWER: The ordinance is
valid insofar as it requires owners, administrators, or tenants of buildings and premises to
keep and maintain them in sanitary condition and provides that should they fail to do so, the
municipality shall cause them to be cleaned and the cost shall be assessed against the owner,
administrator, or tenant and shall be a lien against the property. This is expressly authorized by Sec.
149(kk) of the Local Government Code. However, the penalty for the violation of the ordinance is
invalid, because it is excessive. The penalty in this case is a fine not exceeding P1,000.00 or
imprisonment for one year, in the discretion of the court. Under Sec. 149 (c) of the Local Government
Code, however, the penalty for the violation of a municipal ordinance cannot exceed a fine of PI,
000.00 or imprisonment for six months, or both at the discretion of the court. TOM advises you to
look at the provision cited, supra. The provision cited by the Suggested Answer is not correct.
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100 The Municipality of Bulalakaw, Leyte, passed Ordinance No. 1234, authorizing the expropriation of
two parcels of land situated in the poblacion as the site of a freedom park, and appropriating the funds
needed therefor. Upon review, the Sangguniang Panlalawigan of Leyte disapproved the
ordinance because the municipality has an existing freedom park which, though smaller in size, is
still suitable for the purpose, and to pursue expropriation would be needless expenditure of the
people’s money. Is the disapproval of the ordinance correct? Explain your answer. (2%) (2009 Bar
Question). SUGGESTED ANSWER: The disapproval of the ordinance is not correct. Under Section
56(c) (Local Government Code), the Sangguniang Panlalawigan of Leyte can declare the ordinance
invalid only if it is beyond the power of the Sangguniang Bayan of Bulalakaw. In the instant case,
the ordinance is well within the power of the Sangguniang Bayan. The disapproval of the ordinance by
the Sangguniang Panlalawigan of Leyte was outside its authority having been done on a matter
pertaining to the wisdom of the ordinance which pertains to the Sangguniang Bayan [Moday v.
Court of Appeals, 268 SCRA 586 [1997]).
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a. The reason of the shift results from the realization that genuine
development can be achieved only by strengthening local autonomy and
promoting decentralization of governance (Ibid.).
4. *****The nature of the taxing power of the provinces, municipalities and cities
is directly conferred101 by the Constitution by giving them the authority to
create their own sources of revenue. The local government units do not
exercise the power to tax as an inherent power or by a valid delegation of the power
by Congress, but pursuant to a direct authority conferred by the Constitution.
(2007 Bar). Hence, the Congress, under the 1987 Constitution, cannot abolish
the power to tax of local governments; it is expressly granted by the fundamental
law. The only authority conferred to Congress is to provide the guidelines
and limitations on the local government's exercise of the power to tax (Sec. 5,102
Art. X, 1987 Constitution).103 (2003 Bar) NB: The authority to tax of LGUs
within the Autonomous Regions (Muslim Mindanao and the Cordilleras) is not
delegated by the Constitution, but by the Organic Act creating them.
101 Which of the following propositions may now be untenable: 1. The court should construe a law
granting tax exemption strictly against the taxpayer. 2. The court should construe a law granting a
municipal corporation the power to tax most strictly. 3. The Court of Tax Appeals has jurisdiction over
decisions of the Customs Commissioner in cases involving liability for customs duties. 4. The Court of
Appeals has jurisdiction to review decisions of the Court of Tax Appeals. 5. The Supreme Court has
jurisdiction to review decisions of the Court of Appeals. Justify your answer or choice briefly. (5%)
SUGGESTED ANSWER: 2. The court should construe a law granting a municipal corporation
the power to tax most strictly. This proposition is now untenable. The basic rationale for the grant of
tax power to local government units is to safeguard their viability and self-sufficiency by directly
granting them general and broad tax powers (Manila Electric Company). Province of Laguna et. al 306
SCRA 750 [1999). Considering that inasmuch as the power to tax may be exercised by local legislative
bodies, no longer by valid congressional delegation but by direct authority conferred by the
Constitution, in interpreting statutory provisions on municipal fiscal powers, doubts will, therefore,
have to be resolved in favor of municipal corporations (City Government of San Pablo, Laguna v.
Reyes, 305 SCRA 353 (1999]). This means that the court must adopt a liberal construction of a law
granting a municipal corporation the power to tax.
102Section 5. *****Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
103 Congress, after much public hearing and consultations with various sectors of society, came to the
conclusion that it will be good for the country to have only one system of taxation by centralizing the
imposition and collection of all taxes in the national government. Accordingly, it is thinking of passing
a law that would abolish the taxing power of all local government units. In your opinion, would such a
law be valid under the present Constitution? Explain your answer. (5%)
SUGGESTED ANSWER:
No. The law centralizing the imposition and collection of all taxes in the national government would
contravene the Constitution which mandates that : . . . "Each local government unit shall have the
power to create their own sources of revenue and to levy taxes, fees, and charges subject to such
guidelines and limitations as Congress may provide consistent with the basic policy of local autonomy."
It is clear that Congress can only give the guidelines and limitations on the exercise by the local
governments of the power to tax but what was granted by the fundamental law cannot be withdrawn
by Congress. (BAR 2001)
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[] The same does not apply to autonomous regions whose power to tax is
derived or emanates from the Organic Act creating them [Sec. 20104, Art. X].105
5. Characteristics of the taxing power of LGUs [DON2G]
a. Not inherent –May only be exercised if delegated to them by national
legislature or conferred by the Constitution itself.
b. Direct grant from the Constitution – While a direct grant, the same is
subject to limitations as may be set by Congress.
c. Not absolute –Subject to limitations and guidelines as may be provided by
law such as progressivity etc.
d. Exercised by the sanggunian of the LGU concerned through an
appropriate Ordinance.
e. Its application is bounded by the Geographical limits of the LGU that
imposes the tax.
6. Aspects of local taxation:
a. Local Government Taxation (Sections 128-196, LGC)
b. Real Property Taxation (Sections 197-283, LGC)
Local Government Taxation Real Property Taxation
Imposition of license, taxes, fees System of levy on real property imposed on a country-wide
and other impositions, including basis but authorizing, to a limited extent and within certain
community tax. parameters, local governments to vary the rates of taxation.
104 Section 20. Within its territorial jurisdiction and subject to the provisions of this Constitution and
national laws, the organic act of autonomous regions shall provide for legislative powers over:
1. Administrative organization;
2. Creation of sources of revenues;
3. Ancestral domain and natural resources;
4. Personal, family, and property relations;
5. Regional urban and rural planning development;
6. Economic, social, and tourism development;
7. Educational policies;
8. Preservation and development of the cultural heritage; and
9. Such other matters as may be authorized by law for the promotion of the general welfare of the
people of the region.
105Q: Does the ARMM have the same source of power as the LGUs? A: NO. The LGUs derive
their power to tax from Sec. 5, Article X of the 1987 Constitution. The constitutional provision is
self-executing. This is applicable only to LGUs outside the Autonomous Region namely the
Muslim Mindanao and the Cordilleras since the authority to tax the LGUs within their region is
delegated by the Organic Act creating them. Sec. 20, Article X of the 1987 Constitution authorizes
the Congress to pass the Organic Act which shall provide for legislative powers over creation of
sources of revenues. *****This provision is not self-executing unlike Sec. 5, Article X of the
Constitution. NB: The LGU’s power to tax is subject to such guidelines and limitations as Congress
may provide while the Autonomous Region’s power to tax is based on the Organic Act which the
Constitution authorizes Congress to pass.
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106 Q: The Local Government Code took effect on January 1, 1992. PLDT’s legislative franchise
was granted sometime before 1992. Its franchise provides that PLDT will pay only 3% franchise
tax in lieu of all taxes. The legislative franchise of Smart and Globe Telecoms were granted in 1998.
Their legislative franchises state that they will pay only 5% franchise tax in lieu of all taxes.
The Province of Zamboanga del Norte passed an ordinance in 1997 that imposes a local franchise tax
on all telecommunications companies operating within the province. The tax is 50% of 1% of the
gross annual receipts of the preceding calendar year based on the incoming receipts, or
receipts realized, within its territorial jurisdiction. Is the ordinance valid? Are PLDT, Smart and
Globe liable to pay franchise taxes? Reason briefly (2007 Bar). A: The ordinance is valid. The Local
Government Code explicitly authorizes provincial governments, notwithstanding any law or
other special law, to impose a tax on business enjoying a franchise at the rate of 50% of 1%
based on the gross annual receipts during the preceding year within the province (Sect. 137,
LGC). PLDT is liable to the franchise tax levied by the province of Zamboanga del Norte. The tax
exemption privileges on franchises granted before the passage of the Local Government Code
are effectively repealed by the latter law. Congress, in approving Section 23 of R.A. No. 7925 (Public
Telecommunications Act), did not intend it to operate as a blanket exemption to all
telecommunications entities. The said provision thus cannot be considered as having amended
petitioner’s franchise so as to entitle it to exemption from the imposition of local franchise taxes
(PLDT v. City of Davao, G.R. No. 143867, August 22, 2002). *****Smart and Globe, however, are not
liable to the franchise tax imposed on the provincial ordinance. The legislative franchises of Smart
and Globe were granted in 1998, long after the Local Government Code took effect. Congress is
deemed to have been aware of the provisions of the earlier law when it granted the exemption.
Accordingly, the latest will of the legislature to grant tax exemption must be respected.
[] Q: Is Smart Communications, Inc. (SMART) exempt from local taxation? A: Under its
franchise, SMART is not exempt from local business and franchise taxes. Moreover, Section 23 of
the Public Telecommunications Act does not provide legal basis for Smart’s exemption from local
business and franchises taxes. The term “exemption” in Section 23 of the Public Telecommunications
Act does not mean tax exemption; rather, it refers to exemption from certain regulatory or reporting
requirements imposed by government agencies such as the National Telecommunications Commission.
The thrust of the Public Telecommunications Act is to promote the gradual deregulation of
entry, pricing, and operations of all public telecommunications entities, and thus to level the playing
field in the telecommunications industry. The language of Section 23 and the proceedings of both
Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all
telecommunications entities. Intent to grant tax exemption cannot therefore be discerned from the law;
the term “exemption” is too general to include tax exemption and runs counter to the requirement that
the grant of tax exemption should be stated in clear and unequivocal language too plain to be beyond
doubt or mistake (The City of Iloilo v. Smart Communications Inc., G.R. No. 167260, February 27,
2009). The “in lieu of all taxes” clause in a legislative franchise should categorically state that the
exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly
construed against the taxpayer and liberally in favor of the taxing authority (Smart Communications,
Inc., v. The City of Davao, G.R. No. 155491, July 21, 2009).
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107Prior to the enactment of the Local Government Code, consumer's cooperatives registered under
the Cooperative Development Act enjoyed exemption from all taxes imposed by a local government.
With the Local Government Code’s withdrawal of exemptions, could these cooperatives continue to
enjoy such exemption? (2011 Bar Question) (A) Yes, because the Local Government Code, a general
law, could not amend a special law such as the Cooperative Development Act. (B) No, Congress has
not by the majority vote of all its members granted exemption to consumers' cooperatives. (C) No, the
exemption has been withdrawn to level the playing field for all taxpayers and preserve the LGUs'
financial position. (D) Yes, their exemption is specifically mentioned among those not
withdrawn by the Local Government Code.
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XPN: When specific provisions of the LGC authorize the LGUs to impose
taxes, fees or charges on the aforementioned entities (City Government of San
Pablo, Laguna v. Reyes, G.R. No. 127708, March 25, 1999).
108SECTION 132. Local Taxing Authority - The power to impose a tax, fee, or charge or to generate
revenue under this Code shall be exercised by the Sanggunian of the local government unit concerned
through an appropriate ordinance.
109Q: In order to raise revenue for the repair and maintenance of the newly constructed City Hall, the
City Mayor ordered the collection of P1.00 called “elevator tax”, every time a person rides any of the
high-tech elevators in the city hall during the hours of 8:00am to 10:00am and 4:00pm to 6:00pm. Is
the elevator tax a valid imposition? A: NO. The Mayor does not have the power to impose taxes,
the same being lodged solely with the local sanggunian. ALTERNATIVE: The imposition of a
tax, fee or charge or the generation of revenue under the Local Government Code shall be exercised by
the Sanggunian of the local government unit concerned through an appropriate ordinance (Section 132
of the Local Government Code). The city mayor alone could not order the collection of the tax; as
such, the “elevator tax” is an invalid imposition. (BAR 2003)
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shall such adjustment exceed 10% of the rates fixed under the LGC (Sec. 191,
LGC).
c. Power to grant local exemptions– LGUs may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary (Sec. 192, LGC).
110An Ordinance was passed by the Provincial Board of a Province in the North, increasing the rate
of basic real property tax from 0.006% to 1% of the assessed value of the real property effective
January 1, 2000. Residents of the municipalities of the said province protested the Ordinance on the
ground that no public hearing was conducted and, therefore, any increase in the rate of real
property tax is void. Is there merit in the protest? Explain your answer. (2%) SUGGESTED
ANSWER: The protest is devoid of merit. *****No public hearing is required before the
enactment of a local tax ordinance levying the basic real property tax (Art. 324, LGC
Regulations). ALTERNATIVE ANSWER: Yes, there is merit in the protest provided that sufficient
proof could be introduced for the non-observance of public hearing. By implication, the Supreme
Court recognized that public hearings are required to be conducted prior to the enactment of an
ordinance imposing real property taxes. Although it was concluded by the highest tribunal that
presumption of validity of a tax ordinance can not be overcome by bare assertions of
procedural defects on its enactment, it would seem that if the taxpayer had presented evidence to
support the allegation that no public hearing was conducted, the Court should have ruled that the tax
ordinance is invalid. (Belen Figuerres v. Court of Appeals, GRNo. 119172, March 25,1999). (BAR 2002)
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a. Each local government unit shall exercise its power to create its own
sources of revenue and to levy taxes, fees, and charges, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall exclusively accrue to
it. (Sec. 129, LGC)
b. All local government units are granted general powers to levy taxes, fees
or charges on any base or subject not otherwise specifically enumerated herein or
taxed under the provisions of the NIRC, as amended, or other applicable laws.
The levy must not be unjust, excessive, oppressive, confiscatory or contrary to a
declared national economic policy (Sec. 186, LGC).
c. No such taxes, fees or charges shall be imposed without a public hearing
having been held prior to the enactment of the ordinance (Sec. 187, LGC).
d. Copies of the provincial, city, and municipal tax ordinances or revenue
measures shall be published in full for three consecutive days in a newspaper of
local circulation or posted in at least two conspicuous and publicly accessible
places (Sec. 188, LGC).
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5. Specific Taxing Power of Local Government Units
111The Municipality of Malolos passed an ordinance imposing a tax on any sale or transfer of real
property located within the municipality at a rate of one-fourth (1/4) of one percentum (1%) of
the total consideration of such transaction. X sold a parcel of land in Malolos which he inherited
from his deceased parents and refused to pay the aforesaid tax. He instead filed appropriate case
asking that the ordinance be declared null and void since such a tax can only be collected by the
national government, as in fact he has paid BIR the required capital gains tax. The Municipality
countered that under the Constitution, each local government is vested with the power to create its own
sources of revenue and to levy taxes, and it imposed the subject tax in the exercise of said
constitutional authority. Resolve the controversy. ANSWER: The ordinance passed by the Municipality
of Malolos imposing a tax on the sale or transfer of real property is void. *****The Local Tax Code
only allows provinces and cities to impose a tax on the transfer of ownership of real property
(Sec. 7 and Sec. 23, Local Tax Code). Municipalities are prohibited from imposing said tax that
provinces are specifically authorized to levy. (Sec. 22, Local Tax Code) While it is true that the
Constitution has given broad powers of taxation to local government units, this delegation, however, is
subject to such limitations as may be provided by law (Sec. 5, Art X, 1987 Constitution). (BAR 1991)
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112What is the tax base for the imposition by the province of professional taxes? (2011 Bar Question)
(A) That which Congress determined. (B) The pertinent provision of the local Government Code. (C)
The reasonable classification made by the provincial sanggunian. (D) That which the Dept. of
Interior and Local Government determined.
113The City of Manila enacted Ordinance No. 55-66 which imposes a municipal occupation tax
on persons practicing various professions in the city. Among those subjected to the occupation tax
were lawyers. Atty. Mariano Batas, who has a law office in Manila, pays the ordinance-imposed
occupation tax under protest. He goes to court to assail the validity of the ordinance for being
discriminatory. Decide with reasons. (3%) SUGGESTED ANSWER: The ordinance is valid. The tax
imposed by the ordinance is in the nature of a professional tax which is authorized by law to be
imposed by cities (Section 151 in relation to Section 139, LGC). The ordinance is not discriminatory
because the City Council has the power to select the subjects of taxation and impose the same tax
on those belonging to the same class. The authority given by law to cities is to impose a professional tax
only on persons engaged in the practice of their profession requiring government examination
and lawyers are included within that class of professionals. (BAR 2009)
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114
114 The Municipality of Argao, Province of Cebu passed a tax ordinance requiring all professionals
practicing in the municipality to pay a tax equivalent to two (2%) percent of their gross income. A
certified true copy of the ordinance was sent to the Secretary of Finance for review on 1 March 1989
and was received by him on the same day. On 15 August 1989, even as the tax ordinance remained
unacted upon by the Secretary of Finance, the municipality started collecting the tax in question. The
members of the Philippine Bar in the municipality questioned the legality of the ordinance and sought
the suspension of the collection of the tax but the municipality argued that since the Secretary has not
taken any action on the ordinance for more than one hundred twenty days after his receipt thereof, the
legality of the ordinance can no longer be questioned and insisted on the collection of the tax.
Is the tax ordinance in question legal? ANSWER: No. *****The tax ordinance is not legal as the Local
Tax Code allows provinces and cities, to the exclusion of municipalities, to impose an annual
occupation tax on all persons engaged in the exercise or practice of their profession or calling in
specified amounts which in the case of lawyers is P75.00 per annum (Secs. 11 and 12 in relation to Sec.
23, Local Tax Code). A person authorized to practice his profession or calling shall pay the tax to the
province where he practices his profession or calling or maintains his office. No local government unit
can impose a tax on income (Sec. 5, Local Tax Code).
[] Is the Municipality correct in insisting on collecting the tax? No, the Municipality was
incorrect in insisting on the collection of the tax. *****Once the tax on occupation is paid as stated
in paragraph (a), above, the lawyer is entitled to practice his profession or calling in all parts of
the Philippines without being subject to any other national or local tax, license or fee for the practice of such
profession or calling.
[] Will the inaction of the Secretary of Finance bar the professionals in the Municipality from
questioning the legality of that ordinance? ANSWER: *****The inaction of the Secretary of Finance
does not bar the professionals in the Municipality from questioning the legality of the ordinance.
While it is true that the Secretary of Finance may himself suspend the tax ordinance within a
120-day period from receipt thereof, his failure to do so, however, has no preclusive effect on
taxpayers who may be adversely affected by the ordinance. (BAR 1991)
[] What remedies are available to the taxpayer to enable him to question the legality of that
ordinance? ANSWER: ******The taxpayer may pursue his remedies either administratively or
judicially. He may, as the case warrants, file a formal protest with the Secretary of Finance or
query with the Provincial Fiscal whose opinion is appealable to the Secretary of Justice whose
decision may be contested in the proper court. The other remedy would be to file a special civil
action for declaratory relief (if circumstances still warrant) or to pay the tax and thereafter to file
an action for refund within six (6) years after such payment. ALTERNATIVE ANSWER: On the
basis of the facts of the problem. It would appear that the administrative remedy is no longer available
since there is already an attempt to enforce collection. The only remedy of the taxpayer is to pay the
tax and sue for its recovery in the ordinary court. (BAR 1991)
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Sale , donation, barter, or Whichever is higher between: Not more than Transfer under the
on any other mode of 1. Total consideration fifty percent Comprehensive
transferring ownership or involved in the acquisition of (50%) of the one Agrarian Reform
title of real property the property; or 2. The fair percent (1%) Program
market value in case the
monetary consideration
involved in the transfer is not
substantial.
Person Liable to Pay: Seller, donor, transferor, executor, or administrator. Time of Payment:
within 60 days from the date of the execution of the deed or from the date of the decedent’s death
Tax on the Business of Printing and Publication
Business of printing and Gross annual receipts for the Not exceeding School texts or
publication of books, preceding calendar year. 50% of 1% references,
cards, poster, leaflets, prescribed by the
Capital Investment In the case of a newly
handbills, certificates, started business, the DepEd shall be
receipts, pamphlets, and tax shall not exceed exempt from tax.
others of similar nature one-twentieth (1/20)
of one percent (1%)
Franchise Tax
Businesses enjoying a Gross annual receipts for Not exceeding fifty
franchise the preceding calendar year percent (50%) of
based on the incoming one percent (1%)
receipt, or realized, within its
territorial jurisdiction.
Capital Investment In the case of a newly
started business, the
tax shall not exceed
(1/20) of 1%
Who issues permit: issued exclusively by the provincial governor pursuant to the ordinance of
the Sangguniang Panlalawigan. *****Distribution of Tax Proceeds: a. Province – 30%; b.
Component city or municipality – 30%; c. Barangay where resources were extracted 40%. NB:
the authority to impose taxes and fees for extraction of sand and gravel belongs to the province,
and not to the municipality where they are found (Municipality of San Fernando La Union vs. Sta.
Romana, G.R. No. L-30159, March 31, 1998). *****Regalian Doctrine is not applicable. Province
may not invoke the doctrine to extend the coverage of its ordinance to quarry resources extracted
from private lands. Rationale: Tax statutes are construed strictissimi juris against the
government. (Province of Bulacan v. CA, G.R. No. 126232)
Professional Tax
Exercise or practice of *****At such amount and Not to exceed Professionals
profession requiring reasonable classification as P300 exclusively
government licensure the sanggunian panlalawigan employed in the
examination may impose government shall be
exempt from the
payment of this tax.
Date of Payment: Payable annually on or before January 31 or before beginning the practice
of the profession. Place of Payment: Province where he practices his profession or where the
principal office is located. NB: *****TAX TO BE PAID ONLY ONCE. Person who has paid
the corresponding professional tax shall be entitled to practice his profession in any part of the
Philippines without being subjected to any other national or local tax, license, or fee for the
practice of such profession
Amusement Tax
Ownership, lease or Gross receipts from Not more than GR: The holding of
operation of theaters, admission fees. In case of 10% of gross operas, concerts,
cinemas, concert halls, theaters or cinemas, the tax shall receipts from dramas, recitals,
circuses, boxing stadia and first be deducted and admission fees (as painting and art
exhibitions, flower
other places of withheld by their amended by R.A.
shows, musical
amusement proprietors, lessees, or No. 9640, May 21,
programs, literary
operators and paid to the 2009) and oratorical
provincial treasurer before presentation shall be
the gross receipts are exempt from the
divided between said payment of
proprietors, lessees, or amusement tax.
operators and the distributors XPN: Holding of
of the cinematographic films. pop, rock, or similar
concerts shall be subject
to amusement tax.
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NB: Amendments to the VAT law have been consistent in exempting persons subject to
amusement tax under the NIRC from the coverage of VAT. Only lessor or distributors of
cinematographic films are included in the coverage of VAT. This reveals the legislative intent
not to impose VAT on persons already covered by the amusement tax. This holds true even in the
case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended
to replace the percentage tax on certain services. (CIR v. SM Prime Holdings, Inc. etc., G.R. No. 183505,
February 26, 2010)
Distribution of Proceeds: Tax shall be shared equally by the province and municipality where
such amusement places are located. NB: *****Resorts, swimming pools, bath houses, hot springs,
and tourist spots do not belong to the same category or class as theaters, cinemas, concert halls,
and boxing stadia. Why? They are not primarily used to stage spectacles or hold public shows,
exhibitions, performances and other events meant to be viewed by an AUDIENCE. Hence, they
cannot be considered as among the OTHER PLACES OF AMUSEMENT under Sec 140
LGC (which are subject to amusement taxes)[Pelizloy Realty Corporation v. Province of Benguet,
G.R. No. 183137, April 10, 2013]. TOM
Tax on Delivery Truck/Van
Use by manufacturers, Every truck, van or vehicle Not exceeding Exempt from tax
producers, wholesalers, P500 on peddlers
dealers or retailers of imposed by
truck, van or any vehicle municipalities
in the delivery or
distribution of distilled
spirits, fermented
liquors, soft drinks,
cigars and cigarettes,
and other products as may
be determined by the
Sangguniang Panlalawigan,
to sales outlets or
consumers, whether
directly or indirectly.
3. Tax on transfer of real property ownership is due from: It is due from the seller
of the property. However, if the buyer is a foreign government, no such tax is
due.
4. The word “franchise” in the phrase “tax on business enjoying a franchise under
Sec. 137 of the Local Government Code: The Congress defined it in the sense of
a secondary or special franchise. It is not levied on the corporation simply for
existing as a corporation, upon its property or income, but on its exercise of the
rights or privileges granted to it by the government.
5. Scenarios:
a. Q: Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its
principal office in Cubao, Quezon City. It has branches/sales offices in Cebu
and Davao. Its factory is located in Marikina City where most of its workers
live. Its principal office in Quezon City is also a sales office. Sales of finished
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products for calendar year 2009 in the amount of P10 million were made at the
following locations:
Cebu branch 25%
Davao branch 15%
Quezon City branch 60%
TOTAL 100%
Where should the applicable local taxes on the shoes be paid? Explain. (2010
Bar) A: Under the LGC, the manufacturers maintaining a branch or sales outlet
shall record the sale in the branch or sales outlet making the sale and pay the
tax in the city or municipality where the branch or sales outlet is located.
Since Ferremaro, Inc., maintains one factory, the sales recorded in the principal
office shall be allocated and 30% of said sales are taxable in the place where
the principal office is located while the 70% is taxable in the place where the
factory is located. Hence, 25% of total sales or Php 2.5M shall be taxed in Cebu
and 15% of total sales or Php 1.5M shall be taxed in Davao. For the remaining
60% sales amounting to Php 6.0M which is recorded in the principal office, 30%
thereof or Php 1.8M is taxable in Quezon City where the principal office is
located and 70% or Php 4.2M is taxable in Marikina City where the factory
is located. [******IOW, TOM explains: 1. Tax first the branches outside the
principal office, hence Cebu at 25% and Davao at 15%; 2. Then, divide the tax of
the sales generated in the principal office (QC) into: 30-70, i.e., 30% is taxable in
QC (principal office), whereas 70% in Marikina (factory).
b. Franchise tax is in the nature of an excise tax and so it is taxed on the
place where the privilege of exercising such right is made.115
115 Q: CASURECO III is an electric cooperative duly organized and existing by virtue of Presidential
Decree (PD) 269, as amended, and registered with the National Electrification Administration (NEA).
It is engaged in the business of electric power distribution to various end-users and consumers
within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the
Province of Camarines Sur, otherwise known as the "Rinconada area."
Sometime in 2003, Petitioner City of Iriga required CASURECO III to submit a report of its
gross receipts for the period 1997-2002 to serve as the basis for the computation of franchise
taxes, fees and other charges. The latter complied and was subsequently assessed taxes.
*****CASURECO III refused to pay for the assessed taxes, asserting that the computation of the
petitioner was erroneous because it included gross receipts from service areas beyond the
latter’s territorial jurisdiction. Is Casureco liable for the payment of the franchise tax on the
Rinconada area? A: YES. CASURECO III is liable for franchise tax on gross receipts within
Iriga City and Rinconada area. It should be stressed that *****what the petitioner seeks to collect
from CASURECO III is a franchise tax, which as defined, is a tax on the exercise of a privilege.
As Section 137 of the LGC provides, franchise tax shall be based on gross receipts precisely because
it is a tax on business, rather than on persons or property. *****Since it partakes of the nature of
an excise tax, the situs of taxation is the place where the privilege is exercised, in this case in the
City of Iriga, where CASURECO III has its principal office and from where it operates, regardless of
the place where its services or products are delivered. Hence, franchise tax covers all gross receipts from
Iriga City and the Rinconada area.
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c. *****To be liable for local franchise tax, the following requisites should
concur: 1. That one has a "franchise" in the sense of a secondary or special
franchise; and 2. That it is exercising its rights or privileges under this
franchise within the territory of the pertinent local government unit.116
d. Professionals who are subject to professional tax: They are those who
have passed the bar examinations, or any board or examinations conducted by the
Professional Regulation Commission (PRC). E.g. ******A lawyer who is also a
Certified Public Accountant (CPA) must pay for professional tax imposed
on lawyer and that fixed for CPAs, if he is to practice both professions. NB:
*****Municipalities cannot impose professional tax since such power is reserved
only to provinces and cities.117
116Q: CASURECO III maintains that it is exempt from payment of franchise tax because of its nature
as a non-profit cooperative, as contemplated in PD 269, and insists that only entities engaged in
business, and not non-profit entities like itself, are subject to the said franchise tax. Is this correct? A:
NO. In National Power Corporation v. City of Cabanatuan, the Court declared that *****”a franchise
tax is a tax on the privilege of transacting business in the state and exercising corporate
franchises granted by the State." It is not levied on the corporation simply for existing as a
corporation, upon its property or its income, but on its exercise of the rights or privileges granted
to it by the government." It is within this context that the phrase “tax on businesses enjoying a
franchise‟ in Section 137 of the LGC should be interpreted and understood."
*****To be liable for local franchise tax, the following requisites should concur:
1. That one has a "franchise" in the sense of a secondary or special franchise; and
2. That it is exercising its rights or privileges under this franchise within the territory of the
pertinent local government unit.
There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA
granted CASURECO III a franchise to operate an electric light and power service for a period
of fifty (50) years from June 6, 1979, and it is undisputed that CASURECO III operates within
Iriga City and the Rinconada area. *****It is, therefore, liable to pay franchise tax
notwithstanding its non-profit nature.(City of Iriga v. Camarines Sur III Electric Cooperative Inc.
G.R. No. 192945, September 5, 2012).
117Q: Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer engaged in the
practice of his two professions. He has his main office in Makati City and maintains a branch office in
Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati City and his professional tax
as a lawyer in Pasig City. (2005 Bar)
a. May Makati City, where he has his main office, require him to pay his professional tax as a
lawyer? Explain. A: NO. *****Makati City where Mr. Fermin has his main office may not require him
to pay his professional tax as a lawyer. Mr. Fermin has the option of paying his professional tax as a
lawyer in Pasig City where he practices law or in Makati City where he maintains his principal
office (Sec. 139[b], LGC).
b. May Quezon City, where he has his residence and where he also practices his two
professions, go after him for the payment of his professional tax as a CPA and a lawyer? Explain. A:
NO, the situs of the professional tax is the city where the professional practices his profession or
where he maintains his principal office in case he practices his profession in several places. The
local government of Quezon City has no right to collect the professional tax from Mr. Fermin as
the place of residence of the taxpayer is not the proper situs in the collection of the professional tax.
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e. The province does not have authority to impose taxes on sand, gravel and
other quarry resources extracted on private lands.118
f. Amusement and amusement places as defined under the LGC.119 The
following are the amusement places upon which provinces or cities cannot
impose amusement taxes: i. Cockpits; ii. Cabarets; iii. Night or day clubs; iv.
Boxing exhibitions; v. Professional basketball games120; vi. Jai-Alai; viii. Racetracks.
NB: ******There can be no imposition of amusement taxes on the above
amusement places since the NIRC already imposes amusement taxes on
them under Section 125 thereof. NB: golf courses are not included.121
118A province is not expressly authorized to do so. Such tax is a tax upon the performance, carrying on,
or exercises of an activity, hence an excise tax upon an activity already being taxed under the NIRC
(Province of Bulacan, et. al., v. CA, G.R.No. 126232, November 27, 1998).
119a. Amusement is a pleasurable diversion and entertainment. It is synonymous to relaxation,
avocation, pastime, or fun;
b. Amusement places include theaters, cinemas, concert halls, circuses and other places of
amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performances (Sec. 131[b] and [c], LGC).
120 LGUs cannot collect amusement taxes on admission tickets to the Philippine Basketball Association
(PBA) games - Professional basketball games are within the ambit of national taxation as it is
presently being taxed under the provisions of the NIRC. Furthermore, the income from cession
of streamers and advertising spaces is subject to amusement taxes under the NIRC because the
definition under the Tax Code is broad enough to include the cession of streamers and
advertising spaces as the same includes all the receipts of the proprietor, lessee or operator of
the amusement place (Philippine Basketball Association v. CA, G.R. No. 119122, Aug. 8, 2000).
121. A golf course cannot be considered a place of amusement therefore beyond the power of LGU
to impose amusement tax
a. Section 42 of the Revised Omnibus Tax Ordinance, as amended, imposing amusement tax
on golf courses is null and void as it is beyond the authority of respondent Cebu City to enact under
the Local Government Code. A golf course cannot be considered a place of amusement. People do
not enter a golf course to see or view a show or performance. Proprietor or operators of the golf
course, do not actively display, stage, or present a show or performance. People go to a golf course to
engage themselves in a physical sport activity.
b. A local government unit may exercise its residual power to tax when there is neither a grant
nor a prohibition by statute; or when such taxes, fees, or charges are not otherwise specifically
enumerated in the Local Government Code, NIRC, as amended, or other applicable laws. In the
present case, Section 140, in relation to Section 131(c), of the LGC already explicitly and clearly cover
amusement tax and respondent Cebu City must exercise its authority to impose amusement tax within
the limitations and guidelines as set forth in said statutory provisions. (Alta Vista Golf and Country
Club v. The City of Cebu, G.R. No. 180235, January 20, 2016)
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NB: The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty percent
(50%) except the rates of professional and amusement taxes (Ibid.).
Cities have the broadest taxing powers, embracing both specific and general
powers as provinces and municipalities may impose.
Under the LGC, there are three types of cities, Component Cities,
Independent Component Cities and Highly Urbanized Cities. ICCs and HUCs are
independent of the province (Sec. 451-452, LGC). This means that taxes, fees and
charges levied and collected by ICCs and HUCs accrue solely to them (Sec. 151,
LGC).
Q: Cagayan Electric Power and Light Company, Inc. (CEPALCO), who is leasing
for a consideration the use of its posts, poles or towers to other pole users, assails
the validity of Ordinance No. 9503-2005 passed by the Sangguniang Panlungsod
of Cagayan de Oro (City Council), which imposed a tax on the lease or rental of
electric and/or telecommunication posts, poles or towers by pole owners to other
pole users at the rate of ten (10) percent of the annual rental income derived
therefrom. CEPALCO contends that if it is a city which imposes it, and as a city, it
can only impose up to one-half of what the province or municipality may impose
and since under Section 137, a province may impose 50% of 1% or 0.005, a city
may therefore only impose 0.0025. Is this correct? A: NO. CEPALCO is mistaken
when it states that a city can impose a tax up to only one-half of what the
province or city may impose. A more circumspect reading of the Local
Government Code could have prevented this error. Section 151 of the Local
Government Code states that, subject to certain exceptions, a city may exceed by
"not more than 50%" the tax rates allowed to provinces and municipalities.
Following Section 151, a city may impose a franchise tax of up to 0.75% of a
business’ gross annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction.
In the same manner, since a municipality may impose a business tax at a rate not
exceeding "two percent of gross sales or receipts" under section 143, a city may
impose a business tax of up to 0.03 (or 3%) of a business’ gross sales or receipts
of the preceding calendar year (May exceed by not more than 50% means it may
impose up to 50% more than what a province or municipality could impose).
CEPALCO also erred when it equates Section 137’s "gross annual receipts" with
Ordinance No. 9503-2005’s "annual rental income." Section 2 of Ordinance No.
9503-2005 imposes "a tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to other pole users at
the rate of ten percent (10 %) of the annual rental income derived therefrom,"
and not on CEPALCO’s gross annual receipts. Thus, although the tax rate of 10%
is definitely higher than that imposable by cities as franchise or business tax, the
tax base of annual rental income of "electric and/or telecommunication posts,
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poles or towers by pole owners to other pole users" is definitely smaller than that
used by cities in the computation of franchise or business tax. In effect,
Ordinance No. 9503-2005 wants a slice of a smaller pie.
3. Under Section 143 of the Local Government Code, the businesses upon which
municipalities may impose business taxes are: [ManWhoRE-COP-B]
a. On Manufacturers, assemblers, repackers, processors, brewers, distillers,
rectifiers, and compounders of liquors, distilled spirits, and wines or
manufacturers of any article of commerce of whatever kind or nature
b. On Wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature
c. On exporters, and on manufacturers, millers, producers, wholesalers,
distributors, dealers or retailers of essential commodities such as:
i. Rice and corn
ii. Wheat or cassava flour, meat, dairy products, locally manufactured,
processed or preserved food, sugar, salt and other agricultural, marine and fresh
water products, whether in their original state or not122
iii. Cooking oil and cooking gas
iv. Laundry soap, detergents, and medicine
v. Agricultural implements, equipment and postharvest facilities,
fertilizers, pesticides, insecticides, herbicides, and other farm inputs
vi. Poultry feeds and other animal feeds
vii. School supplies
viiii. Cement
d. On Retailers;
e. On Contractors;
f. Banks and other financial institutions;
g. Peddlers;
h. Other business not specified which the sanggunian concerned my deem
proper to tax.
4. Definition of terms:
122The Sangguniang Bayan of the Municipality of Sampaloc, Quezon, passed an ordinance imposing
a storage fee of ten centavos (P0.10) for every 100 kilos of copra deposited in any bodega within
the Municipality’s jurisdiction. The Metropolitan Manufacturing Corporation (MMC), with principal
office in Makati, is engaged in the manufacture of soap, edible oil, margarine, and other
coconut oil- based products. It has a warehouse in Sampaloc, Quezon, used as storage space for the
copra purchased in Sampaloc and nearby towns before the same is shipped to Makati. MMC goes to
court to challenge the validity of the ordinance, demanding the refund of the storage fees it paid under
protest. Is the ordinance valid? Explain your answer. (4%) SUGGESTED ANSWER: Yes. *****The
municipality is authorized to impose reasonable fees and charges as a regulatory measure in an
amount commensurate with the cost of regulation, inspection and licensing (Section 147, LGC).
In the case at bar, the storage of copra in any warehouse within the municipality can be the proper
subject of regulation pursuant to the police power granted to municipalities under the Revised
Administrative Code or the “general welfare clause”. A warehouse used for keeping or storing copra is
an establishment likely to endanger the public safety or likely to give rise to conflagration
because the oil content of the copra, when ignited, is difficult to put under control by water and
the use of chemicals is necessary to put out the fire. It is, thus, reasonable that the Municipality
impose storage fees for its own surveillance and lookout (Procter & Gamble Philippine Manufacturing
Corporation v. Municipality of Jagna, Province of Bohol, 94 SCRA 894 [1979]). (BAR 2009)
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123ABC Corp. is registered as a holding company and has an office in the City of Makati. It has no
actual business operations. It invested in another company and its earnings are limited to
dividends from this investment, interests on its bank deposits, and foreign exchange gains from its
foreign currency account. The City of Makati assessed ABC Corp. as a contractor or one that sells
services for a fee. Is the City of Makati correct? (2013 Bar) A: The City of Makati is wrong in
assessing ABC Corp. as a contractor. First, ABC Corp. is not a contractor as defined in Section 131(h)
of Republic Act No. 7160 or the Local Government Code (LGC). *****This provision defines a
contractor as a person, natural or juridical, not subject to professional tax under the LGC, but
whose activity consists essentially of the sale of all kinds of services for a fee, regardless of
whether or not the performance of the service calls for the exercise or use of the physical or mental
faculties of such contractor or his employees. In the given problem, ABC Corp. is merely a holding
company whose earnings are limited to dividends, interests on bank deposits and foreign
exchange gains from foreign currency account. Evidently, ABC Corp. is not engaged in the sale of
services for a fee. Second, ******Section 186 of LGC provides that local government units cannot
levy taxes, fees or charges on any base or subject tax under the provisions of the NIRC. In the
given problem, ABC Corp.’s dividends, interest income and foreign exchange gains from foreign
currency account are already subject to final income tax under the NIRC, specifically, Sections
27(D)(4), 27(D)(1), 32(A), respectively. Consequently, the City of Makati cannot levy from ABC
Corp. taxes on these incomes.
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2. *****If the tax paid during the year be less than the tax due on said gross
sales of receipts of the current year, the difference shall be paid before the
business is considered officially retired (Sec. 145, LGC).124
124How are retiring businesses taxed under the Local Government Code? (2%) SUGGESTED
ANSWER: Retiring business under the LGC are taxed on their gross sales or gross receipts in the
current year and not on the preceding year. If the tax paid in the current year is less than the tax
due on gross sales or receipts of the current year, the difference shall be paid before the business is
considered officially retired (Sec. 145, LGC).
125What is the basis for the computation of business tax on contractors under the local government
code? (2%) SUGGESTED ANSWER: The business tax on contractors is a graduated annual fixed
tax based on the gross receipts for the preceding calendar year. *****However, when the gross
receipts amount to P2 million or more, the business tax on contractors is imposed as a
percentage tax at the rate of 50% of 1% (Sec. 143(e), LGC). ALTERNATIVE: If the gross receipts
amount to more than Php 2.0 Million the business is subject to a percentage tax at the rate of 50%
of 1%.
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126SECTION 192. Authority to Grant Tax Exemption Privileges. - Local government units may,
through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary.
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Q: A sari-sari store initially paid the barangay treasurer of Barangay T the amount
of P120.00 representing 1% of the gross sales of P12,000.00 CY 1994 in
accordance with the barangay tax code. Subsequently, the same store also filed
application for business license with the Municipality of T for which a municipal
business tax and other regulatory fees was assessed for the same store based on its
capital investment of P12,000.00. Are the tax assessments by the barangay and the
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Community Tax
1. Nature of community tax: The community is a poll or capitation tax imposed
upon residents of a city or municipality. It replaced the former residence tax.
2. Who may levy? A Community tax may be levied by a city or municipality but
not a province.
3. Persons liable to pay community tax:
a. Individuals –Every inhabitant of the Philippines eighteen (18) years of
age or over:
i. who has been regularly employed on a wage or salary basis for at
least thirty (30) consecutive working days during any calendar year; or
ii. who is engaged in business or occupation;
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treasurer to collect the community tax in their respective jurisdictions and shall
accrue entirely to the general fund of the city or municipality concerned.
a. Conditions: bonded in accordance with law (Sec. 164, LGC) Proceeds of
the community tax collected through the barangay treasurers shall be apportioned
as follows:
i. 50% accrues to the general fund of the city or municipality
concerned; and
ii. 50% accrues to the barangay where the tax is collected
b. Presentation of community tax certificate, when required:
i. Acknowledgment of any document before a notary public;
ii. Taking an oath of office upon election or appointment to any
position in the government service;
iii. Receiving any license, certificate or permit from any public
authority;
iv. Paying any tax or fee;
v. Receiving any money from any public fund;
vi. Transacting other official business; or
vii. Receiving any salary or wage from any person or corporation (Sec.
163, LGC)
128The City of Manila enacted an ordinance, imposing a 5% tax on gross receipts on rentals of
space in privately-owned public markets. BAT Corporation questioned the validity of the
ordinance, stating that the tax is an income tax, which cannot be imposed by the city government.
Do you agree with the position of BAT Corporation? Explain. (5%) SUGGESTED ANSWER: No.
*****The tax imposed is not an income tax but a license tax or fee for the regulation of the
business in which the taxpayers are engaged, that is the leasing of spaces in privately-owned public
markets. (Progressive Development Corporation v. Quezon City, 172 SCRA 629 [1989]). The income
tax imposed under the National Internal Revenue Code which preempts the imposition by the
City is one which is imposed on the privilege enjoyed by a taxpayer in earning income and not
a tax on business. (BAR 2008)
LGUs levy income taxes:
129
GR: The exercise of the taxing authority of LGUs shall not extend to the levy of income tax.
XPN: However, income tax may be levied on banks and other financial institutions (Sec. 133 (a),
LGC).
130 Q: Pheleco is a power generation and distribution company operating mainly from the City of
Taguig. It owns electric poles which it also rents out to other companies that use poles such as
telephone and cable companies. Taguig passed an ordinance imposing a fee equivalent to 1% of
the annual rental for these poles. Pheleco questioned 'the legality of the ordinance on the
ground that it imposes an income tax which local government units (LGUs) are prohibited
from imposing. Rule on the validity of the ordinance. (2013 Bar) A: The ordinance is void. The fee is
based on rental income and is therefore a tax on income. *****The Sec. 32(A)(5) of the NIRC
includes “rents” in the enumeration of taxable income. Under Section 1331 of the LGC, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of income tax except when levied on banks and other financial institutions.
131Q: The Sangguniang Panlungsod of Cagayan de Oro (City Council) passed Ordinance No.
9503-2005 imposing a tax on the lease or rental of electric and/or telecommunication posts, poles or
towers by pole owners to other pole users 10% of the annual rental income derived from such lease or
rental. Cagayan Electric Power and Light Company, Inc. (CEPALCO), who is leasing for a
consideration the use of its posts, poles or towers to other pole users, assails its validity on the
ground that the tax imposed by the disputed ordinance is in reality a tax on income which the
City of Cagayan de Oro may not impose, the same being expressly prohibited by Section 133(a) of
Republic Act No. 7160 (R.A. 7160) otherwise known as the Local Government Code of 1991. Is the
ordinance valid? A: YES. *****Ordinance No. 9503-2005 is a tax on business not a tax on income.
Business being defined by Sec. 131(d) of the LGC as “trade or commercial activity regularly
engaged in as a means of livelihood or with a view to profit.” CEPALCO’s act of leasing for a
consideration the use of its posts, poles or towers to other pole users falls under the Local Government
Code’s definition of business. In relation thereto, Section 131(d), Section 143(h) of the Local
Government Code provides that the city may impose taxes, fees, and charges on any business which is
not specified in Section 143(a) to (g) and which the Sanggunian concerned may deem proper to tax.
(Cagayan Electric Power and Light Co., Inc. v. City of Cagayan de Oro, G.R. No. 191761, November
14, 2012)
132 [] *****Taxing power of local government units shall NOT extend to the following taxes, except
one: (2012 BAR) a) Income tax on banks and other financial institutions; b) Taxes of any kind on
the national government, its agencies and instrumentalities, and local government units; c) Taxes on
agricultural and aquatic products when sold by the marginal farmers or fishermen; d) Excise taxes on
articles enumerated under the National Internal Revenue Code. Section 186, RA 7160
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b. Accrual of Tax
GR: Business Tax Accrues on the 1st day of January each year
XPN: New taxes, fees or charges, or changes in the rates thereof which shall
accrue on the 1st day of the quarter next following the effectivity of the
ordinance imposing such new levies or rates (Sec. 166, LGC).
c. Time of Payment
Within 20 days of January or of each subsequent quarter (i.e. Jan. 20, April 20,
July 20, and Oct. 20). It may be extended by the sanggunian for justifiable reasons,
without surcharges or penalties. Extension cannot exceed 6 months. (Sec. 167,
LGC)
139MNO Corporation was organized on July 1, 2006, to engage in trading of school supplies, with
principal place of business in Cubao, Quezon City. Its books of accounts and income statement
showing gross sales as follows: July 1, 2006 to December 31,2006 P 5,000,000 January 1, 2007 to June
30, 2007 P10,000,000 JULY 1, 2007 TO DECEMBER 31,2007 PI 5,000,000. Since MNO Corporation
adopted fiscal year ending June 30 as its taxable year for income tax purposes, it paid its 2%
business tax for fiscal year ending June 30, City Treasurer assessed the corporation for
deficiency business tax for 2007 based on gross sales of P25 million alleging that local business
taxes shall be computed based on calendar year. Is the position of the city treasurer tenable?
Explain. (3%) SUGGESTED ANSWER: Yes. The tax period for local taxes is generally the calendar
year. (Section 165, LGC). (BAR 2008)
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TAX REMEDIES on LGT [Cagayan de Oro Light Power vs CDO City; Sec
187]
*three periods to be observed:
1. 30DAY: constitutionality, validity of local tax ordinance before the DOJ
Secretary; counted from the EFFECTIVITY of such tax ordinance.
2. 60DAY: period to be observed within such decision may be rendered (que?)
3. 30DAY: period to APPEAL to court of competent jurisdiction or RTC; within
30D from receipt of such decision or 30D from the lapse of the 60D period, such
decision of the DOJ secretary may be appealed to the RTC.
8. Taxpayer’s Remedies
1. Under the Local Government Code, the Taxpayer’s remedies are:
a. Protest assessment
b. Claim for refund or tax credit
c. Judicial action
2. Prior to assessment
a. Administrative appeal to the Secretary of Justice
i. Administrative appeal to the Secretary of Justice questioning the
constitutionality or legality within 30 days from the effectivity of the tax
ordinance or revenue measure;
ii. Secretary of Justice shall render a decision within 60 days from
date of receipt of the appeal
iii. Within 30 days after receipt of the decision or the lapse of 60
day period without action from the Secretary of Justice, aggrieved party
may file appropriate proceedings with a court of competent jurisdiction.
NB: such appeal shall not have the effect of suspending the effectivity of the
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ordinance and the accrual of the payment of the tax, fee, or charge levied
therein (Sec. 187, LGC).140
b. Action for declaratory relief
3. After an assessment141
a. Protest of the assessment
i. When the correct tax, fee or charge is not paid, the Local
Treasurer shall issue a notice of assessment within the applicable prescriptive
period, (Sec. 195, LGC) stating the nature of the levy, the amount of deficiency,
the surcharges, interests and penalties.
ii. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protest142 of the assessment with the
local treasurer contesting the assessment; otherwise the assessment shall become
final and executory
140X, a taxpayer who believes that an ordinance passed by the City Council of Pasay is unconstitutional
for being discriminatory against him, want to know from you, his tax lawyer, whether or not he can file
an appeal. In the affirmative, he asks you where such appeal should be made: the Secretary of
Finance, or the Secretary of Justice, or the Court of Tax Appeals, or the regular courts. What
would your advice be to your client, X? SUGGESTED ANSWER: *****The appeal should be made
with the Secretary of Justice. ******Any question on the constitutionality or legality of a tax
ordinance may be raised on appeal with the Secretary of Justice within 30 days from the effectivity
thereof. (Sec. 187, LGC; Hagonoy Market Vendor Association v. Municipality of Hagonoy, 376 SCRA
376 [ 2002]). (BAR 2003)
141On October 10, 2009, the corporation received a collection letter from the City Treasurer,
drawing it to file on October 25, 2009 an appeal against the assessment before the Pasay Regional
Trial Court (RTC). A. Was the protest of the corporation filed on time? Explain. (3%) SUGGESTED
ANSWER: The protest was filed on time. *****The taxpayer has the right to protest an assessment
within 60 days from receipt thereof (Sec. 195, LGC).
B. Was the appeal with the Pasay RTC filed on time? Explain. (3%) SUGGESTED ANSWER:
The appeal was not filed on time. When an assessment is protested, the treasurer has 60 days
within which to [decide]. The taxpayer has 30 days from receipt of the denial of the protest or from
the lapse of the 60-day period decide, whichever comes first, otherwise the assessment becomes
conclusive and unappeallable. *****Since no decision on the protest was made, the taxpayer
should have appealed to the RTC within 30 days from the lapse of the period to decide the
protest (Sec. 195, LGC). [TOM: Where did get he all those facts? Not in the problem].
142SECTION 195. Protest of Assessment. - When the local treasurer or his duly authorized
representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of
assessment stating the nature of the tax, fee or charge, the amount of deficiency, the
surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protest with the local treasurer contesting the
assessment; otherwise, the assessment shall become final and executory. The local treasurer shall
decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the
protest to be wholly or partly meritorious, he shall issue a notice canceling wholly or partially the
assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he
shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty
(30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day
period prescribed herein within which to appeal with the court of competent jurisdiction otherwise
the assessment becomes conclusive and unappealable.
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iii. The local treasurer shall decide the protest within sixty (60)
days from the time of its filing. If the local treasurer finds the assessment to be
wholly or partly correct, he shall deny the protest wholly or partly with notice to
the taxpayer.
iv. The taxpayer shall have thirty (30) days from the receipt of
the denial of the protest or from the lapse of the sixty (60) day period
prescribed herein within which to appeal with the court of competent
jurisdiction otherwise the assessment becomes conclusive and unappealable (Sec.
195, LGC).
v. The competent court referred to is the RTC/MTC/MeTC/
MCTC which acts in the exercise of its original jurisdiction, depending on the
amount. Local tax cases originally decided by the MTC/MetC/MCTC may
be appealed to RTC.
b. Action for refund
i. A written claim for refund or credit is filed with the local treasurer.
ii. A claim or proceeding is then filed with the court of competent
jurisdiction (depending upon the jurisdictional amount) within two (2)
years from the date of the payment of such tax, fee, or charge, or from the date
the taxpayer is entitled to a refund or credit. (Sec. 196, LGC). *****NB: The filing
of a written claim for refund with the local treasurer is a condition
precedent for maintaining a court action.
c. Right of redemption – one (1) year from the date of the sale or from
the date of forfeiture (Sec. 179, LGC). NB: The owner shall not be deprived of
possession and to rentals/income thereof until the expiration of the time allowed
for its redemption.
4. Judicial Remedies
a. Court Action
i. Within 30 days after receipt of decision or lapse of 60 days in case
of Secretary of Justice’s inaction (Sec. 187, LGC)143
143 Q: In 2014, M City approved an ordinance levying customs duties and fees on goods coming
into the territorial jurisdiction of the city. Said city ordinance was duly published on February 15,
2014 with effectivity date on March 1, 2014.
a. Is there a ground for opposing said ordinance? A: YES, the ground that the ordinance is
ultra-vires. *****The taxing powers of local government units, such as M City, cannot extend to
the levy of taxes, fees and charges already imposed by the national government, and this include,
among others, the levy of customs duties under the Tariff and Customs Code.
b. What is the proper procedural remedy and applicable time periods for challenging the
ordinance? (2015 Bar) A: Any question on the constitutionality or legality of tax ordinances may be
raised on appeal within 30 days from the effectivity to the Secretary of Justice. The Secretary of
Justice shall render a decision within 60 days from the date of receipt of the appeal. Thereafter,
within 30 days after receipt of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party may file the appropriate
proceedings with the Regional Trial Court.
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144Q: In accordance with the Local Government Code (LGC), the Sangguniang Panglungsod (SP) of
Baguio City enacted Tax Ordinance No. 19, Series of 2014, imposing a P50.00 tax on all the tourists
and travellers going to Baguio City. In imposing the local tax, the SP reasoned that the tax
collected will be used to maintain the cleanliness of Baguio City and for the beautification of its
tourist attractions. Claiming the tax to be unjust, Baguio Travellers Association (BTA), an association
of travel agencies in Baguio City, filed a petition for declaratory relief before the RTC because BTA
was apprehensive that tourists might cancel their bookings with BTA’s member agencies. BTA also
prayed for the issuance of a TRO to enjoin Baguio City from enforcing the local tax on their
customers and on all tourists going to Baguio City. The RTC issued a TRO enjoining Baguio City from
imposing the local tax. Aggrieved, Baguio City filed a petition for certiorari before the Supreme Court
seeking to set aside the TRO issued by the RTC on the ground that collection of taxes cannot be
enjoined. Will the petition prosper? (2014 Bar) A: NO. The petition for certiorari filed by Baguio City
will not prosper. As stated in Valley Trading Co., Inc. v. CFI of Isabela (G.R. No. L-49529, March 31,
1989) and Angeles City v. Angeles City Electric Corporation (G.R. No. 166134, June 29, 2010),
******the prohibition on the issuance of an order or writ enjoining the collection of taxes
applies only to national internal revenue taxes, and not to local taxes. Unlike the NIRC, there is
no express provision in the Local Government Code which prohibits courts from enjoining the
collection of such taxes. Therefore, the RTC was properly vested with authority to issue the
assailed TRO enjoining Baguio City from imposing the local tax.
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lapse of 60 days, a party could already proceed to seek relief in court. These three
separate periods are clearly given for compliance as a prerequisite before seeking
redress in a competent court. Such statutory periods are set to prevent delays as
well as enhance the orderly and speedy discharge of judicial functions. For this
reason the courts construe these provisions of statutes as mandatory (Cagayan
Electric Power and Light Co., Inc. v. City of Cagayan de Oro, G.R. No. 191761,
November 14, 2012).
b. Protest of Assessment
Q: Discuss the procedure for the protest of assessment
Assessment is
made by local
treasurer
↓
Taxpayer has
Assessment is Receipt by the 60 days to file
final ← → a written
Taxpayer
and executory protest with
treasurer
↓
The Local
Local Treasurer shall
Treasurer decide the
finds protest protest within
←
wholly or 60 days from
partly the time of its
meritorious
filing
↓ ↓
Local
Local
Treasurer
Treasurer
issues a notice
finds the
cancelling
assessment
wholly or
wholly or
partially the
partly correct
assessment
↓
Local
Treasurer
Taxpayer does denies the
← protest wholly
not appeal or partly with
notice to the
taxpayer
↓ ↓
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Taxpayer has
30 days from
receipt of the
denial of the
Assessment protest or
becomes from lapse of
conclusive and the 60
unappealable day period
(Sec. 195) prescribed to
appeal with a
court of
competent
jurisdiction
L o c a l
Treasurer
( L T )
assesses
l o c a l
t a x e s
within 5 LT issues
y e a r s
START → → notice of
from date
t h e y assessment
become
due or 10
y e a r s
f r o m
discovery
of fraud
↓
Taxpayer files written
protest within 60 days
from receipt of notice
of assessment (Sec.
195, LGC)
↓
Is protest
m a d e Assessment
LT decides on protest within 60 within pres- becomes
days from filing of protest (Sec. c r i b e d final
Yes No
195, LGC) Taxpayer has 60 days period? (Sec. Receipt by
← → the
to file a written protest with 195,LGC)
treasurer Assessment Taxpayer
is final and
execu-tory
Yes No
↓ ↓
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Appeal to CTA
Taxpayer appeals to
division but if the
court of competent
decision is from an
jurisdiction (regular
No RTC exercising
LT grants courts) within 30
→ appellate jurisdiction,
protest? → days from receipt of
appeal should be
notice or from lapse
made directly not to
of 60 days (Sec. 195,
CTA en banc under
LGC)
Rule 43 of ROC.
Yes
↓
↓
LT issues notice
cancelling
partially/wholly the If Division decides
assessment against taxpayer, file
(Sec. 195, LGC) MR within 15 days
Local Treasurer with the same
finds the assessment division.
wholly or
partly correct
↓ ↓
MR is denied, file
END ← Appeal to SC ← petition for review
with CTA en banc
——————————————————————
146*****Give the remedies available to local government units to enforce the collection of taxes,
fees, and charges? ANSWER: The remedies available to the local government units to enforce
collection of taxes, fees, and charges are:
A. Administrative remedies of distraint of personal property of whatever kind whether tangible or
intangible, and levy of real property and interest therein; and
B. Judicial remedy by institution of an ordinary civil action for collection with the regular courts
of proper jurisdiction. (BAR 1997)
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↓
Within thirty (30) days
after the sale, the local
treasurer or his deputy Tax is a lien superior to all liens and may only
shall make a report of the be extinguished upon payment of the tax and
sale to the sanggunian →
charges (Sec. 257) Issuance of the certificate
concerned, and which of sale to the purchaser (Sec. 178)
shall form part of his
records. (Sec. 178, LGC)
↓ ↓ ↓
Warrant of Levy
Time for payment or
issued by LT, as a
RPT expires (Sec. 258,
Local Treasurer shall legal execution in
LGC). The delinquent
purchase the property on the LGU
taxpayer has one (1)
behalf of the LGU if: concerned, (Sec.
year from the date of
a. There is no bidder 258, LGC). If
→ sale to redeem the
b. The highest bid is property is not
p r o p e r t y. I f t h e
insufficient to pay the redeemed, a final
property is redeemed,
deficiency tax (Sec. 128, deed of sale shall
a certificate of
LGC) be issued to the
redemption will be
purchaser. (Sec.
issued (Sec. 179, LGC)
180, LGC)
↓
If not redeemed,
ownership shall be fully
vested on the LGU
concer ned. (Sec 181,
LGC)
b. If the highest bid is for an amount insufficient to pay the taxes, fees, or
charges, related surcharges, interests, penalties and costs
5. Local government may repeat the remedies of distraint and levy - The remedies
by distraint and levy may be repeated if necessary until the full amount due,
including all expenses, is collected. (Sec. 184, LGC)
6. Penalty of the local treasurer for failure to issue and execute the warrant:
Automatically dismissed from service after notice and hearing, if found guilty of
abusing the exercise thereof by competent authority, without prejudice to criminal
prosecution under the RPC and other applicable laws. (Sec. 177, LGC)
7. Exempt properties from distraint or levy - The following property shall be
exempt from distraint and the levy, attachment or execution thereof for
delinquency in the payment of any local tax, fee or charge, including the related
surcharge and interest: [ToBe-ChoP-LBM]
a. Tools and implements necessarily used by the delinquent taxpayer in his
trade or employment;
b. One horse, cow, carabao, or other Beast of burden, such as the
delinquent taxpayer may select, and necessarily used by him in his ordinary
occupation;
c. His necessary Clothing, and that of all his family;
d. Household furniture and utensils necessary for housekeeping and used
for that purpose by the delinquent taxpayer, such as he may select, of a value not
exceeding P10,000.00;
e. Provisions, including crops, actually provided for individual or family use
sufficient for 4 months;
f. The professional Libraries of doctors, engineers, lawyers and judges;
g. One fishing Boat and net, not exceeding the total value of P10,000.00, by
the lawful use of which a fisherman earns his livelihood; and
h. Any Material or article forming part of a house or improvement of any
real property. (Sec. 185, LGC)
of actual use, even if the user is not the owner.(Province of Nueva Ecija v.
Imperial Mining Co., Inc. G.R. No. 59463, November 19, 1982)
b. The present law on real property taxation (R.A. 7160, Local Government
Code) adopts actual use of real property as basis of assessment. (Sec. 199[b],
LGC)
2. Local government units responsible for the administration of real property tax
a. Provinces
b. Cities
c. Municipalities in Metro Manila Area147
3. Definition of Real Property; Article 415 of New Civil Code. The Following are
Immovable Property:
a. Land, buildings, roads and constructions of all kinds adhered to the soil;
b. Trees, plants, and growing fruits, while they are attached to the land or
form an integral part of an immovable;
c. Everything attached to an immovable in a fixed manner, in such a way
that it cannot be separated therefrom without breaking the material or
deterioration of the object;
d. Statues, reliefs, paintings or other objects for use or ornamentation,
placed in buildings or on lands by the owner of the immovable in such a manner
that it reveals the intention to attach them permanently to the tenements;
e. Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in a
building or on a piece of land, and which tend directly to meet the needs of the
said industry or works;148
147May local governments impose an annual realty tax in addition to the basic real property tax on
idle or vacant lots located in residential subdivisions within their respective territorial jurisdictions?
(3%) SUGGESTED ANSWER: Not all local government units may do so. *****Only provinces,
cities, and municipalities within the Metro Manila area (Sec. 232, Local Government Code), may
impose an ad valorem tax not exceeding five percent (5%) of the assessed value (Sec.236, Ibid.)
of idle or vacant residential lots in a subdivision, duly approved by proper authorities regardless of
area. (Sec. 237, Ibid.) (BAR 2000)
148Under Article 415 of the Civil Code, in order for machinery and equipment to be considered
real property, the pieces must be placed by the owner of the land and, in addition, must tend to
directly meet the needs of the industry or works carried on by the owner. Oil companies install
underground tanks in the gasoline stations located on land leased by the oil companies from the
owners of the land where the gasoline stations [are] located. *****Are those underground tanks,
which were not placed there by the owner of the land but which were instead placed there by the
lessee of the land, considered real property for purposes of real property taxation under the local
Government Code? Explain. SUGGESTED ANSWER: Yes. *****The properties are considered as
necessary fixtures of the gasoline station, without which the gasoline station would be useless.
*****Machinery and equipment installed by the lessee of leased land is not real property for
purposes of execution of a final judgment only. They are considered as real property for real
property tax purposes as “other improvements to affixed or attached real property under the
Assessment Law and the Real Property Tax Code. (Cattex v. Central Board of Assessment
Appeals, 114 SCRA 296 [1982]). (BAR 2003)
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149The SC has generally held in these cases that Art 415 of the Civil Code provides an exclusive
enumeration of what constitutes real property, for tax purposes, however, it is common for
otherwise personal properties under the Civil Code to be classified as real property (Mindanao
Bus Co. v. City Assessor, G.R. No. L-17870, September 29, 1962).
NB: the NIRC and the LGC prevail in classifying property for tax purposes.
Improvement is a valuable addition made to a property or an amelioration in its condition,
amounting to more than a mere repair or replacement of parts involving capital expenditures
and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or further
purposes (Sec. 199 [m], LGC).
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b. A mining Company’s siltation dam and decant system are not machineries
but improvements subject to real property tax. (The Provincial Assessor of
Marinduque v. CA, G.R. No. 170532, April 30, 2009)
6. Kinds of real property tax and special levies [REIS]150
a. Basic real property tax
b. Additional levy on real property for the Special Education Fund (Sec.
235, LGC;
c. Additional ad valorem tax on idle lands (Sec 236, LGC)
d. Special levy by local government units (Sec 240, LGC)
Imposed by other laws:
i. Socialized Housing Tax (RA 7279, March 24, 1992)
ii. LGUs are authorized to impose an additional one-half percent
(0.5%) on the assessed value of all lands in urban areas in excess of Fifty
Thousand Pesos, except those from lands which are exempted from the coverage of RA
7279 [Urban Development and Housing Act of 1992].
7. FORMULA FOR RPT: RPT = RPT Rate x Assessed Value
a. Maximum (basic) RPT rates:*****
i. 1%: provinces;
ii. 2%: Cities and Municipalities within Metro Manila
b. Special Education Fund (SEF) – 1%; In addition to the basic RPT, the
LGU’s may levy and collect an annual tax of one percent (1%) which shall
accrued exclusively to the Special Education Fund (SEF).
c. Ad Valorem Tax on Idle Lands – 5%; In addition to the basic RPT, the
LGU’s may collect a maximum idle land tax is 5% assessed value of the property.
d. How do you compute the Assessed Value? Assessed Value = Fair
Market Value x Assessment Level
e. Reasonable according to UST notes: payable within 5-10 years.
150Aside from the basic real estate tax, give three (3) other taxes which may be imposed by
provincial and city governments as well as by municipalities in the Metro Manila area. (3%)
SUGGESTED ANSWER: The following real property taxes aside from the basic real property tax
may be imposed by provincial and city governments as well as by municipalities in the Metro
Manila area: Additional levy on real property for the Special Education Fund (Sec. 235, LGC);
Additional Ad-valorem tax on Idle lands (Sec. 236, LGC); and Special levy (Sec, 240), Note: The
question is susceptible to dual interpretation because it is asking for three other taxes and not three
other real property taxes. Accordingly, an alternative answer should be considered and given full
credit. ALTERNATIVE ANSWER: The following taxes, aside from basic real estate tax, may be
imposed by Provincial Government: Printer’s or publisher’s tax; Franchise Tax; Professional tax. City
Government - may levy taxes which the province or municipality are authorized to levy (Sec. 151,
LGC): Printer’s or publisher’s tax; Franchise tax; Professional tax Municipalities in the Metro Manila
Area - may levy taxes at rates which shall not exceed by 50% the maximum rates prescribed in the
Local Government Code: Annual fixed tax on manufacturers, assemblers, repackers, processors,
brewers, distillers, rectifiers and compounders of liquors, distilled spirits, and wines or manufacture of
any article of commerce of whatever kind or nature; Annual fixed tax on wholesalers, distributors, or
dealers in any article of commerce of whatever kind or nature; Percentage tax on retailers Note: Other
taxes may comprise the enumeration because many other taxes are authorized to be imposed by LGUs.
(BAR 2002)
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A. Fundamental Principles
[] Fundamental principles governing real property taxation [Bar 1997]
a. Real property shall be appraised at its current and fair market value.
b. Real property shall be classified for assessment purposes on the basis of
its actual use.151
c. Real property shall be assessed on the basis of a uniform classification
within each local government unit.
d. The appraisal, assessment, levy and collection of real property tax
shall not be let152 to any private person.
e. The appraisal and assessment of real property shall be equitable. (Sec.
197, LGC)153
151NB: Real Property shall be classified, valued and assessed on the basis of its actual use regardless of
where located, whoever owns it and whoever uses it. (Sec. 217, LGC)
152 . *****“NO LET” PRINCIPLE
a. a rule common to both LGT and RPT;
b. it means that a collection of local and real property tax shall NOT be DELEGATED to a private person.
153 The appraisal, assessment, levy and collection of real property tax shall be guided by the following
principles. Which statement does NOT belong here? (2012 BAR): a) Real property shall be appraised
at its current and fair market value; b) Real property shall be classified for assessment purposes on
the basis of its actual use; c) Real property shall be assessed on the basis of a uniform classification
within each local political subdivision; d) The appraisal and assessment of real property shall be
based on audited financial statements of the owner. SUGGESTED ANSWER: d) The appraisal and
assessment of real property shall be based on audited financial statements of the owner.
Section 198, RA 7160.
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154A city outside of Metro Manila plans to enact an ordinance that will impose a special levy on
idle lands located in residential subdivisions within its territorial jurisdiction in addition to the basic
real property tax. If the lot owners of a subdivision located in the said city seeks your legal advice on
the matter, what would your advice be? Discuss. (2005 Bar) A: I would advise the lot owners that a city,
even if it is outside Metro Manila, may levy an annual tax on idle lands at the rate not
exceeding five percent (5%) of the assessed value of the property which shall be in addition to
the basic real property tax. (Sec. 236, LGC) I would likewise advise them that the levy may apply to
residential lots, regardless of land area, in subdivisions duly approved by proper authorities, the
ownership of which has been transferred to individual owners who shall be liable for the additional tax.
(Last par., Sec. 237, LGC) Finally, I would advise them to construct or place improvements on
their idle lands by making valuable additions to the property or ameliorations in the land's
conditions so the lands would not be considered as idle. (Sec. 199[m], LGC) In this manner their
properties would not be subject to the ad valorem tax on idle lands.
ALTERNATIVE: My advice would be that the city's plan to enact an ordinance that will
impose such special levy on idle lands is not legally allowed, unless these lands are specially
benefited by a public works projects or improvements funded by the city government. (Sec. 240,
Local Government Code). I will likewise advise them that before the city council could enact an
ordinance imposing a special levy, it shall conduct a public hearing thereon; notify in writing the
owners of the real property to be affected or the persons having legal interest therein as to the date and
place thereof and afford the latter the opportunity to express their positions or objections relative
to the proposed ordinance. (Sec. 242, Local Government Code).
155The use of the words “may levy and collect” gives the impression that a province, city or
municipality within Metropolitan Manila Area, may or may not, at its discretion impose real property
tax. The word “may” in the law generally interpreted as only permissive or discretionary and operates
to confer discretion, in contrast to the word “shall” which is imperative and operates to impose a duty
which may be enforced. This is also being consistent as well with local autonomy which is the hallmark
of the LGC itself.
NB: Recourse may be taken to Sec. 5 of the Code itself which provides for the rules of its
interpretation, and in part read as follows: “Any provision on a power of a local government unit shall
be liberally construed in its favor, and in case of doubt, any question thereon shall be resolved in
favor of devolution of powers and of the local government unit. Any fair and reasonable doubt as to
the existence of the power shall be interpreted in favor of the local government unit concerned.”
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b. For Special Levy on Idle Lands and Special Levy on Public Works
(Special Assessments): Land Only
3. Rates of levy******
a. In a Province - at the rate not exceeding 1% of the assessed value of
real property; and
b. In a City or Municipality within156 the Metro Manila157 area - at the
rate not exceeding 2% of the assessed value158 of real property. (Sec. 233,
LGC)
4. Ordinance imposing special levy for public works must contain the following:
a. The ordinance shall
i. Describe the nature, extent, and location of the project;
ii. State estimated cost;
iii. Specify metes and bounds by monuments and lines
b. It must state the number of annual installments, not less than 5 years
nor more than 10 years. NB: In the apportionment of special levy, Sanggunian
may fix different rates depending whether such land is more or less benefited by
the proposed work
c. Notice to the owners and public hearing (Sec. 242, LGC)
d. Owner can appeal to the LBAA and CBAA
5. *****Special levy or special assessment by LGUs159 - A province, city or
municipality may impose a special levy on the lands within its territorial
156One of the local government units below does NOT have the power to impose real property tax:
(2012 BAR) a) Bacoor, Cavite; b) Davao City; c) Tarlac Province; d) Malabon, Metro Manila.
SUGGESTED ANSWER: a) Bacoor, Cavite. Section 200, RA 7160.[Note: The answer above is
premised on the belief that Bacoor is a municipality and ******the LGC does not vest
municipalities with the power to impose real property taxes, except for municipalities within
the Metropolitan Manila area. However, Bacoor is already a city hence, can no longer be a correct
choice. Since the question did not provide for the CORRECT answer, it should be treated as a bonus.]
157A municipality may levy an annual ad valorem tax on real property such as land, building, machinery,
and other improvement only if: (2011 Bar Question)
(A) the real property is within the Metropolitan Manila Area.
(B) the real property is located in the municipality.
(C) the DILG authorizes it to do so.
(D) the power is delegated to it by the province.
158For purposes of real property taxes, the tax rates are applied on: (2012 BAR) a) Zonal values; b) Fair
market value; c) Assessed values; d) Reproduction values. SUGGESTED ANSWER: c) Assessed
values Section 233, RA 7160.
159SECTION 240. Special Levy by Local Government Units. - A province, city or municipality may a
special levy on the lands comprised within its territorial jurisdiction specially benefited by public works
projects or improvements funded by the local government unit concerned: Provided, however, That the
special levy shall not exceed sixty percent (60%) of the actual cost of such projects and
improvements, including the costs of acquiring land and such other real property in connection
therewith: Provided, further, That the special levy shall not apply to lands exempt from basic real
property tax and the remainder of the land portions of which have been donated to the local
government unit concerned for the construction of such projects or improvements.
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160 *****After the province has constructed a barangay road, the Sangguniang Panglalawigan may
impose a special levy upon the lands specifically benefitted by the road up to an amount not to
exceed: (2011 Bar Question) (A) 60% of the actual cost of the road without giving any portion to
the barangay. (B) 100% of the actual project cost without giving any portion to the barangay. (C)
100% of the actual project cost, keeping 60% for the province and giving 40% to the barangay.(D) 60%
of the actual cost, dividing the same between the province and the barangay.
[] Q: In view of the street widening and cementing of roads and improvement of drainage and
sewers in the district of Ermita, the City Council of the City of Manila passed an ordinance imposing
and collecting a special levy on lands in the district. Jose filed a protest against the special levy
fifteen (15) days after the last publication of the ordinance alleging that the maximum rate of
sixty percent (60%) of actual cost of the project allowed under Sec. 240 of the Local
Government Code was exceeded. Assuming that Jose Reyes is able to prove that the rate of special
levy is more than the aforesaid percentage limitation, will his protest prosper? (1991 Bar) A: No.
******His basis for the protest was the unreasonably excessive payment. Payment under protest
is thus an administrative precondition for the suit. ALTERNATIVE: The special levy under the Real
Property Tax Code on lands, specially benefited by the proposed infrastructure, may not exceed sixty
per cent (60%) of the cost of said improvement. All lands comprised within the district benefited
are subject to the special levy except lands exempt from the real property tax (Sec. 47. RPT). The
protest shall be filed not later than 30 days after the publication of the ordinance and may be
submitted to the City Sanggunian signed by a majority of the landowners affected by the proposed
work. If no such protest is filed in the manner above specified, the city ordinance shall become final
and effective. The levy imposed under the ordinance should be within the limit of sixty percent
(60%) of the total cost of the proposed improvement. The rate of two percent (2%) of the
assessed value under Sec. 39 of P.D. 464 refers to the real property tax and not to special levies.
(BAR 1991)
161The City Government of Manila may NOT impose: a) Basic real property tax at 2% of the assessed
value of real property; b) Additional levy on real property for the special education fund at 1% of the
assessed value of real property; c) Additional ad valorem tax on idle lands at a rate not exceeding 5% of
the assessed value; d) Special levy on lands within its territory specially benefited by public works
projects or improvements funded by it at 80% of the actual cost of the projects or improvements.
SUGGESTED ANSWER: d) Special levy on lands within its territory specially benefited by
public works projects or improvements funded by it at 80% of the actual cost of the projects or
improvements Section 240, RA 7160. [TOM: it says 60%]
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Q: May local governments impose an annual realty tax in addition to the basic real
property tax on idle or vacant lots located in residential subdivisions within their
respective territorial jurisdictions? (2000 Bar) A: Not all local government units
may do so. Only provinces, cities, and municipalities within the Metro Manila area
(Sec. 232, LGC) may impose an ad valorem tax not exceeding five percent (5%) of
the assessed value (Sec. 236, Ibid.) of idle or vacant residential lots in a
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162A inherited a two-storey building in Makati from his father, a real estate broker in the ‘Os (sic). A
group of Tibetan monks approached A and offered to lease the building in order to use it as a
venue for their Buddhist rituals and ceremonies. A accepted the rental of PI million for the whole
year. The following year, the City Assessor issued an assessment against A for non- payment of
real property taxes. Is the assessor justified in assessing A’s deficiency real property taxes? Explain.
(3%) SUGGESTED ANSWER: No. *****The property is exempt from real property tax by virtue of
the beneficial use thereof by the Tibetan monks for their religious rituals and ceremonies. A
property that is actually, directly and exclusively used for religious purposes is exempt from the real
property tax (Sec. 234, LGC; Sec. 28(3), Article IV, Phil. Constitution). ******The test of exemption
from the tax is not ownership but the beneficial use of the property (City of Baguio v. Busuego,
L-29772, Sept. 18, 1980).
163 The Manila International Airport Authority (MIAA) is exempt from real property tax. Which
statement below is NOT correct? (2012 BAR)a) MIAA is not a government-owned or controlled
corporation because it is not organized as a stock or non-stock corporation; b) MIAA is a government
instrumentality vested with corporate powers and performing essential public services; c) MIAA is not
a taxable entity because the real property is owned by the Republic of the Philippines and the beneficial
use of such property has not been granted to a private entity; d) MIAA is a government-owned or
controlled corporation because it is required to meet the test of economic viability. SUGGESTED
ANSWER: d) MIAA is a government-owned or controlled corporation because it is required to
meet the test of economic viability. MIAA v. City of Pasay. G.R. No. 163072, April 2, 2009.
164 Q: Are the airport lands and buildings of Manila International Airport Authority (MIAA) exempt
from real estate tax under existing laws? A: YES. First, *****MIAA is not a GOCC but an
instrumentality of the National Government and thus exempt from local taxation. MIAA is a
government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality; the only difference is that MIAA
is vested with corporate powers. Second, the real properties of MIAA are owned by the Republic
of the Philippines and thus exempt from real estate tax. Airport lands and buildings are outside
the commerce of man. The airport lands and buildings of MIAA are devoted to public use and thus
are properties of public dominion. (MIAA v. CA, City of Paranaque, et al., G.R. No. 155650, July 20,
2006)
vs. MCIAA: Since the last paragraph of Section 234 unequivocally withdrew upon the
effectivity of the LGC, exemption from payment of real property tax granted to natural or juridical
persons including government-owned or controlled corporations, except as provided in the said
section, and the petitioner is undoubtedly a government-owned corporation it necessarily follows that
its exemption from such tax granted it in Section 14 of its Charter, RA No. 6958, has been withdrawn.
Furthermore, note that Section 40(a) of PD 464 as reproduced in Section 234(a), the phrase “and any
GOCC so exempt by its charter” was excluded in the enumeration of exemption from real property
tax. (Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, Sept. 11, 1996)
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167NB: Pollution control and infrastructure devices refers to infrastructure, machinery, equipment and/
or improvements used for impounding, treating or neutralizing, precipitating, filtering, conveying and
cleansing mine industrial waste and tailings as well as eliminating or reducing hazardous effects of solid
particles, chemicals, liquids or other harmful by-products and gases emitted from any facility utilized in
mining operations for their disposal (RA No. 7942, Sec. 3)
168 Q: Are the transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO exempt from real property taxes? A: NO. The transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO are no longer exempted from real property tax
based on its franchise, and may qualify as "machinery" subject to real property tax under the
LGC. MERALCO is a public utility engaged in electric distribution, and its transformers, electric posts,
transmission lines, insulators, and electric meters constitute the physical facilities through which
MERALCO delivers electricity to its consumers. Each may be considered as one or more of the
following: a "machine," "equipment," "contrivance," "instrument," "appliance," "apparatus," or
“installation." The Court highlights that under Sec. 199(o) of the LGC, machinery, to be deemed real
property subject to real property tax, need no longer be annexed to the land or building as these
"may or may not be attached, permanently or temporarily to the real property," and in fact, such
machinery may even be "mobile." The same provision though requires that to be machinery subject
to real property tax, the physical facilities for production, installations, and appurtenant service
facilities, those which are mobile, self-powered or self-propelled, or not permanently attached to the
real property (a) must be actually, directly, and exclusively used to meet the needs of the particular
industry, business, or activity; and (2) by their very nature and purpose, are designed for, or
necessary for manufacturing, mining, logging, commercial, industrial, or agricultural
purposes.As the Court pointed out earlier, the ruling in the 1964 MERALCO case - that the electric
poles (including the steel towers) of MERALCO are not subject to real property tax - was primarily
based on the express exemption granted to MERALCO under its previous franchise. The 1964
MERALCO case do not hold true anymore under the Local Government Code. (MERALCO v. City
Assessor, G.R. No. 166102, August 5, 2015)
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duty to justify the exemption by words too plain to be mistaken and too
categorical to be misinterpreted (Radio Communications of the Philippines , Inc.
v. Provincial Assessor of South Cotabato, A.C. No. 5637, April 13, 2005).171
e. GSIS is not exempt from RPT only from 1992-1996.172
——————————————————
171 Q: In 1957, R.A. 2036 granted RCPI a 50 year franchise and Sec. 14 thereof mandates it to pay
the taxes required by law on real estate, buildings and other personal property except radio equipment,
machinery and spare parts needed in connection with its business. In consideration of the franchise, a
tax equal to one and one-half per centum of all gross receipts from the business transacted under this
franchise by the grantee shall be paid and such shall be in lieu of any tax collected by any authority. The
municipal treasurer of Tupi, South Cotabato subsequently assessed RCPI real property tax on
its radio station building, machinery shed, radio station tower and its accessories and generating
sheds. RCPI protested such assessment. Is RCPI liable to pay real property tax on the said properties?
A: YES. RCPI’s radio relay station tower, radio station building, and machinery shed are real properties
and are thus subject to real property tax. The “in lieu of all taxes” clause in Section 14 of R.A. 2036, as
amended by R.A. 4054, cannot exempt RCPI from the real estate tax because the same Section 14
expressly states that RCPI “shall pay the same taxes on real estate, buildings.” Subsequent legislations
have radically amended the “in lieu of all taxes” clause in franchises of public utilities. The Local
Government Code of 1991 “withdrew all the tax exemptions existing at the time of its passage —
including that of RCPI’s” with respect to local taxes like the real property tax. Also, R.A. 7716
abolished the franchise tax on telecommunications companies effective 1 January 1996. To replace the
franchise tax, R.A. 7716 imposed a 10% VAT on telecommunications companies under Sec.102, NIRC.
Lastly, it is an elementary rule in taxation that exemptions are strictly construed against the taxpayer and
liberally in favor of the taxing authority. It is the taxpayer’s duty to justify the exemption by words too
plain to be mistaken and too categorical to be misinterpreted (Radio Communications of the
Philippines , Inc. v. Provincial Assessor of South Cotabato, A.C. No. 5637, April 13, 2005).
172Q: Is GSIS exempt from real property taxes? A: YES. Pursuant to Sec. 33 of P.D. 1146, GSIS
enjoyed tax exemption from real estate taxes, among other tax burdens, until January 1, 1992
when the LGC took effect and withdrew exemptions from payment of real estate taxes privileges
granted under PD 1146. R.A. 8291 restored in 1997 the tax exempt status of GSIS by reenacting
under its Sec. 39 what was once Sec. 33 of P.D. 1146. If any real estate tax is due, it is only for the
interim period, or from 1992 to 1996, to be precise. (GSIS v. City Treasurer and City Assessor of the
City of Manila, G.R. No. 186242, Dec. 23, 2009)
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approved zonal valuation of the Bureau of Internal Revenue prevailing at the time
of the sale, cession, transfer and conveyance, whoever is higher, as evidenced by
the certificate of payment of the capital gains tax issued therefore.” Is the said
proviso valid? A: NO. The said proviso mandates an exclusive rule in determining
the fair market value and departs from the established procedures such as sales
analysis approach, the income capitalization approach and reproduction cost
approach under the rules implementing the statute. (Local Assessment Regulation
No. 1-92) It unduly interferes with the duties statutorily placed upon the local
assessor by completely dispensing with his analysis and discretion which the LGC
ad the regulations require to be exercised. (Allied Banking Corporation, v. Quezon
City Government, G. R. No. 154126, Oct. 11, 2005)
include the mode of transfer, the description of the property alienated, the name
and address of the transferee. (Sec. 208, LGC)
6. Duty of the Registrar of Deeds before entering the real property in the registry:
It is to require every person who shall present for registration a document of
transfer, alienation, or encumbrance of real property to accompany the same with
a certificate to the effect that the real property subject has been fully paid of all
real property taxes due. Failure to provide such certificate shall be a valid cause for
the refusal of the registration of the document. (Sec. 209[B], LGC)
provincial capitol, city or municipal hall and in two other conspicuous public
places therein. (Sec. 212, LGC)
3. The following are the procedure in Preparation of Schedule of Fair Market
Values; Determining the assessed value; adn Determining the real property tax
a. Preparation of Schedule of Fair Market Values
i. A schedule of fair market values (SMV) is prepared by the
provincial, city and municipal assessor of the municipalities within the
Metropolitan Manila Area for the different classes of real property situated in
their respective local government units.
ii. Respective sanggunians enact ordinance adopting the SMV.
iii. The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or municipality concerned
or in the absence thereof, shall be posted in the provincial capitol, city or
municipal hall and in two other conspicuous public places therein. (Sec. 212, LGC)
b. Determining the assessed value - To determine the assessed value, the fair
market value of the property is multiplied by the assessment level as determined
from an ordinance promulgated by the sanggunian concerned.
c. Determining the real property tax - Real property tax is computed by
multiplying the assessed value with the applicable RPT rate.
g. Special
2. Special classes of real property; Lands, buildings, and other improvements
thereon which are:
a. Actually, directly and exclusively used for hospitals, cultural, or scientific
purposes;
b. Owned and used by local water districts;
c. Owned and used by Government-owned or controlled corporations
rendering essential public services in the supply and distribution of water and/or
generation and transmission of electric power. (Sec. 216, LGC) NB: Special classes
of real property have lower assessment level compared with other classes of real
property.
173The real property of Mr. and Mrs. Angeles, situated in a commercial area in front of the public
market, was declared in their Tax Declaration as residential because it had been used by them as their
family residence from the time of its construction in 1990. However, since Januray 1997, when the
spouses left for the United States to stay there permanently with their children, the property has
been rented to a single proprietor engaged in the sale of the appliances and agri-products. The
Provincial Assessor reclassified the property as commercial for tax purposes starting January 1998.
Mr. and Mrs. Angeles appealed to the Local Board of Assessment Appeals, contending that the
Tax Declaration previously classifying their property as residential is binding. How should the
appeal be decided? (2002) A: The Appeal should be decided against Mr. and Mrs. Angeles. *****The
law imposes the tax based on the actual use of the property for classification, valuation and
assessment purposes regardless of ownership. Section 217 of the Local Government Code provides
that “real property shall be classified, valued and assessed on the basis of its actual use
regardless of where located, whoever owns it, and whoever uses it”.
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from the date of any such cause or causes occurred, and shall take effect at the
beginning of the quarter next following the reassessment. (Sec. 221, LGC)174
of the punong barangay to the last known address of the person to be served.
(Sec. 223, LGC)
2. Classification of Machineries: (Sec. 199[o], LGC) (Not part of BAR Coverage)
a. Realty by Destination – machinery essential to the business NB: Movable
equipments to be immobilized in contemplation of the law must first be “essential
and principal elements” of an industry or works without which such industry or
works would be “unable to function or carry on the industrial purpose for which it
was established.” (Mindanao Bus Co. v. City Assessor, G.R. no. L-17870,
September 29, 1962)
b. Realty by Incorporation – Machinery permanently attached
3. Appraisal and Assessment of Machinery
a. For brand new machinery, FMV is the acquisition cost
b. In all other cases:
FMV=Remaining of Eco. Life x Replacement(or Reproduction) cost
Estimated Economic Life
c. Depreciation allowance:
i. Rate not exceeding 5% of original cost OR replacement or
reproduction cost for each year of use;
ii. Remaining value shall be fixed at not less than 20% of the cost;
iii. Machinery remains useful and in operation
4. MACHINERY FOR PURPOSES OF RPT [Sec 199(o)]
a. Machinery embraces machines, equipment or instruments which may or
may not be permanently or temporarily attached to the real property.
b. It includes physical facilities for production, which are ACTUALLY,
DIRECTLY and EXCLUSIVELY used to meet the needs of a PARTICULAR
business or industry.
c. SC: underground tank, storage tank, pipeline are considered machineries
subject to RPT because they are used for the BUSINESS of the TP.
——————————————
E. Collection of Real Property Tax
E1. Date of Accrual of Real Property Tax and Special Levies
1. Accrual of Real Property Tax: Real property tax for any year shall accrue on the
first day of January. From that date it shall constitute a lien on the property
superior to any other lien, mortgage, or encumbrance of any kind whatsoever
extinguished only upon the payment of the delinquent tax. (Sec. 246, LGC)
XPN: Treasurer may deputize the barangay treasurer to collect all taxes on
real property located in the barangay , provided that:
a. The barangay treasurer is properly bonded for the purpose:
provided, further,
b. The premium on the bond shall be paid by the city or municipal
government concerned. (Sec. 247, LGC)
6. Proceeds of the special levy - The proceeds of the special levy on lands
benefited by public works, projects and other improvements shall accrue to the
general fund of the local government unit which financed such public works,
projects or other improvements (Sec. 274, LGC).
175Ms. Edna Dinoso is the registered owner of a residential lot with a two-story house situated
in Naga City. The lot with an area of 328 sq. meter is described and covered by TCT No. 4739 of the
Registry of Deeds of Naga City. On September 12. 1977, a 115 sq. meter portion of Edna’s
property was expropriated by the Republic of the Philippines for the sum of P6.700.00 representing
the assessed value of the aforesaid portion: This amount was deposited by the Government in Edna’s
account. For almost ten (10) years, Edna failed to pay her real estate taxes on the same property.
Thus, on November 5, 1977, her property was sold at public auction by the City Treasurer of
Naga City to satisfy her real estate tax delinquencies amounting to P5,800.00. The highest bidder
for the property was Angel Chua. Edna was not present at the public auction although she later
admitted having received the notice of hearing for the petition for entry of a new certificate of title by
Angel Chua. (Both the auction sale and the final bill of sale were annotated at the back of TCT No.
4739 by the Register of Deeds.) On March 15, 1979, Edna filed a complaint to annul the auction
sale which was denied by the CFI Judge of Naga City. In fact, the CFI Judge ordered the TCT #
4739 of Edna be cancelled and that a new title be issued to Angel Chua. On appeal, the Court of
Appeals affirmed the CFI decision in toto. Edna then elevated the case to the Supreme Court citing
several grave errors of law, among which are: 1. That her tax delinquencies (involving P5,800.00) for
non-payment of real estate taxes were offset by the sum of P6,700.00 which the government of the
Philippines owed her. She claims that her tax delinquencies have been extinguished by legal
compensation; 2. That the price of P5,800.00 paid by Angel Chua was grossly inadequate and that
because of its inadequacy, the same is tantamount to deprivation of property without due process of
law; 3. That the public auction made on her property is void. Discuss the merits of the appeal.
ANSWER:1. The decision of the Court of Appeals affirming the CFI decision must be affirmed.
On the procedural aspect, it has not been shown, as required under the Real Property Tax Code that
plaintiff has paid the amount for which the real property has been sold plus interest. *****On the claim
of extinction of tax liability by legal compensation, there is jurisprudence to the effect that the
doctrine of equitable recoupment does not apply in this Jurisdiction. Assuming it does, the facts
of the case bear out that the Government does not owe the plaintiff any amount; 2. On the claim that
the price for the property was grossly inadequate, the Real Property Tax Code specifically mentions
that the sale of real property at public auction is “to satisfy all the taxes and penalties due and
costs of sale" (Sec. 73). *****Thus, the selling price is based not on the fair market value of the
property sold at public auction but the amount of real property taxes due thereon. In any case, the
delinquent taxpayer is given one year from the date of registration of the sale within which to
redeem the property by paying the taxes due plus costs and interest. 3. On the claim that the public
auction made on the property is void, the Real Property Tax Code provides (Sec. 83,2nd par.) that
*****a court shall not declare a sale invalid due to irregularities in the proceedings unless such
irregularities have impaired the substantial rights of the taxpayer. In the case at bar, the plaintiff
received a notice of hearing for the petition for entry of a new certificate of title during which she
could have questioned any irregularity in the conduct of the sale. (BAR 1992)
Sancte Mattheus, ora pro nobis! ! 167 of !395
176Q: Quezon City published on January 30, 2006 a list of delinquent real property taxpayers in 2
newspapers of general circulation and posted this in the main lobby of the City Hall. The notice
requires all owners of real properties in the list to pay the real property tax due within 30 days from
the date of publication, otherwise the properties listed shall be sold at public auction. Joachin is one
of those named in the list. He purchased a real property in 1996 but failed to register the
document of sale with the register of Deeds and secure a new real property tax declaration in his
name. He alleged that the auction sale of his property is void for lack of due process
considering that the City Treasurer did not send him personal notice. For his part, the City
Treasurer maintains that the publication and posting of notice are sufficient compliance with the
requirements of the law.
a. If you were the judge, how will you resolve this issue? A: I will resolve the issue in favor of
Joachin. *****In auction sales of property for tax delinquency, notice to delinquent landowners
and to the public in general is an essential and indispensable requirement of law, the non-fulfillment
of which vitiates the same. (Tiongco v. Phil. Veterans Bank, G.R. No. 82782, Aug. 5, 1992) *****The
failure to give notice to the right person i.e., the real owner, will render an auction sale void.
(Tan v. Bantegui, G.R. No. 154027, Oct. 24, 2005; City Treasurer of Q.C. v. CA, G.R. No. 120974, Dec.
22, 1997)
b. Assuming Joachin is a registered owner, will your answer be the same? (2006 Bar) A:
YES. The law requires that a notice of the auction sale must be properly sent to Joachin and not
merely through publication. (Tan v. Bantegui, G.R. No, 154027, October 24, 2005; Estate of
Mercedes Jacob v. CA, G.R. No. 120435, Dec. 22, 1997)
Sancte Mattheus, ora pro nobis! ! 168 of !395
↓
Warrant of levy issued by LT which has the force of legal execution in the LGU
concerned, Warrant of levy issued by LT, which has the force of legal execution
in the LGU concerned. If property is not redeemed, a final deed of sale shall be
issued to the purchaser.
↓
Warrant mailed to or served upon the delinquent owner. Written notice of levy
and warrant is mailed/served upon the assessor and the Register of Deeds of
the LGU (Sec. 258, LGC)The local treasurer shall purchase the property on
behalf of the LGU if:
a.) There is no bidder b.)The highest bid is insufficient to pay the deficiency tax
(Sec. 181, LGC)
↓
Before the
date of sale
the owner
30 days from
may stay the
service of
proceedings
warrant, LT shall Sale is held (Sec. 260,
by paying the ← →
advertise sale of LGC)
delinquent
property (Sec.
tax, interest
260, LGC)
and expenses
of sale (Sec
260, LGC)
↓ ↓
Sancte Mattheus, ora pro nobis! ! 169 of !395
IF there is no bidder OR
highest bid is insufficient
to pay real property tax
IF there is a bidder AND highest bid is and related interest and
sufficient to pay real property tax and related costs, LT shall purchase
interests and costs, bidder pays and treasurer the prop in behalf of
reports sale to sanggunian 30 days after the the LGU.
sale. LT will deliver to purchaser the
certificate of sale. Proceeds of sale in excess Registrar of Deeds shall
of delinquent tax, interest, expenses of sale transfer the title of
remitted to owner. (Sec. 260, LGC) forfeited prop to LGU
without need of Court
Within one year from sale, owner may redeem order.
upon payment of the delinquent tax, interest
due, expenses of sale (from date of Within one year from
delinquency to date of sale), and additional forfeiture, owner may
interest of 2% per month on the purchase redeem prop by paying
price from date of sale to date of redemption. to Treasurer full amount
Delinquent owner retains possession and right of tax, interest, costs of
to the fruits. Price paid plus interest of 2% sale (Sec.
per month shall be returned to the buyer. (Sec. 263, LGC)
261, LGC)
Sanggunian concerned
IF not redeemed, deed of conveyance shall be may by ordinance, sell/
issued to the purchaser. (Sec. 262, LGC) dispose by public
auction of prop acquired
by forfeiture. (Sec. 264,
LGC)
↓
Levy may be repeated until full amount due; including all expenses is collected
(Sec. 265, LGC)
———————————————-
177 Apparently the law does not provide for the refund of real property taxes that have been collected
as a result of an erroneous or illegal assessment by the provincial or city assessor. What should be done
in such instance to avoid an injustice? (2011 Bar Question) (A) Question the legality of the no-refund
rule before the Supreme Court. (B) Enact a new ordinance amending the erroneous or illegal
assessment to correct the error. (C) Subsequent adjustment in tax computation and the
application of the excess payment to future real property tax liabilities. (D) Pass a new ordinance
providing for the refund of real property taxes that have been erroneously or illegally collected.
Sancte Mattheus, ora pro nobis! ! 171 of !395
c. In the event that the protest is finally decided in favor of the taxpayer, the
amount or portion of the tax protested shall be refunded to the protestant, or
applied as tax credit against his existing or future tax liability.
d. In the event that the protest is denied or upon the lapse of the sixty
day period, the taxpayer may avail (sic) appeal the assessment before the Local
Board of Assessment Appeals. (Sec. 252, LGC)
e. In case there is adverse decision by the LBAA, the taxpayer may
appeal with the CBAA within 30 from receipt of the adverse decision by the
LBAA.179
2. XPN: The protest contemplated in Section 252 of the LGC is needed when
there is a question as to the reasonableness of the amount assessed, not where
the question raised is on the very authority and power of the assessor to
impose the assessment and of the treasurer to collect the tax. (Ty v. Trampe, G. R.
No. 117577, December 1, 1995)
179Q: Madam X owns real property in Caloocan City. On July 1, 2014, she received a notice of
assessment from the City Assessor, informing her of a deficiency tax on her property. She wants to
contest the assessment.
a. What are the administrative remedies available to Madam X in order to contest the
assessment and their respective prescriptive periods? A: The administrative remedies available to
Madam X to contest the assessment and their respective prescriptive periods are as follows: i) Pay the
deficiency real property tax under protest (Section 252, LGC); ii) File the protest with the local
treasurer – The protest in writing must be filed within 30 days from payment of the tax to the
provincial, city, or municipal treasurer, in the case of a municipality within Metropolitan Manila Area,
who shall decide the protest within 60 days from receipt (Section 252, LGC); iii) Appeal to the
LBAA – If protest is denied or upon the lapse of the 60-day period for the treasurer to decide, the
taxpayer may appeal to the LBAA within 60 days and the case decided within 120 days (Section
226 & 229, LGC); iv) Appeal to the CBAA – If not satisfied with the decision of the LBAA, appeal to
the CBAA within 30 days from receipt of a copy of the decision (Section 229(c), LGC).
b. May Madam X refuse to pay the deficiency tax assessment during the pendency of her
appeal? (2014 Bar) A: NO. ******The payment of the deficiency tax is a condition before she can
protest the deficiency assessment. It is the decision on the protest or inaction thereon that gives
her the right to appeal. This means that she cannot refuse to pay the deficiency tax assessment during
the pendency of the appeal because it is the payment itself which gives rise to the remedy. The law
provides that no protest (which is the beginning of the disputation process) shall be entertained unless
the taxpayer first pays the tax (Section 252, LGC).
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G. Taxpayer’s Remedies
[] Available remedies to the taxpayer under real property taxation
a. Dispute assessment (Protest)
i. Any owner or person having legal interest in the property who is
not satisfied with the action of the assessor in the assessment of his property; or
ii. Any owner of real property affected by a special levy or any person
having legal interest therein may protest the assessment by filing an appeal to the
LBAA within 60 days from receipt of notice of the assessment.
b. Claim for refund or tax credit
c. Redemption of Real Property (Sec. 261, LGC)
d. Judicial
i. Court Action
(a) Appeal to the CTA en banc within 15 days from receipt
in case of adverse decision by the Central BAA180
(b) Appeal by certiorari with the SC within 15 days from
notice in case of adverse decision by the CTA.
ii. Suit assailing the validity of the tax sale (Sec. 267, LGC)
180 Q: A Co., a Philippine corporation, is the owner of machinery, equipment and fixtures located
at its plant in Muntinlupa City. The City Assessor characterized all these properties as real
properties subject to the real property tax. A Co. appealed the matter to the Muntinlupa Board of
Assessment Appeals. The Board ruled in favor of the City. A Co. brought a petition for review before
the CTA to appeal the decision of the City Board of Assessment Appeals. Is the Petition for Review
proper? Explain. (1999 Bar) A: NO. *****The CTA is devoid of jurisdiction to entertain appeals
from the decision of the City Board of Assessment Appeals. Said decision is instead appealable
to the Central Board of Assessment Appeals, which under the Local Government Code, has
appellate jurisdiction over decisions of Local Board of Assessment Appeals. (Caltex Phils. v.
CBAA, G.R. No. L50466, May 31, 1982)
[] NB: The CTA is the proper appellate court if the appeal was from the Central BAA, not the
City BAA. Central BAA is the last administrative tribunal a taxpayer can go before it can file a judicial
appeal. The next step would be to go to the Courts, which would be the CTA.
[] RE CTA jurisdiction includes: ******“Expanded jurisdiction of the CTA under RA 9282
(2010 Bar) xxx Appellate jurisdiction over decisions of the Central Board of Assessment Appeals
(CBAA) in the exercise of their appellate jurisdiction over cases involving the assessment of taxation of
real property. (R.A. 9282)"
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(a) Deposit of amount for which the real property was sold
together with interest of 2% per month from date of sale to the time of
institution of action.
↓
Protest Taxpayer pays the tax then Protest is denied or
decided in files a protest within thirty upon the lapse of
favor of the (30) days from payment of sixty (60) day period
taxpayer, the the tax with the treasurer who in which the
amount or shall decide within sixty (60) treasurer must
portion of the days from receipt (Sec. 252[a], decide, taxpayer
tax protested LGC) → may appeal with the
shall be LBAA (Sec. 226,
refunded or LGC) who shall
applied decide the appeal
as tax credit within 120 days
(Sec. 252 [c], from receipt (Sec.
LGC) 229, LGC)
↓
If the LBAA rejects
the protest, the
owner may appeal
to CBAA within 30
days from receipt
of decision of the
LBAA (Sec. 229 [c],
LGC)
↓
exported to, a foreign country (Garcia v. Executive Secretary, G.R. No. 101273,
July 03, 1992). NB: Customs duties and tariffs are synonymous with one another
because they both refer to taxes imposed on imported and exported wares, articles
or merchandise.
Customs valuation
1. Customs valuation is a procedure for determining the customs value of
imported goods. If the rate of duty is ad valorem, the customs value is essential to
determine the duty to be paid on an imported good.
2. Computation of customs duties - The importer/broker shall compute the
duties and taxes using the appropriate valuation method. There are two processes
involved in the computation of customs duties on imported articles:
a. Classification of the articles into their appropriate tariff heading;
b. Determination of the valuation if the rate is ad valorem or mixed.
Sancte Mattheus, ora pro nobis! ! 182 of !395
TRANSACTION VALUE182
1. TRANSACTION VALUE: The DUTIABLE VALUE of an IMPORTED
article subject to an AD VALOREM183 rate of duty shall be the
TRANSACTION VALUE, which is the PRICE ACTUALLY PAID or PAYABLE
for the GOODS when sold for export to the Philippines.
2. TRANSACTION VALUE OF IDENTICAL GOODS: The DUTIABLE
VALUE shall be the transaction value of identical goods sold for export to the
Philippines and EXPORTED AT or ABOUT the SAME TIME as the goods
being valued;
3. TRANSACTION VALUE OF SIMILAR GOODS: where the DUTIABLE
VALUE CANNOT BE DETERMINED under the preceding method, the DV
shall be the transaction value of SIMILAR goods for export to the Philippines
and exported at or about the same time as the goods being valued.
182*The dutiable value of an imported article subject to an ad valorem rate of duty under existing law
shall be: (2012 Bar Question)
a) The home consumption value;
b) The total value;
c) The total landed cost;
d) The transaction value [Section 201, Tariff and Customs Code, as amended by RA 8181
dated March 28, 1996]
[] On what is the dutiable value of any imported article based? ANSWER: The dutiable
value of imported articles is the home consumption cost value, i.e., the cost or fair market value
or price of the imported articles in wholesale quantities in the principal market of the exporting
country or country of origin, including expenses collected from importation such as insurance,
freight, packaging, loading and unloading charges but excluding internal excise taxes. In case
such value is unascertainable, the Commissioner may also determine the home consumption value from
any reliable and available data (Sec. 20l.TCC, as amended: Commissioner vs. Court of Tax Appeals, G.R
No. 72069,21 May 1988). (BAR 1991)
183 State and explain the basis of dutiable value of an imported article subject to an ad valorem
tax under the Tariff and Customs Code. SUGGESTED ANSWER: *****The basis of dutiable value
of an imported article subject to an ad valorem tax under the Tariff and Customs Code is its
transaction value. (Sec. 201 (A), Tariff and Customs Code, as amended by R.A. No. 9135). If such
value could not be determined, then the following values are to be utilized in their sequence:
Transaction value of identical goods (Secs. 201 (B), Ibid; Sec. II. C.l, C.A.O. No. 4-2004); Transaction
value of similar goods (Sec. 201 (C), Ibid.; Sec. II, D. 1, C.A.O. No. 4-2004); Deductive value (Sec. II,
E. 1, C.A.O. No. 4-2004); Computed value (Sec. n, F.l, C.A.O. No. 1-20040) and Fallback value (Sec.
201 (F), Ibid.) ANOTHER SUGGESTED ANSWER: The basis of dutiable value of an imported
article subject to an ad valorem tax under the Tariff and Customs Code is its transaction value which
shall be the price actually paid or payable for the goods when sold for export to the Philippines,
adjusted by adding certain cost elements to the extent that they are incurred by the buyer but are
not included in the price actually paid or payable for the imported goods (Sec. 201(A), Tariff and
Customs Code, as amended by R.A. No. 9135) If such value could not be determined, then the
following values are to be utilized in their sequence: Transaction value of identical goods (Sec. 201 (B)
ibid; Sec. n, C. 1, C.A.O. No. 4-2004); Transaction value of similar goods (Sec. 201 (C), Ibid,; Sec. n, D.l,
C.A.O. No. 4-2004); Deductive value (Sec. 11, E.l, C.A.O. No. 4-2004); Computed value (Sec. II, F.l,
C.A.O. No. 1-20040) and Fallback value (Sec. 201 (F) ibid.) (BAR 2005)
Sancte Mattheus, ora pro nobis! ! 183 of !395
BERTHING CHARGE
1. The amount assessed against a VESSEL for
a. MOORING or DOCKING at a PIER, WHARF, bulkhead-wharf,
RIVER or CHANNEL marginal wharf at ANY PORT in the Philippines;
b. or for MOORING or making FAST to a vessel so berthed;
c. or for berthing or mooring within any SLIP, CHANNEL, BASIN RIVER
or CANAL under the jurisdiction of any port of the Philippines.
2. The OWNER/AGENT/OPERATOR/MASTER of the vessel is LIABLE for
this charge.
3. ****Comm of Customs v. CTA-Litonjua, 21 July 1993: our considered opinion
that under Section 2901 of the Tariff and Customs Code, as amended by
Presidential Decree No. 34, only vessels berthing at national ports are liable
Sancte Mattheus, ora pro nobis! ! 184 of !395
for berthing fees. The berthing fees imposed upon vessels berthing at national
ports are applied by the national government for the maintenance and repair of
said ports. The national government does not maintain municipal ports
which are solely maintained by the municipalities or private entities which
constructed them, as in the case at bar. Thus, no berthing charges may be collected from
vessels moored at municipal ports nor may berthing charges be imposed by a municipal council
4. It is to be stressed that there are differences between national ports and
municipal ports, namely:
a. the maintenance of municipal ports is borne by the municipality,
whereas that of the national ports is shouldered by the national government;
b. municipal ports are created by executive order, while national ports are
usually created by legislation;
c. berthing fees are not collected by the government from vessels
berthing at municipal ports, while such berthing fees are collected by the
government from vessels moored a national ports.
Ordinary/Regular Duties
Kinds of Regular Customs Duties:
1. Ad valorem
a. Customs duties that are computed on the basis of value of the imported
article. NB: Customs valuation is a procedure for determining the customs value
of imported goods. If the rate of duty is ad valorem, the customs value is essential
to determine the duty to be paid on an imported good.
b. The importer/broker shall compute the duties and taxes using the
appropriate valuation method. There are two processes involved in the
computation of customs duties on imported articles:
i. Classification of the articles into their appropriate tariff heading;
ii. Determination of the valuation if the rate is ad valorem or mixed.
Q: State and explain the basis of dutiable value of an imported article subject to
an ad valorem tax under the TCC? (2005 Bar Question)A: The basis of dutiable
value of an imported article subject to an ad valorem tax under the TCC is its
transaction value which shall be the price actually paid or payable for the goods
when sold for export to the Philippines, adjusted by adding certain cost elements
to the extent that they are incurred by the buyer but are not included in the price
actually paid or payable for the imported goods. (Sec. 201, TCC). If such value
could not be determined, then the following values are to be used respectively;
transaction value of identical goods, transaction value of similar goods, computed
value and fallback value.
2. Specific duty - Customs duties that are computed on the basis of dutiable
weight of good i.e. a unit of measure such as per kilogram, per liter, etc.
3. Alternating duty - alternates between ad valorem and specific
Sancte Mattheus, ora pro nobis! ! 185 of !395
4. compound duty - Customs duties that impose both ad valorem and specific
customs duties. E.g. 10% ad valorem plus P100 per liter.
Special Duties184
Kinds of Special Customs Duties (Under the TCC):
1. Anti-Dumping Duties
a. imposed on IMPORTED goods where it APPEARS that a SPECIFIC
kind or class of foreign article is being imported into or sold or is LIKELY to
be sold in PH at a PRICE LESS than its fair value
b. Amount generally imposed as anti-dumping duty - The amount imposed
shall be equal to the margin of dumping on such product, commodity or article
and on like product, commodity or article thereafter imported to the Philippines
under similar circumstances, in addition to ordinary duties, taxes and charges
imposed by law on the imported product, commodity or article. (Sec. 3(a), R.A.
8752) NB: If a large quantity of goods were imported from a foreign country into
the Philippines at a very low price, much lesser than the normal value of such
goods, and such importation threatens to cause material injury to our domestic
industry, the remedy is to impose anti-dumping duty in addition to the ordinary
duties, taxes and charges on the imported goods.
Q: What happens when products are not imported directly from the country of
origin but exported to the Philippines from an intermediate country? A: The price
at which the products are sold from the country of export to the Philippines shall
184 Explain briefly each of the special customs duties authorized under the Tariff and Customs Code.
ANSWER: *****The following are the special duties imposed under the Tariff and Customs Code:
1. Dumping Duty - This is a duty levied on imported goods where it appears that a specific kind or
class of foreign article is being imported into or sold or is likely to be sold in the Philippines at a
price less than its fair value:
2. Countervailing Duty - This is a duty equal to the ascertained or estimated amount of the
subsidy or bounty or subvention granted by the foreign country on the production, manufacture, or
exportation into the Philippines of any article likely to injure an industry in the Philippines or
retard or considerable (sic) retard the establishment of such industry:
3. Marking Duty - This is a duty on an ad valorem basis imposed for improperly marked articles.
The law requires that foreign importations must be marked in any official language of the
Philippines the name of the country of origin of the article:
4. Discriminatory or Retaliatory Duty - This is a duty imposed on imported goods whenever it is
found as a fact that the country of origin discriminates against the commerce of the Philippines
in such a manner as to place the commerce of the Philippines at a disadvantage compared with
the commerce of any foreign country. (BAR 1997)
[] Distinguish countervailing duty from dumping duty. (5%) SUGGESTED ANSWER:
*****Countervailing duty is a duty imposed in an amount equal to the ascertained or estimated
amount of the subsidy or bounty or subvention granted by the foreign country on the
production, manufacture or exportation into the Philippines of any article likely to injure an
industry in the Philippines or retard or considerably retard the establishment of such industry. (Section
302, Tariff and Customs Code). On the other hand. Dumping Duty is a duty levied on imported goods
where it appears that a specific kind or class of foreign article is being imported into or sold or is likely
to be sold in the Philippines at a price, less than its fair value. (Section 301, Tariff and Customs
Code). (BAR 2005)
Sancte Mattheus, ora pro nobis! ! 186 of !395
country of origin of such article even though it is not marked to indicate its
origin.
ix. Such article was produced more than twenty years prior to its
importation into the Philippines
x. Such article cannot be marked after importation except at an
expense which is economically prohibitive, and the failure to mark the article
before importation was not due to any purpose of the importer, producer, seller
or shipper to avoid compliance with this section. (Sec. 303, TCC)
4. Retaliatory/Discriminatory Duties185: duty imposed on IMPORTED
goods whenever it is found as a fact that the COUNTRY OF ORIGIN
DISCRIMINATES against the commerce of PH in such a manner as to
place the commerce of PH at a DISADVANTAGE compared with the
commerce of any foreign country. NB: For example, a foreign country imposed
very high and unreasonable duties on Philippine articles entering its jurisdiction,
while not imposing the same high rates on other countries’ goods.
5. Additional tariff imposed as a safeguard measure under the Safeguard
Measure Act (Under R.A. 8800).
a. Purposes:
i. GENERAL – imposed upon goods or products imported in
increased quantities
ii. SPECIAL – volume of imports exceed a base trigger level or price
falls below a trigger price level
5. Comparison of Special Duties
Special Nature Purp Amount Imposing Judicial Review
Duty ose /Rate Authority
*Discriminatory duties may NOT be imposed upon articles: (2011 Bar Question): (A) wholly
185
manufactured in the discriminating country but carried by vessels of another country. (B) not
manufactured in the discriminating country but carried by vessels of such country. (C) partly
manufactured in the discriminating country but carried by vessels of another country. (D) not
manufactured in the discriminating country and carried by vessels of another country.
Sancte Mattheus, ora pro nobis! ! 188 of !395
c. Any order of the President pursuant to this section shall take effect 30
days after, except in the imposition of additional duty not exceeding (10%) ad
valorem which shall take effect at the discretion of the President.
d. The power delegated to the President as provided for in this section shall
be exercised only when Congress is not in session.
e. The power herein delegated may be withdrawn or terminated by Congress
through a joint resolution.
5. Q: What do you understand by the term "flexible tariff clause" as used in the
Tariff and Customs Code? (2001 Bar) A: *****The term "flexible tariff clause"
refers to the authority given to the President to adjust tariff rates under
Section 401 of the Tariff and Customs Code,186 which is the enabling law that
made effective the delegation of the taxing power to the President under the
Constitution.
—————————————————-
B. Requirements of importation
1. The Tariff and Customs Law becomes applicable after importation has begun
and before importation is terminated.
2. The jurisdiction of the BOC to enforce the provisions of the TCC, including
seizure and forfeiture, begins from the commencement of importation. The BOC
loses jurisdiction to enforce the TCC after importation is deemed terminated.
186In view of the unfavorable balance of payment condition and the increasing budget deficit, the
President of the Philippines, upon recommendation of the National Economic and
Development Authority, issues during a recess of Congress an Executive Order imposing an
additional duty on all imports at the rate of ten (10%) percent ad valorem. The Executive Order
also provides that the same shall take effect immediately. Ricardo San Miguel, an importer, questions
the legality of the Executive Order on the grounds that only Congress has the authority to fix the
rates of import duties and, in any event, such an Executive Order can take effect only thirty
(30) days after promulgation and the President has no authority to shorten said period. Are the
objections of Mr. San Miguel tenable? ANSWER: No. The objections are not tenable as the
Executive Order cannot take effect “immediately". Being an “external” law and having the effect
of law, the Executive Order cannot become effective without publication, a requirement of due
process (Tanada vs. Tuvera, 136 SCRA27; Executive Order No. 202). ALTERNATIVE ANSWER:
*****Under the Flexible Tariff Clause (Sec. 401, Tariff and Customs Code), any order issued by the
President thereunder can generally take effect only thirty (30) days after its issuance. In cases
however of an order imposing additional import duties, the law provides that the same can take
effect immediately. (BAR 1991)
Sancte Mattheus, ora pro nobis! ! 192 of !395
must ordinarily be inferred from the facts, and therefore can only be proved by
unguarded expressions, conduct & circumstances general [Feeder Intl v. CA 31
May 1991].
2. DEEMED TERMINATED: upon PAYMENT of duties, taxes and other
charges due upon the articles, or secured to be paid, at the port of entry AND
upon grant of the LEGAL PERMIT for withdrawal.187 ,188 In case the articles
are FREE of duties, taxes and other charges, UNTIL they have LEGALLY
LEFT the JURISDICTION of the customs. (Sec. 103, CMTA). Importation
of goods is deemed terminated: (2012 Bar Question)
a. When the customs duties are paid, even if the goods remain within the
customs premises;
b. When the goods are released or withdrawn from the customs house
upon payment of the customs duties or with legal permit to withdraw;
c. When the goods enter Philippines territory and remain within the
customs house within thirty (30) days from date of entry;
d. When there is part payment of duties on the imported goods located in
the customs area.
3. ******Why is it important to know when importation begins and ends? The
jurisdiction of the BOC to enforce the provisions of the TCC, including
seizure and forfeiture, begins from the commencement of importation. The
BOC loses jurisdiction to enforce the TCC after importation is deemed
terminated.
4. The term "Entry" in Customs Law has a three-fold meaning:
a. The documents filed at the Customs house;
b. The submission and acceptance of the documents; and
187 LEGAL PERMIT FOR WITHDRAWAL NEEDED: Amaretto, Inc., imported 100 cases of
Marula wine from South Africa. The shipment was assessed duties and value-added taxes of
P300,000 which Amaretto, Inc. immediately paid. The Bureau of Customs did not, however, issue
the release papers of the shipment yet since the Food and Drug Administration (FDA) needed
to test the suitability of the wine for human consumption. Is the Bureau of Customs at fault for
refusing to release the shipment just as yet? (2011 Bar Question): (A) Yes, because the importation was
already terminated as a result of the payment of the taxes due. (B) Yes, the Bureau of Customs is
estopped from holding the release of the shipment after receiving the payment. (C) No, if the amount
paid as duties and value-added taxes due on the importation was insufficient. (D) No, because the
Bureau of Customs has not yet issued the legal permit for withdrawal pending the FDA's
findings.
188Importation of goods is deemed terminated: (2012 BAR) a) When the customs duties are paid,
even if the goods remain within the customs premises; b) When the goods are released or withdrawn
from the customs house upon payment of the customs duties or with legal permit to withdraw; c)
When the goods enter Philippines territory and remain within the customs house within thirty (30) days
from date of entry; d) When there is part payment of duties on the imported goods located in the
customs area. SUGGESTED ANSWER: b) When the goods are released or withdrawn from the
customs house upon payment of the customs duties or with legal permit to withdraw. Section
1202, Tariff and Customs Code
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189 Q: A flight attendant arrived from Singapore. Upon her arrival, she was asked whether she has
anything to declare. She answered none and submitted her “Customs Baggage Declaration Form”
which she accomplished and signed with nothing written for items to be declared. When her bag
were examined, pieces of jewelry were found concealed within the lining of the bag. She was
convicted of violating Sec. 3601 of TCC for unlawful importation. She filed an appeal claiming
that the lower court erred in convicting her under Sec. 3601, when the facts alleged both in the
information and those shown by the prosecution constitute an offense under Sec. 2505 “Failure to
Declare Baggage” of which she was acquitted. Is she correct? A: NO. Section 2505 does not define
a crime. It merely provides the administrative remedies which can be resorted to by the BoC
when seizing dutiable articles found in the baggage of any person arriving in the Philippines which
is not included in the accomplished baggage declaration submitted to the customs authorities and
the administrative penalties that such person must pay for the release of such goods if not (sic)
imported contrary to law. Such administrative penalties are independent of any criminal liability
for smuggling that may be imposed under Sec. 3601. (Jardeleza v. People, G.R. No. 165265, February
6, 2006)
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Q: On October 15, 2005, ABC Corp. imported 1,000 kilos of steel ingots and
paid customs duties and VAT to the Bureau of Customs on the importation. On
February 17, 2009, the Bureau of Customs, citing provisions of the Tariff and
Customs Code on post-audit, investigated and assessed ABC Corp. for deficiency
customs duties and VAT. Is the Bureau of Customs correct? (2013 Bar Question)
A: No. An assessment or liquidation by the Bureau of Customs attains finality and
conclusiveness three (3) years from the date of the final payment of duties.
However, if there was fraud, pending protest or if the liquidation of the import
entry was merely tentative, then the Bureau of Customs can still assess deficiency
duties. (Sec. 1603 TCC, as amended by R.A. 9135).
6. Keeping of records
a. The Bureau of Customs shall examine, inspect and verify the books,
records and documents necessary or relevant for the purpose of collecting the
proper duties and taxes. (Compliance Audit)
b. All importers are required to keep at their principal place of business, in
the manner prescribed by regulations to be issued by the Commissioner of
Customs and for a period of three (3) years from the date of importation, all
the records of their importations and/or books of accounts, business and
computer systems and all customs commercial data including payment records
relevant for the verification of the accuracy of the transaction value declared by
the importers/customs brokers on the import entry. (Sec. 3514, TCC; Sec. 8, R.A.
9135) (Required from the importer for purposes of compliance audit)
c. Effects of denial by Employer of access to its records - The Bureau of
Customs may, in case of disobedience:
i. Invoke the aid of the proper regional trial court within whose
jurisdiction the matter falls. The court may punish contumacy or refusal as
contempt;
ii. File a criminal case imposed by the TCC;
iii. Subject the importer/broker administrative sanctions that the
Bureau of Customs may impose against contumacious importers under existing
laws and regulations including the authority to hold delivery or release of their
imported articles. NB: The fact that the importer/broker denies the authorized
customs officer full and free access to importation records during the conduct of
a post-entry audit shall create a presumption of inaccuracy in the transaction
value declared for their imported goods and constitutes grounds for the Bureau
of Customs to conduct a re-assessment of such goods.
Effects of the failure to pay correct duties and taxes after post-entry audit
and investigation - Any person who, after being subjected to post-entry audit
and examination and is found to have incurred deficiencies in duties and taxes
paid for imported goods, shall be penalized according to the three (3) degrees of
culpability subject to any mitigating, aggravating or extraordinary factors that
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clearly established by the available evidence. (Sec. 3611, TCC as amended by R.A
9135)
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190Q: Dagat-dagatan Shipping Corp (DSC) brought into the country two non-propelled foreign
barges which DSC chartered for use in the Philippines coastwise trade under a temporary Certificate
of Philippine Registration to be returned to the foreign owner upon the termination of the charter
period but not beyond 2000, pursuant to P.D. No. 780 as amended. Upon arrival, the barges were
subjected to duty by the Bureau of Customs. DSC refused to pay any customs duty contending
that the chartered or leased barges, which will be returned to the foreign owner when the charter
expires, is not an importation and therefore cannot be subjected to any customs duty. Is DSC’s
refusal with or without legal basis? (1991 Bar Question) A: DSC’s refusal is without legal basis. *****All
imported articles when imported in the Philippines from a foreign country are subject to customs
duty upon each importation. The tax exemption granted to chartered vessels/leased ocean
vessels does not apply to the barges because they are non-propelled and are to be used for
coastwise trade.
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Classification of goods
1. The term “articles” refer to goods, wares and merchandise and in general,
anything that may be the subject of importation or exportation. (Sec. 3574, TCC)
NB: The term merchandises may include checks and money order, as well as
dollar bills which are not legal tender in the Philippines. (Batisda v. Commsissioner
of Customs, 35 SCRA 448)
2. Classification of articles subject to tariff and customs laws:
a. Articles subject to duty
b. Articles of prohibited importation
c. Articles free from duties subject to conditions prescribed by law
(conditionally-free importation)
d. Duty free articles- Enterprises located in special economic zones are
allowed to import capital equipment and raw materials free from duties, taxes and
other import restrictions. (R.A. 7916)
191 Under the Tariff and Customs Code, abandoned imported articles becomes the property of the:
(2011 Bar Question)(A) government whatever be the circumstances. (B) insurance company that
covered the shipment. (C) shipping company in case the freight was not paid. (D) bank if the shipment
is covered by a letter of credit.
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192The imported articles shall in any case be subject to the regular physical examination when: (2012
Bar Question)*****: a) The importer disagrees with the findings as contained in the government
surveyor’s report; b) The number, weight and nature of packages indicated in the customs entry
declaration and supporting documents differ from that in the manifest; c) The container is not
leaking or damaged; d) The shipment is covered by alert/hold orders issued pursuant to an existing
order.
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18. a. Samples of a. For the purpose of introducing new goods in the Philippine
the kind, in such market
quantity and of b. Imported only once in a quantity sufficient for such
such dimension purpose by a person duly registered to engage in trade
or construction as c. Such importations shall be previously authorized by the
to render them Secretary of Finance
unsaleable or of d. importation of sample medicines shall have been previously
no commercial authorized by the Secretary of Health, and that such samples
value are new medicines not available in the Philippines
b. models not e. FCA value does not exceed P50,000 f. giving of a security in
adapted for an amount equal to the ascertained DTO, conditioned for the
practical use exportation of said samples within 3 months
c. samples of g. if the FCA value exceeds P50,000, the importer thereof
medicines, may select any portion of the same not exceeding P50,000 and
properly marked the excess of the consignment may be entered in bond, or for
“sample-sale consumption
punishable by
law”
19. Animals and a. By order of the Government and other duly authorized Race Horses
plants for institutions
scientific, b. Duly registered in the book of record established for that
experimental, breed
propagation, c. Certificate of record and pedigree of such animal duly
botanical, authenticated by the proper custodian
breeding, d. NEDA certification
zoological and
national defense
purposes
20. Economic,
technical,
vocational,
scientific,
philosophical,
historical and
cultural books
and/or
publications;
bibles, missals,
prayer books,
Koran Ahadith,
other religious
books
21. Philippine If a drawback or bounty was allowed to any Philippine article,
articles previously upon re-importation, article shall be subject to duty equal to
exported from the bounty or drawback
the Philippines
and returned
without having
advanced in value
or improved in
condition by any
process of
manufacture
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22. Aircraft a. Such articles or supplies are not available locally (in
equipment, reasonable quantity, quality and price)
machinery, spare b. Articles are necessary or incidental for the proper operation
parts, commissary of airline importing
and catering
supplies, aviation
gas, fuel and oil
and such other
articles or
supplies imported
by and for the use
of scheduled
airlines operating
under
congressional
franchise
23. Machineries, a. Certification of DAR and DENR Secretaries upon
equipment, tools recommendation of Director of Mines
for production b. Articles are not locally available
plants to convert
to mineral ores
into saleable
form, spare parts,
supplies, materials
and accessories,
explosives,
chemicals and
transportation
and
communication
facilities imported
by and for the use
of mines
24. Spare parts of Satisfactory proof to the Collector of Customs that such
vessels or spare parts shall be utilized to secure the safety of the vessel
aircrafts of or aircraft to enable it to continue its voyage or flight
foreign registry
engaged in
foreign trade
brought into the
Philippines
exclusively as
replacements and
emergency repairs
25. Articles of a. Without having been substantially advanced in value
easy identification b. Subsequently reimported in its original form and in the
exported from same state
the Philippines c. Not capable of being repaired locally
for repair, In case the reimported goods advanced in value, whether or
processing or not in their original state, the value added shall be subject to
reconditioning the applicable duty rate of the tariff heading of the
reimported goods
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26. Trailer chassis a. Posting of bond in amount equal to 100% the ascertained
imported by duties and other charges
shipping b. Properly identified and registered with the LTO
companies for c. Subject to customs supervision fee fixed by the Collector of
their exclusive use Customs
in handling d. Deposited in the Customs zone when not in use e. e. Duties
containerized and taxes paid upon the expiration of the period prescribed
cargo UNLESS otherwise re-exported
NB: Under TCC of 1987, the amount of bond is equal to 1 ½
of the ascertained DTO
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27. Any officer or a. The motor car must have been ordered or purchased prior
employee of the to the receipt by the mission or consulate of the order of
DFA, including recall, and must be registered in the name of the officer or
any attaché, civil employee
or military or b. The value of the motor car and to the aggregate assessed
member of the value of the personal and household effects should not exceed
staff assigned to a 30% of the total amount received by the officer or employee
Philippine in salary and allowances during the latest assignment abroad,
diplomatic but not to exceed 4 years
mission abroad c. Exemption shall not be availed of more than once every
by the four (4) years
Department or d. The officer or employee concerned must have served
any similar officer abroad for not less than two (2) years.
or employee of
other
departments
assigned to any
Philippine
consular office
abroad, or any
AFP military
personnel
accorded
assimilated
diplomatic rank
or on duty abroad
who is returning
from a regular
assignment
abroad, for
reassignment to
the home office,
or who dies,
resigns, or is
retired from the
service, after the
approval of this
Act, shall be
exempt from the
payment of all
duties and taxes
on personal and
household effects,
including one (1)
motor car
5. WHAT ARE THE CONDITIONS AND LIMITATIONS ATTACHED TO
TAX EXEMPTION PRIVILEGES? *****The following are the conditions for
availment of duty and tax privileges;
a. Presentation to the Bureau of Customs of a favorable written
endorsement which department controls the availment of duty and tax free
exemptions.
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b. The goods extended duty and tax free privilege are not to be sold,
bartered nor traded.
c. The quantity is not commercial.
d. The goods are not prohibited importations. (See Chapter VI.
Prohibited/Restricted Importations)
e. For regulated items, endorsements from the proper regulatory
agency. (See Chapter V. Pet/Animals & Household Plants)
*For items below: http://www.manilaforwarder.com/vehicleshipment.html
5. WHO IS QUALIFIED TO IMPORT USED MOTOR VEHICLES? Under
Executive Order No. 284 as implemented by BIS, in relation to BSP Circular-
Letter, Series of 1995, dated October 19, 1995, the following individuals may be
allowed to bring in used motor vehicles:
a. A returning Filipino or a former Filipino citizen who has stayed abroad
for more than a year;
b. An immigrant to the Philippines (shall be at least a holder of a 13G Visa
duly issued by the Bureau of Immigration and Deportation).
Provided further that:
a. Only one (1) unit motor vehicle per family is allowed to be brought in. (A
motorcycle is considered a motor vehicle for this purpose).
b. The vehicle is registered in his name for at least six (6) months prior to
shipment to the Philippines;
c. Proof can be presented that the vehicle was acquired out of the earnings
abroad.
6. IS PERSONAL PRESENCE OF THE CAR-OWNER NECESSARY?
Personal presence by the car-owner of the used motor vehicle is required.
7. IS THERE ANY OTHER RESTRICTION ON THE MOTOR VEHICLE
THAT MAY BE BROUGHT IN? Yes. Whether brand-new or not, the motor
vehicle should be left-hand drive.
8. IS THE IMPORTED VEHICLE SUBJECT TO TAXES AND DUTIES? Yes.
Whether brand-new or used, purchased or donated, the imported vehicle is
subject to 40% Customs duty, 10% VAT and Ad Valorem Tax from 15% to 100%
depending on its piston displacement. Its book value serves as the tax base and
not the purchase price nor the acquisition cost. The book value is sourced from
universally accepted motor vehicle reference books such as the Red Book, Blue
Book, World Book depending on the origin of the imported vehicle
9. ARE SPARE PARTS SENT WITH THE MOTOR VEHICLE ALSO
TAXABLE? Yes. These are taxed separately.
10. Q: Jacob, after serving a 5-year tour of duty as military attaché in Jakarta,
returned to the Philippines bringing with him his personal effects including a
personal computer and a car. Would Jacob be liable for taxes on these items?
Discuss fully. (2005 Bar Question) A: No. *****Jacob would not be liable for
the payment of taxes on his personal effects including a personal computer
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and a car provided he is able to prove his qualification for conditional free
importation. The requirements are: 1. The officer or employee is for
reassignment to his home office, or dies, resigns or is retired from the service;
2. The motor car must have been ordered or purchased prior to the receipt by
the mission or consulate of the order of recall, must be registered in the
employee’s name; 3. The personal effects should not exceed 30% of the total
amount received by such employee or officer in salary and allowances during
his latest assignment abroad but not to exceed four years; 4. The exemption shall
not be availed of oftener than once every four years; 5. The officer or
employee concerned must have served abroad for not less than two years. (Sec.
105, TCC)
11. [] Q: X and his wife, Y, Filipinos living in the Philippines, went on a three-
month pleasure trip around the world during the months of June, July and
August 2015. In the course of their trip, they accumulated some personal
effects which were necessary, appropriate and normally used in leisure trips,
as well as souvenirs in non-commercial quantities. Are they "returning residents"
for purposes of Section 105 of the Tariff and Customs Code? (2003 Bar) A: NO.
*****The term "returning residents" refers to nationals who have stayed in a
foreign country for a period of at least six (6) months. (Section 105(f), TCC).
Due to their limited duration of stay abroad X and Y are not considered as
"returning residents" but they are merely considered as travelers or tourists
who enjoy the benefit of conditionally free importation.
12. [] Q: Mr. Balikbayan has a used car among the items he brought home to the
Philippines where he will resettle permanently after living forty years in
California, USA. He also brought along a VCD machine and a stereo. Discuss
whether or not he is liable for payment of import duties for bringing to the
Philippines the above-mentioned items (1988 Bar Question). A: *****Mr.
Balikbayan is considered as a returning resident entitled to tax and duty free
entry of his VCD machine and stereo, the said articles being considered as used
personal and household effects. He is, however, required to pay import
duties for the used car which is not considered as part of his personal and
household effects entitled to tax and duty free entry.
13. [] Q: Are tax-free goods required to enter into a customs house even the
imported will not pay a tax? A: YES. ******TCC provides that all articles
imported into the Philippines, whether subject to tax or not, shall be
entered into a customs house at a port of entry. Violation of TCC is a valid
ground for the search and seizure of the properties or articles.
——————————————
C2c. Assessment and Payment of Duties and Taxes, Interest and Surcharge
1. Determination of the De Minimis Value – No duties and taxes shall be
collected on goods with an FOB or FCA value often thousand pesos (P10,000.00)
or below. The Secretary of Finance shall adjust the de minimis value as provided
herein every three (3) years after the effectivity of this Act. (Sec. 423 CMTA)
2. Tentative Assessment of Goods Subject to Dispute Settlement – Assessment
shall be deemed tentative if the duties and taxes initially assessed are disputed by
the importer. The assessment shall be completed upon final readjustment based
on the tariff ruling in case of classification dispute, or the final resolution of the
protest case involving valuation, rules of origin, and other customs issues. The
District Collector may allow the release of the imported goods under tentative
assessment upon the posting of sufficient security to cover the applicable duties
and taxes equivalent to the amount that is disputed. (Sec. 425 CMTA)
3. Final Assessment – Assessment shall be deemed final fifteen (15) days after
receipt of the notice of assessment by the importer or consignee. (Sec. 429
CMTA)
4. Period of Limitation – In the absence of fraud and when the goods have been
finally assessed and released, the assessment shall be conclusive upon all parties
three (3) years from the date of final payment of duties and taxes, or upon
completion of the post clearance audit. (Sec. 430 CMTA)
5. Release of Goods after Payment of Duties and Taxes – Goods declared shall be
released when duties and taxes and other lawful charges have been paid or secured
and all the pertinent laws, rules and regulations have been complied with. When
the Bureau requires laboratory analysis of samples, detailed technical documents
or expert advice, it may release the goods before the results of such examination
are known after posting of sufficient security by the declarant. (Sec. 431 CMTA)
6. Withholding Release Pending Satisfaction of Lien – When the District Collector
is duly notified through a lawful order of a competent court of a Hen for freight,
lighterage or general average upon any imported goods, the District Collector shall
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withhold the release of the goods unless the claim has been paid or secured. In
case of disagreement, the District Collector may release the goods after payment
of the freight and lighterage due on the quantity or weight landed as actually
determined. (Sec. 435 CMTA)
7. Fine or Surcharge on Goods – Goods subject to any fine or surcharge shall be
released only after the payment of the fine or surcharge. (Sec. 436 CMTA)
195[] SECTION 3602 (TCC). Various Fraudulent Practices against Customs Revenue. — Any person
who makes or attempts to make any entry of imported or exported article by means of any false
or fraudulent invoice, declaration, affidavit, letter, paper, or by means of any false statement, written
or verbal, or by means of any false or fraudulent practice whatsoever, or shall be guilty of any willful
act or omission by means of whereof the Government might be deprived of the lawful duties, taxes
and other charges, or any portion thereof, accruing from the article or any portion thereof, embraced or
referred to in such invoice, declaration, affidavit, letter, paper, or statement, or affected by such act or
omission, shall, for each offense, be punished by a fine of not less than six hundred pesos nor more
than five thousand pesos and by imprisonment for not less than six months nor more than two years
and if the offender is an alien, he shall be deported after serving the sentence.
196 Choose the correct answer. Smuggling - (1%) (A) does not extend to the entry of imported or
exported articles by means of any false or fraudulent invoice, statement or practices; the entry of goods
at less than the true weight or measure; or the filing of any false or fraudulent entry for the payment of
drawback or refund of duties. (B) is limited to the import of contraband or highly dutiable cargo
beyond the reach of customs authorities. (C) is committed by any person who shall fraudulently
import or bring into the Philippines, or assist in so doing, any article, contrary to law, or shall
receive, conceal, buy, sell or any manner facilitate the transportation, concealment or sale of
such article after importation, knowing the same to have been imported contrary to law. (2014
Bar Question)
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197*Bar 2014: Smuggling is committed by any person who shall fraudulently import or bring into the
Philippines, or assist in so doing, any article, contrary to law, or shall receive, conceal, buy, sell or
any manner facilitate the transportation, concealment or sale of such article after importation,
knowing the same to have been imported contrary to law.
[] Example of smuggling: Mr. Z made an importation which he declared at the Bureau of
Customs (BOC) as "Used Truck Replacement Parts". Upon investigation, the container vans contained
15 units of Porsche and Ferrari cars. Why? Under Section 3602 of the Tariff and Customs Code of the
Philippines, *****fraudulent or false declaration of imported or exported articles is smuggling.
The following are WRONG: Mr. Z did not commit smuggling because he submitted his shipment to
BOC examination; Mr. Z only made a misdeclaration, but did not commit smuggling; Mr. Z did not
commit smuggling because the shipment has not left the customs area.
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198Q: In smuggling a shipment of garlic, the smugglers used an eight-wheeler truck which they
hired for the purpose of taking out the shipment from the customs zone. Danny, the truck owner,
did not have a certificate of public convenience to operate his trucking business. Danny did not
know that the shipment of garlic was illegally imported. Can the Collector of Customs of the
port seize and forfeit the truck as an instrument in the smuggling? (1994 Bar) A: YES, since the
same was used unlawfully in the importation of smuggled articles. The mere carrying of such
articles on board the truck (in commercial quantities) shall subject the truck to forfeiture, since it
was not being used as a duly authorized common carrier, which was chartered or leased as such.
(Sec. 2530 [a], TCC) Moreover, although forfeiture of the vehicle will not be effected if it is established
that the owner thereof had no knowledge of or participation in the unlawful act, there arises a prima
facie presumption or knowledge or participation if the owner is not in the business for which the
conveyance is generally used. Thus, not having a certificate of public convenience to operate a
trucking business, he is legally deemed not to have been engaged in the trucking business.
(Sec. 2531, TCC)
199 Q: An information was filed against Jardeleza in violation of the TCC for bringing 20.1 kilograms of
assorted gold jewelry with an estimated value of P7,562,231.50. Such was effected by hiding said jewelry
inside a hanger bag and, by not declaring it in the Customs Declaration form and, by verbally denying
that she is carrying said items by answering “no” when asked by Bureau of Customs if she has anything to
declare prior to the actual inspection of her luggage. The accused denied the allegations against her. Is the
accused guilty of smuggling the jewelries? A. YES. A person arriving in the Philippines with baggage
containing dutiable articles is bound to declare the same in all respects. Adequate reporting of dutiable
merchandise being brought into the country is absolutely necessary to the enforcement of customs laws, and
failure to comply with those requisites is as condemnable as failure to pay customs fees. Any administrative
penalty imposed on the person arriving in the Philippines with undeclared dutiable articles is separate from and
independent of criminal liability for smuggling under Sec. 3601 of the TCC and for violation of other provisions
in the TCC.
The phrase “contrary to law” in Sec. 3601 of the TCC qualifies the phrases “imports or brings into
the Philippines” and “assists in so doing,” and not the word “article”. The word “law” includes regulations
having the force and effect of law, meaning substantive or legislative type rules as opposed to general
statements of policy or rules of agency, organization, procedures or positions. (Jardeleza v. People of the
Philippines, G.R. No. 165265, February 06, 2006)
200Q. Mr. Z made an importation which he declared at the Bureau of Customs (BOC) as "Used Truck
Replacement Parts". Upon investigation, the container vans contained 15 units of Porsche and
Ferrari cars. Is Mr. Z guilty of smuggling? (2013 Bar) A. YES. Mr. Z is guilty of smuggling.
*****Concealing or facilitating in the concealment of an article is also a form of smuggling under
Sec. 3601 of the TCC.
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201Q: Is mere possession of the alleged smuggled goods enough evidence for the conviction of
smuggling? A. YES. After importation, the act of facilitating the transportation, concealment or sale
of the unlawfully imported article must be with the knowledge that the article was smuggled.
However, if upon trial the defendant is found to have been in possession of such article, this shall
be sufficient to authorize conviction unless the defendant explains his possession to the
satisfaction of the court. The receipt, concealment, sale, purchase or the facilitation thereof after the
unlawful importation with the knowledge that the textile is smuggled becomes punishable under
Section 3601 of the Code. (Rodriguez v. CA, G.R. No. 115218, Sept. 18, 1995)
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TCC, in relation to Art. 172 of the Revised Penal Code, it must be proven beyond
reasonable doubt that the accused in conspiracy with the other accused, made or
attempted to make an entry of the alleged imported article through the filing of
the said Import Entry at The Bureau of Customs. (People v. Brines et. al., CTA
Criminal Case No. 0-158, July 23, 2012)
—————————————————
E. Remedies
E1. Government
a. Administrative/Extrajudicial
a1. Search, Seizure, Forfeiture and Arrest
a2. Authority of the Commissioner to Compromise
b. Judicial
b1. Rules on Appeal including Jurisdiction
E2. Taxpayer
a. Protest
b. Abandonment
c. Abatement and Refund
E1. Government
E1a. Administrative/Extrajudicial
1. Enforcement of Tax Lien - Tax lien attaches on the goods regardless of
ownership while still in the custody of the Government and it is availed of when
the importation is neither prohibited nor improperly made.
2. Reduction of Customs Duties - see new version under CMTA under
authority of the Commissioner to compromise, infra.
3. Administrative Fine and forfeitures - Administrative fine and forfeiture available
only when the importation is unlawful and may be exercised when the articles are
no longer under the custody of BOC unless the importation is merely attempted
in which case it may be effected only while the goods are still within the
jurisdiction of the BOC or in the hands of the person who is aware thereof.
202 Q: Sometime in 15 September 1990, a shipment of 150 packages of imported goods and
personal effects arrived and was unloaded at the Port of Manila. After the amount of P15,887.00 was
paid by the consignee as custom duties, international revenue taxes, fees and other charges, the
packages were released from Manila Customs House. As the packages were being transported from the
customs area to their destination, the truck carrying them was intercepted at TM Kalaw St, Ermita,
Manila by WPD-PNP personnel. In the formal communication, WPD-PNP informed the Collector of
Customs that the packages were released from the customs zone without proper appraisal to the
damage of the government and requested for the issuance of the necessary warrant of seizure. Seizure
proceeding was then instituted and the Collector of Customs issued a warrant of seizure and
detention. During the process and while the goods were being removed by the customs agents from
the bodega where they were stored, the consignee filed a petition with the RTC of Manila asking
that the Collector of Customs and all his agents be restrained from enforcing the warrant aforesaid and
from proceeding with the trial of seizure proceeding and the said warrant be declared void since the
Collector no longer has jurisdiction to issue the same considering that the customs duties and the taxes
had already been paid and the goods had left the control and jurisdiction of the Bureau of Customs.
(1991 Bar)
a. ******Did the Collector of Customs have jurisdiction to issue the warrant of seizure and
detention? A: YES, because the importation has not yet ended. This is so because the importation
ends upon the issuance of a valid permit withdrawal. The fact that the goods were not properly
appraised negates the issuance of a proper permit for withdrawal.
b. Did the payment of customs duties, taxes, etc. render illegal and improper the issuance of
said warrant? A: NO. Until the correct duties and taxes have been paid and the proper permits then
customs authorities have the authority to issue warrants for seizure and detention.
c. Has the Regional Trial Court jurisdiction to hear and decide the civil case? A: NO, for the
following reasons: i. There should be no unnecessary hindrance on the government’s drive to
prevent smuggling and other frauds upon the Customs. ii. To render effective and efficient the
collection of import and export duties due to the State which enables the government to carry out
the functions it has been instituted to perform. iii. The doctrine of primary jurisdiction.
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a. Over vessels:
i. Act is done in Philippines waters;
ii. Act constitutes a violation of TCC;
iii. Pursuit of such vessel began within the jurisdictional waters:
(a) Which may continue beyond the maritime zone;
(b) And the vessel may be seized on the high seas.
b. Over imported articles:
i. There is violation of TCC;
ii. As a consequence, they may be pursued in their transportation in
the Philippines by land, water or air;
iii. Such jurisdiction over them at any place therein as may be
necessary for the due enforcement of the law. (Sec 603, TCC)
4. Persons having police authority to enforce tariff and customs laws
a. Officials of the Bureau, district collectors, police officers, agents,
inspectors and guests of the Bureau;
b. Officers of the Philippine Navy and other members of the AFP and
national law enforcement agencies, when authorized by the Commissioner of
Customs;
c. Officials of the BIR in cases falling within the regular performance of
their duties, when payment of internal revenue taxes are involved;
d. Officers generally empowered by law to effect arrests and execute
processes of courts when acting under the direction of the Collector. (Sec. 2203,
TCC) NB: All persons conferred with powers to enforce tariff and customs laws
may exercise the same at any place within the jurisdiction of the Bureau of
Customs.
5. Nature of Customs Search and Seizure cases
a. They are administrative and civil in nature and are directed against the res
or imported articles and entail the determination of the legality of the
importation. These are actions in rem. Thus, it is of no defense that the owner of
the vessel sought to be forfeited had no actual knowledge that his property was
used illegally. The absence or lack of actual knowledge of such use is a defense
personal to the owner himself, which cannot in any way absolve the vessel from
the liability of forfeiture. (Commissioner of Customs v. Manila Star Ferry, Inc.,
G.R. Nos. 31776-78, Oct. 21, 1993)
b. Forfeiture proceedings are purely civil and administrative in character, the
main purpose of which is to enforce the administrative fines or forfeiture incident
to unlawful importation of goods or their deliberate possession. The penalty in
seizure cases is distinct and separate from the criminal liability that might be
imposed against the indicted importer or possessor and both kinds of penalties
may be imposed. (Peo v. CFI of Rizal, No. L-41686, November 17, 1990)
6. Customs officers on seizure and arrest
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a. May seize any vessel, aircraft, cargo, article, animal or other movable
property when the same is subject to forfeiture or liable for any time as imposed
under tariff and customs laws, rules & regulations;
b. May exercise such powers only in conformity with the laws and
provisions of the TCC.
7. Requirements for customs forfeiture of imported goods
a. The wrongful making by the owner, importer, exporter or consignee of
any declaration or affidavit, or the wrongful making or delivery by the same
persons of any invoice, letter or paper - all touching on the importation or
exportation of merchandise;
b. That such declaration, affidavit, invoice, letter or paper is false; and
c. An intention on the part of the importer/consignee to evade the payment
of the duties due. (Republic, etc., v. CTA, et al., G.R. No. 139050, Oct. 2, 2001)
8. Things subject to confiscation in smuggling cases
GR: Anything that was used for smuggling is subject to confiscation, like
the vessel, plane, etc. (Llamado v. Commissioner of Customs, G.R. No. L-28809,
May 16, 1983).
XPN: Common carriers which are not privately chartered cannot be
confiscated. NB: Common carriers are generally not subject to forfeiture except if
the owner has knowledge of and consented to its use in smuggling. Lack of
personal knowledge of the owner or carrier does not constitute a valid defense in
forfeiture cases.
9. Properties are not subject to forfeiture in the absence of prima facie evidence -
The forfeiture of a vehicle, vessel or aircraft shall not be effected if it is
established that the owner thereof or his agent in charge of the means of
conveyance used has no knowledge of or participation in an unlawful act.
10. Subject of customs search and seizure
a. Land or enclosure or any warehouse, store or other building, not being a
dwelling house (Sec. 2208, TCC)
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b. Dwelling house (Sec. 2209, TCC). NB: If the search and seizure is to be
conducted in a dwelling place, then a search warrant should be issued by the
regular courts not the Bureau of Customs.203
c. Vessels or aircrafts and persons or articles conveyed therein (Sec. 2210,
TCC). NB: No warrant is required to be issued by the Bureau of Customs or the
regular courts in search and seizures of motor vehicles and vessels since it is
not practicable to secure a warrant because vehicles can be quickly moved out
of the locality or jurisdiction in which the warrant must be sought.
d. Vehicles, beasts and persons (Sec. 2211, TCC)
e. Persons arriving from foreign countries (Sec. 2212, TCC).
[] Burden of proof in seizure or forfeiture is on the claimant. (Sec. 2535,
TCC)
11. Settlement of forfeiture cases
GR: Settlement of cases by fine or redemption is generally allowed.
XPNs:
i. The importation is absolutely prohibited;
ii. The surrender of the property to the person offering to redeem
would be contrary to law; or
iii. There is fraud. (Sec. 2307, TCC)
NB:
i. At any time prior to the sale, the delinquent importer may settle his
obligations with the Bureau of Customs, in which case the aforesaid articles may
203A disgruntled employee of Apache Corporation reported to the Commissioner of Customs that the
company is illegally importing electronic equipment by way of unlawful "shipside" activities thereby
evading payment of customs duties and taxes on the goods. Accordingly, the Commissioner of
Customs, upon the request of the Economic Intelligence and Investigation Bureau (EIIB), issued
warrants of seizure and detention and directed EIIB to seize the goods listed in the warrants.
After the seizure of the goods and considering the magnitude of the value of the goods, counsel for
Apache Corporation filed a petition with the Supreme Court for certiorari, prohibition and
mandamus to enjoin the Commissioner of Customs and his agents from continuing further with the
forfeiture proceedings and praying that the Commissioner return the confiscated articles on the
ground that the warrants were in violation of the Rules of Court and the Bill of Rights. If you
are a newly-appointed Solicitor in the office of the Solicitor General representing the Commissioner of
Customs, how would you defend the latter? Give the specific defenses. ANSWER: Appurtenant to its
power under the Tariff and Customs Code to enforce the provisions of such law, the Bureau of
Customs may conduct searches and seizures even without the benefit of a warrant issued by a
judge upon probable cause. This is historically considered an exemption from the constitutional
guarantee against unreasonable searches and seizures.
[] Assuming that the enforcement of the warrant had been extended to the residence of the
President of Apache Corporation, is such enforcement valid? Explain. ANSWER: *****No. The
Tariff and Customs Code authorizes custom officials and agents to search any building, except
dwelling houses.
[] Do you think the petition for certiorari, prohibition and mandamus filed by Apache
Corporation will prosper in the Supreme Court? Discuss. ANSWER: No. The choice of remedy
assumes want of authority and jurisdiction. Warrantless searches and seizures are, however, authorized
under TCC. Such searches and seizures are not considered unreasonable within the meaning of the
constitutional guarantee. (BAR 1992) [TOM thinks the answer is nebulous]
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be delivered upon payment of the corresponding duties and taxes and compliance
with all other legal requirements (Sec. 1508, TCC)
ii. Fraud must be actual and not merely constructive. It must be
intentional and deliberate. (Transglobe International, Inc. cs. CA & CC, G.R. No.
126634, January 25, 1999).
FORFEITURE CASES
1. The COLLECTOR of Customs sitting in the seizure and forfeiture
proceedings has EXCLUSIVE JN204 to HEAR & DETERMINE ALL
QUESTIONS touching on the seizure & forfeiture proceedings of
DUTIABLE goods.
2. The RTC are precluded from assuming cognizance over such even
through petition for certiorari, prohibition or mandamus [Jao v. CA]205
204M/V Floria, a vessel of Philippine registry, was hired to transport beans from Singapore to
India. The vessel was allegedly hijacked at sea and found its way to Bataan. It is also alleged that said
beans are now with the List Co. and fake documents were used to show that the beans were imported
from Japan. The Collector of Customs seized the M/V Floria and its cargo. The owner of M/V
Floria filed a complaint in the Regional Trial Court to obtain possession of the vessel and the
beans. Does the RTC have jurisdiction over the case? ANSWER: *****The RTC has no jurisdiction.
The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction
to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The
RTC has no jurisdiction to pass upon the validity or regularity of the seizure and forfeiture proceedings
conducted by the Bureau of Customs. [Commissioner of Customs vs. Makasiar. 177 SCRA 27, 33-34
(1989) citing Pacis vs. Averin, 18 SCRA 9071966)]. *****Neither has RTC review powers over actions
concerning seizure and forfeiture proceedings conducted by the Collector of Customs which is
reviewable by the Commissioner of Customs whose decision, in turn, is reviewable by the
Court of Tax Appeals (ibid) [Bar 1993]
205 Q: On January 1, 2015, armed with warrants of seizure and detention issued by the Bureau of
Customs, members of the customs enforcement and security services coordinated with the Quezon
City police to search the premises owned by a certain Mr. Ho along Kalayaan Avenue, Quezon
City, which allegedly contained untaxed vehicles and parts. While inside the premises, the member of
the customs enforcement and security services noted articles which were not included in the list
contained in the warrant. Hence, on January 15, 2015, an amended warrant and seizure was issued.
On January 25, 2015, the customs personnel started hauling the articles pursuant to the amended
warrant. This prompted Mr. Ho to file a case for injunction and damages with a prayer for a
restraining order before the Regional Trial Court of Quezon City against the Bureau of Customs on
January 27, 2015. On the same date, the trial court issued a temporary restraining order. A motion
to dismiss was filed by the Bureau of Customs on the ground that the RTC has no jurisdiction over
the subject matter of the complaint claiming that it was the Bureau of Customs that has exclusive
jurisdiction over it. Decide. A: The motion to dismiss should be granted. ******Seizure and forfeiture
proceedings are within the exclusive jurisdiction of the Collector of Customs to the exclusion of
regular Courts. RTCs are devoid of competence to pass upon the validity or regularity of seizure and
forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with
these proceedings (Republic v. CFI of Manila, G.R. No. 43747, September 2, 1992; Jao v. CA,G.R. No.
104604, October 6, 1995)
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may also offer to pay to the collector a fine imposed by him upon the property
to secure its release or in case of forfeiture, the importer shall offer to pay for the
domestic market value of the seized article, which offer subject to the approval of
the Commissioner may be accepted by the Collector in settlement of the seizure
case, except when there is fraud. Upon payment of the fine or domestic
market value, the property shall be forthwith released and all liabilities which
may or might attach to the property by virtue of the offense which was the
occasion of the seizure and all liability which might have been incurred under any
bond given by the importer in respect to such property shall thereupon be deemed
to be discharged.
Q: Can owner or agent of vessel object on the ground that he has no knowledge
that the cargo consists of contraband or is good faith a defense? A: IT
DEPENDS. If the cargo is a common carrier, such that it is engaged in coastwise
shipping, good faith is not a defense. Forfeiture proceedings are in rem and are
directed against the res. The rule is otherwise if the vessel is used as a private
carrier. In such case, forfeiture cannot be effected if the owner or his agent has no
knowledge of, or participation in the unlawful act (CC vs. CTA & Pascual, 138
SCRA 581).
Q: On January 7, 2015, the vessel M/V ”Star Ace” coming from Singapore loaded
with cargo, entered the Port of San Fernando, La Union for needed repairs. When
the Bureau of Customs later became suspicious that the vessel’s real purpose in
docking was to smuggle cargo into the country, seizure proceedings were
instituted and subsequently two Warrants of Seizure and Detention were issued
for the vessel and its cargo. Mr. X does not own the vessel or any of its cargo but
claimed a preferred maritime lien. He then brought several cases in the RTC to
enforce his lien. Would these suits prosper? A: NO. The Bureau of Customs
having first obtained possession of the vessel and its goods has obtained
jurisdiction to the exclusion of the trial courts. When Mr. X has impleaded the
vessel as a defendant to enforce his alleged maritime lien, in the RTC, he brought
an action in rem under the Code of Commerce under which the vessel may be
attached and sold. However, the basic operative fact is the actual or constructive
possession of the res by the tribunal empowered by law to conduct the
proceedings. This means that to acquire jurisdiction over the vessel, the trial court
must have obtained either actual or constructive possession over it. Neither was
accomplished by the RTC as the vessel was already in the possession of the
Bureau of Customs. (Commissioner of Customs v. CA, et al., G. R. Nos.
111202-05, Jan. 31, 2006)
Constitution. Under the Tariff and Customs Code, a search, seizure and arrest
may be made even without a warrant for purposes of enforcing customs and
tariff laws. (Rieta v. People, 436 SCRA 273, August 12, 2004)
Q: May seizure be effected even outside the territorial limits of the Philippines
(doctrine of hot pursuit)? A: YES. A vessel loaded with contraband while in the
high seas headed towards Tawi-tawi was considered to have been lawfully seized.
The power of a nation to secure itself from injury may be exercised beyond the
territorial limits (Asaali, et al. v. Commissioner of Customs, G.R. No. L24170, Feb.
28, 1969)
filing of the bond would not release the obscene and pornographic
magazines from detention because essentially, the importation is prohibited
by law.
Q: On January 30, 2015, the vessel S/S "Pacific Hawk" arrived at the Port of
Manila carrying, among others, 80 bales of screen net consigned to Bagong Buhay
Trading. Since the customs examiner found the subject shipment reflective of the
declaration, Bagong Buhay paid the duties and taxes due in the amount of P11,
350.00 which was paid through the Bank of Asia thereafter, the customs appraiser
made a return of duty. The Collector of Customs determined the subject
shipment classifiable at 100% ad valorem. Thus, Bagong Buhay Trading was
assessed P272, 600.00 as duties and taxes due on the shipment in question. Since
the shipment was misdeclared as to quantity and value, the Collector of Customs
forfeited the subject shipment in favor of the government. Is the shipment in
question subject to forfeiture? A: Although it cannot be denied that Bagong Buhay
caused to be prepared through its customs broker a false import entry or
declaration, it cannot be charged with the wrongful making thereof because such
Sancte Mattheus, ora pro nobis! ! 233 of !395
entry or declaration merely restated faithfully the data found in the corresponding
certificate of origin, certificate of manager of the shipper, the packing lists and
the bill of lading which were all prepared by its suppliers abroad. If at all, the
wrongful making or falsity of the documents above-mentioned can only be
attributed to Bagong Buhay's foreign suppliers or shippers. With regard to the
second requirement on falsity, it bears mentioning that the evidence on record,
specifically, the decisions of the Collector of Customs and the Commissioner of
Customs, do not reveal that the importer or consignee, Bagong Buhay Trading had
any knowledge of any falsity on the subject importation (Farolan, Jr. v. CTA, G.R.
No. 42204, Jan. 21, 1993).
E1b. Judicial
207What is the rule on appeal from decisions of the Collector of Customs in protest and seizure
cases? When is the decision of the Collector of Customs appealable to the Court of Tax Appeals?
Explain. (5%) SUGGESTED ANSWER: *****Decisions of the Collector of Customs in protest and
seizure cases are appealable to the Commissioner of Customs within 15 days from receipt of
notice of the written decision. As a rule, decisions of the Collector of Customs are not appealable to
the Court of Tax Appeals. If the Collector of Customs, however, does not decide a protest for a
long period of time, the inaction may be considered as an adverse decision by the Collector of
Customs and the aggrieved taxpayer may appeal to the CTA even without the Collector’s and
Commissioner’s actual decision (Commissioner of Customs v. Planters Products, Inc. G.R. No. 82018,
March 16, 1989).
Sancte Mattheus, ora pro nobis! ! 235 of !395
seek payment of the tax liability through judicial action since the tax liability
of the importer constitutes a personal debt to the government.
2. Remedy of the Government if the decision of the Collector or the
Commissioner in a protest is adverse to it:208
a. Automatic review by the Commissioner - If the Collector renders a
decision adverse to the Government (the importer’s protest is granted).
b. Automatic review by the Secretary of Finance - If the decision of the
Commissioner of Customs is adverse to the Government.
3. The decision of the Commissioner is appealable to the CTA: The jurisdiction
of the Commissioner and the CTA are not concurrent in so far as claims for
refund are concerned. The only exception is when the Collector has not acted
on the protested payment for a long time, the continued inaction of the
Collector or Commissioner should not be allowed to prejudice the taxpayer.209
4. *****Administrative vs. Judicial remedies: [] Q: TCC allows the Bureau of
Customs to resort to the administrative remedy of seizure, such as by
enforcing the tax lien on the imported article, and to the judicial remedy of
filing an action in court. When does the Bureau of Customs normally avail itself:
(1997 Bar Question)
208In what easels (sic) is the decision of the Collector automatically reviewed by the Commissioner of
Customs? In what instance/s is the decision of the Commissioner automatically appealed to the
Secretary of Finance? (2015 Bar Question) SUGGESTED ANSWER: ******Whenever the decision of
the Collector of Customs is adverse to the government, the said decision is automatically
elevated to the Commissioner of Customs for review, and if such decision is affirmed by the
Commissioner of Customs, the same will be automatically elevated to and be finally reviewed by
the Secretary of Finance.
209 Q: The Collector of Customs of the Port of Cebu issued warrants of seizure and detention against
the importation of machineries and equipment by LLD Import and Export Co. (LLD) for alleged
nonpayment of tax and customs duties in violation of customs laws. LLD was notified of the seizure,
but, before it could be heard, the Collector of Customs issued a notice of sale of the articles. In
order to restrain the Collector from carrying out the order to sell, LLD filed with the CTA a petition
for review with application for the issuance of a writ of prohibition. It also filed with the CTA an
appeal for refund of overpaid taxes on its other importations of raw materials which has been
pending with the Collector of Customs. The Bureau of Customs moved to dismiss the case for
lack of jurisdiction of the CTA. (2002 Bar Question)
1. *****Does the CTA have jurisdiction over the petition for review and writ of prohibition?
Explain. A: No, because there is no decision as yet by the Commissioner of Customs which can
be appealed to the CTA. Neither the remedy of prohibition would lie because the CTA has not
acquired any appellate jurisdiction over the seizure case. The writ of prohibition being merely
ancillary to the appellate jurisdiction, the CTA has no jurisdiction over it until it has acquired
jurisdiction on the petition for review. *****Since there is no appealable decision, the CTA has no
jurisdiction over the petition for review and writ of prohibition. (Commissioner of Customs v.
Alikpala, G.R No. L--32542, 1970).
2. Will an appeal to the CTA for tax refund be possible? Explain. A: No, because the
Commissioner of Customs has not yet rendered a decision on the claim for refund. The
jurisdiction of the Commissioner and the CTA are not concurrent in so far as claims for refund
are concerned. The only exception is when the Collector has not acted on the protested payment
for a long time, the continued inaction of the Collector or Commissioner should not be allowed to
prejudice the taxpayer. (Nestle Philippines, Inc. v. CA, G.R. No. 134114, July 6, 2001).
Sancte Mattheus, ora pro nobis! ! 236 of !395
Government. This is the reason why whenever the decision of the Collector is
adverse to the Government, the said decision is automatically elevated to the
Commissioner for review; and if such decision is affirmed by the Commissioner,
the same shall be automatically elevated to and be finally reviewed by the Secretary
of Finance (Yaokasin v. Commissioner of Customs, G.R. No. 84111, Dec. 22,
1989)
E2. Taxpayer
E2a. Protest210
1. Parties and Application of a Protest
210 The Collector of Customs issued an assessment for unpaid customs duties and taxes on the
importation of your client in the amount of P980.000.00. Where will you file your case to protect
your client’s right? Choose the correct courts/ agencies, observing their proper hierarchy. 5%
1. Court of Tax Appeals
2. Collector of Customs
3. Commissioner of Customs 4. Regional Trial Court
5. Metropolitan Trial Court
6. Court of Appeals
7. Supreme Court
SUGGESTED ANSWER: I will file a protest with the Collector of Customs (Sec. 230S, TCC).
Should the Collector promulgate a decision adverse to my client, I will give a written notice to the
Collector, copy furnished the Commissioner of Customs, of my client’s desire to have the matter
reviewed by the Commissioner (Sec. 2313, TCC). If the Commissioner affirms the decision of the
Collector I will file an appeal with the Court of Tax Appeals within 30 days from receipt of the
decision (1997 Rules of Civil Procedure, RA 9282). If the Court of Tax Appeals issues a decision
adverse to my client, I will file with the Supreme Court a verified petition for review on certiorari
pursuant to Rule 45 (RA 9282).
ANOTHER SUGGESTED ANSWER: I will file my case as follows:******
1. Protest with the Collector of Customs (Sec. 2308, TCC);
2. Review by the Commissioner of Customs (Sec. 2313, TCC);
3. Appeal to the Court of Tax Appeals (RJL 9282); and
4. Petition for Review on Certiorari with the Supreme Court (RJL 9282). (BAR 2006)
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E2b. Abandonment
1. Abandonment in customs is the renunciation by an importer of all his interests
and property rights in the importer article. Abandonment may be made expressly
or impliedly.
2. Express Abandonment - When the owner, importer, consignee of the imported
article expressly signifies in writing and under oath to the Collector of Customs
his intention to abandon his shipment in favor of the government. (Sec. 1801,
TCC)
3. Implied Abandonment
a. By failure to file an import entry within 30 days from the discharge of
goods; or
A protest against an assessment issued by the Collector of Customs for unpaid customs duties on
211
imported goods shall be filed with: (2012 Bar Question): a) The Commissioner of Customs; b) The
Regional Trial Court; c) The Court of Tax Appeals; d) The Collector of Customs. [Section 2308,
Tariff and Customs Code]
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b. Having filed an entry fails to claim within 15 days but it shall not be so
effective until so declared by the collector. (Sec. 1801, as amended by RA 7651)
4. Effects of abandonment
a. Deemed to have renounced all interests and property rights (Sec. 1801,
TCC)
b. Ipso facto deemed the property of the government
c. Disposed of in accordance with the TCC (Sec. 1802, TCC)
d. Shall not relieve the owner from criminal liability which may arise in
connection with the importation (Sec. 1802, TCC)
Q: Does the trial court have jurisdiction to pass upon and nullify the seizure of
cargo and declaration in abandonment proceedings? A: No. The trial court is
incompetent to pass upon and nullity the seizure of cargo in the abandonment
proceedings and the declaration made by the District Collector of Customs that
the cargo was abandoned and ipso facto owned by the government. The trial
court likewise has no jurisdiction to resolve whether or not the importer was the
owner of the cargo before it was gutted by fire. (RV Marzan Freight, Inc. v. CA,
G.R. No. 128064)
recommendations together with all necessary papers and documents; and upon
receipt by the Commission, he shall cause the same to be paid if found correct.
c. The importer may file an appeal of a denial of a claim for refund or
abatement, whether it is a full or partial denial, with the Commissioner within
thirty (30) days from the date of the receipt of the denial. The Commissioner shall
render a decision within thirty (30) days from the receipt of all the necessary
documents supporting the application. Within thirty (30) days from receipt of the
decision of the Commissioner, the case may also be appealed to the CTA. (Sec.
913, CMTA)
4. Duty Drawback - A device resorted to for enabling a commodity affected by
taxes to be exported and sold in foreign markets upon the same terms as if it had
not been taxed at all.
find application. The Court has in the past sanctioned the application of the
provisions on solutio indebiti in cases when taxes were collected thru error or
mistake. Thus, the claim for refund must be commenced within six (6) years from
date of payment pursuant to Article 1145(2) of the New Civil Code.
(Commissioner of Customs v. Philippine Phosphate Fertilizer Corporation, G.R.
No. 144440, Sept. 1, 2004)
Judicial
3. The Collector of Customs may declare forfeiture on imported goods which are
undervalued or entered and valued through fraudulent means or device to
the prejudice of the Government.212
212 William Antonio imported into the Philippines a luxury car worth US$100,000. This car was,
however, declared only for US$20,000 and corresponding customs duties and taxes were paid
thereon. Subsequently, the Collector of Customs discovered the underdeclaration and he initiated
forfeiture proceedings of the imported car. May the Collector of Customs declare the imported
car forfeited in favor of the government? Explain. (3%) SUGGESTED ANSWER: Yes. ******The
Collector of Customs may declare forfeiture on imported goods which are undervalued or
entered and valued through fraudulent means or device to the prejudice of the Government.
*****Since the undervaluation is more than 30% of the actual value of the vehicle, it gives rise to a
prima facie evidence of fraud which subjects the vehicle to forfeiture. (Section 2530, TCC).
[] Are forfeiture proceedings of goods illegally imported criminal in nature? Explain. (3%)
SUGGESTED ANSWER: No. *****An action for forfeiture is an action in rem, or an action
directed against the imported goods themselves independently of any criminal action, which is
in the nature of an action in personam, that may result as a consequence of a violation of an existing
law. (C.F. Sharp and Co. Inc., v. Commissioner of Customs, 22 SCRA 760 [1968]). (BAR 2008)
213 *Whenever the decision of the Collector of Customs is adverse to the government, it is
automatically elevated to the Commissioner for review and, if it is affirmed by him, it is automatically
elevated to the Secretary of Finance for review. What is the basis of the automatic review procedure
in the Bureau of Customs? Explain your answer. (2002) A: *****Automatic review is intended to
protect the interest of the Government in the collection of taxes and customs duties in seizure
and protest cases. Without such automatic review, neither the Commissioner of Customs nor the
Secretary of Finance would know about the decision laid down by the Collector favoring the
taxpayer. The power to decide seizure and protest cases may be abused if no checks are
instituted. Automatic review is necessary because nobody is expected to appeal the decision of
the Collector which is favorable to the taxpayer and adverse to the Government. This is the reason
why whenever the decision of the Collector is adverse to the Government, the said decision is
automatically elevated to the Commissioner for review; and if such decision is affirmed by the
Commissioner, the same shall be automatically elevated to and be finally reviewed by the Secretary of
Finance (Yaokasin v. Commissioner of Customs, 180 SCRA 591 [1989]).
Sancte Mattheus, ora pro nobis! ! 245 of !395
POST-AUDIT
1. On October 15, 2005, ABC Corp. imported 1,000 kilos of steel ingots and
paid customs duties and VAT to the Bureau of Customs on the importation. On
February 17, 2009, the Bureau of Customs, citing provisions of the Tariff and
Customs Code on post-audit, investigated and assessed ABC Corp. for
deficiency customs duties and VAT. Is the Bureau of Customs correct? (2013
Bar Question) A: The Bureau of Customs was not correct.
a. As to the VAT: The Bureau of Customs has no authority to assess
ABC Corp. as this falls under the jurisdiction of the Bureau of Internal
Revenue (BIR). Under Sec. 2 of the NIRC, the BIR’s powers and duties include,
among others, the assessment and collection of all national internal revenue taxes,
fees and charges. VAT is a national internal revenue tax under Title IV of the
NIRC. Under Sec. 12 of the NIRC, ****the Commissioner of Customs and his
subordinates are merely agents and deputies for collection, not assessment
of national internal revenue taxes.
b. As to the deficiency customs duties found on post-audit: The Bureau of
Customs was not correct in assessing deficiency customs duties. The facts show
that the investigation and assessment on post-audit were made on February 17,
2009, which is more than three (3) years from October 15, 2005 which is the date
of payment by ABC Corp. Sec. 4 of Republic Act 9135 amended Section 1603 of
the Tariff and Customs Code of the Philippines. The provision states that when
articles have been entered and passed free of duty or final adjustments of duties
made, with subsequent delivery, such entry and passage free of duty or settlements
of duties will, after the expiration of three (3) years from the date of the final
payment of duties, in the absence of fraud or protest or compliance audit
pursuant to the provisions of this Code, be final and conclusive upon all parties,
unless the liquidation of the import entry was merely tentative. Customs
Administrative Order No. 5-2001 which implements RA 9135, confirms the above
conclusion.
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PRELIMINARIES 248
REMEDIES OF THE TAXPAYER IN GENERAL 249
REMEDIES OF THE GOVERNMENT IN GENERAL 250
SUBJECTS OF TAX REMEDIES IN INTERNAL REVENUE TAXATION 250
TAX RETURN 251
RULES ON RETURNS OF INDIVIDUALS 252
Where to File? 253
When to File? 254
SPECIFIC PERSONS CONCERNED TO FILE ITR 256
RULES ON CORPORATE RETURNS 257
Extension of Time to File Returns 258
Returns of General Professional Partnerships 258
Kinds of filing of return: 258
SUBSTITUTED FILING 258
PARTIES IN TAX REMEDIES 259
1. Tax Remedies 259
A. ASSESSMENT 259
A1. DEFINITION AND REQUISITES OF A VALID ASSESSMENT 259
PAY-AS-YOU-FILE SYSTEM 260
PRINCIPLES GOVERNING TAX ASSESSMENTS [PAD3] 261
IMPORTANCE OF A TAX ASSESSMENT 262
A3. JEOPARDY ASSESSMENT 264
WHEN ASSESSMENT IS MADE 264
A4. PRESCRIPTIVE PERIOD FOR ASSESSMENT 265
PP assessments at the NIRC vs. LGC vs. RPT vs. TCC***** 265
EFFECT OF AMENDED RETURN 270
False vs. Fraudulent vs. Failure to File Return 270
COLLECTION with vs. without prior assessment 273
PRESCRIPTIVE PERIODS FOR ASSESSMENT vs. COLLECTION****** 273
BASIC RULES ON PRESCRIPTION 275
WAIVER OF THE STATUTE OF LIMITATIONS 276
Guidelines for Execution of Waivers (RMO 14-2016) 277
REQUIREMENTS OF A VALID WAIVER OF THE STATUTE OF LIMITATIONS 277
EFFECT OF FAILURE TO CONFORM TO THE REQUIREMENTS OF WAIVER OF THE
STATUTE OF LIMITATIONS 278
GROUNDS FOR SUSPENSION OF PRESCRIPTIVE PERIOD OF ASSESSMENT******
279
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PRELIMINARIES
1. The discussion of tax remedies start with a “tax return”. In the Philippines, we
follow the “self-assessment method”, that is,
a. The income tax payer files his own income tax return (ITR) based on his
own assessment;
b. The executor/administrator of an estate files the estate tax return (ETR);
c. The donor files the donor’s tax return (DTR).
2. What do you file? A tax return.
3. Where do you file it? Venue is critical like in remedial and criminal law. If it is
filed in the wrong venue:
a. It is equivalent to non-filing and non-payment of tax;
b. Taxpayer may ask for refund, but (a) still holds.
[] Note that the BIR is divided into regional offices, similar to court
subdivisions, whereby each is its own territorial jurisdiction headed by a Regional
District Officer.
4. When to file? It depends on whether one is a purely compensation income
earner, a business income earner, a mixed earner or a corporation, infra.
5. Summary of the procedure on tax remedies (explained infra)******
a. Letter of Authority (LOA);
b. Preliminary Assessment Notice (PAN);
c. Final Assessment Notice (FAN);
d. Protest;
e. Action of the BIR
f. Appeal to the CTA
g. Petition for review on certiorari (R45) or petition for certiorari (R65) to SC.
6. NB: The veil of corporation fiction can be pierced if it is used for tax evasion
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purposes.214
214 Prior to the VAT law, sales of cars were subject to a sales tax but the tax applied only to the original
or the first sale; the second and subsequent sales were not subject to tax. Deltoid Motors, Inc. (Deltoid)
hit on the idea of setting up a wholly-owned subsidiary, Gonmad Motors, Inc. (Gonmad), and of
selling its assembled cars to Gonmad at a low price so it would pay a lower tax on the first sale.
Gonmad would then sell the cars to the public at a higher price without paying any sales tax on this
subsequent sale. Characterize the arrangement. (1%) (2013 Bar Question)
(A) The plan is a legitimate exercise of tax planning and merely takes advantage of a loophole in the
law. (B) The plan is legal because the government collects taxes anyway. (C) The plan is improper; the
veil of corporate fiction can be pierced so that the second sale will be considered the taxable sale.
(D) The government must respect Gonmad's separate juridical personality and Deltoid's taxable sale to
it. SUGGESTED ANSWER: (C) The plan is improper; the veil of corporate fiction can be
pierced so that the second sale will be considered the taxable sale. The given problem is similar to
the case of Commissioner of Internal Revenue v. Norton and Harrison Company (G.R. No. L-17618,
August 31, 1964). *****The Supreme Court held that “a taxpayer may gain advantage of doing business
thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the
separate corporate entity where it serves but as a shield for tax evasion and treat the person who
actually may take benefits of the transactions as the person accordingly taxable. To allow a taxpayer to
deny tax liability on the ground that the sales were made through another and distinct corporation
when it is proved that the latter is virtually owned by the former or that they are practically one
and the same is to sanction a circumvention of our tax laws.”
215 Examples of substantive remedies:
a. Questioning the constitutionality of validity of tax statutes or regulations – a tax statute may be
attacked in the courts not only by reason of non- observance or violation of the constitutional
limitations on the exercise of the taxing power, but also on account of violation or non-observance of
the procedure laid down by the fundamental law on enactment of legislation (Manila Electric Co. v. Public
Service Commission, 73 Phil. 128).
b. Non-retroactivity of rulings (Sec. 246, NIRC).
c. Failure to inform the taxpayer in writing of the legal and factual bases of assessment (Sec. 228,
NIRC) – the taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.
d. Publication of Revenue Memorandum Order (RMO) and Revenue Memorandum Circular (RMC) –
While the rule-making authority of the Commissioner of Internal Revenue is not doubted, like any
other government agency, the Commissioner may not disregard legal requirements or applicable
principles in the exercise of quasi-legislative powers (Commissioner v. Michel Lhuillier Pawnshop, G.R. No.
150947, July 15, 2003).
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ordinance
b. After assessment: i. Protest; ii. Tax refund; iii. Right of redemption
3. Under the TCC
a. Protest
b. Abandonment
c. Refund, drawback, abatement
d. Payment of fine or redemption
e. Appeal to Customs Commissioner
4. Under RPT
a. Protest
b. Tax refund or tax credit
c. Redemption of real property
TAX RETURN
1. A subscribed and sworn statement filed by the taxpayer containing relevant
and material information. All taxes under the NIRC are in the nature of self-
assessed taxes.
[] ****There is a disputable presumption that the tax return was filed in
good faith.
[] ****Since a tax return is VERIFIED, if the taxpayer falsifies or forges
an entry or files a return fraudulently216 or in bad faith, he will be
CRIMINALLY LIABLE for PERJURY or FALSIFICATION as the
circumstances may apply, PLUS DEFICIENCY TAXES.
2. Information required in a tax return:
a. Name, address and TIN of taxpayer
b. For INCOME TAX: source of income and deductions allowed
c. For ESTATE TAX: list of properties in the estate and the deductions
allowed
3. *****In case of individuals engaged in trade or business, AUDITED
financial statements by a CPA are necessary to support the return;
4. There is no return filed by the taxpayer who was subjected to final
withholding tax, but the withholding agent must file the WT return;
5. In case of CGT, a return is filed 30 days after each transaction
216 Mr. A was preparing his income tax return and had some doubt on whether a commission he
earned should be declared for the current year or for the succeeding year. He sought the opinion
of his lawyer who advised him to report the commission in the succeeding year. He heeded his
lawyer's advice and reported the commission in the succeeding year. The lawyer's advice turned out
to be wrong; in Mr. A's petition against the BIR assessment, the court ruled against Mr. A. Is Mr. A
guilty of fraud? (1%)(2013 Bar Question) (A) Mr. A is not guilty of fraud as he simply followed the
advice of his lawyer. (B) Mr. A is guilty of fraud; he deliberately did not report the commission in the
current year when he should have done so. (C) Mr. A's lawyer should pay the tax for giving the wrong
advice. (D) Mr. A is guilty for failing to consult his accountant. In Santos v. People of the Philippines
and BIR, the Court of Tax Appeals (CTA) acquitted Santos from the criminal case of tax evasion
and ruled that failure to supply correct and accurate information must be fully established as a
positive act or state of mind; it cannot be presumed nor attributed to mere inadvertent or
negligent acts. Moreover, the CTA reiterated the doctrine in Yulivo Sons hardware v. Court of Tax
Appeals (G.R. No. L- 13203), January 28, 1961, 1 SCRA 169) that *****mere understatement of a
tax is not itself proof of fraud for the purpose of tax evasion. In the present case, Mr. A relied in
good faith on the expertise of his lawyer in not declaring his income for that year. Therefore, he
is not guilty of fraud.
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217Indicate whether each of the following individuals is required or not required to file an income tax
return: (2015 Bar Question)
a) Filipino citizen residing outside the Philippines on his income from sources outside the
Philippines. SUGGESTED ANSWER: No, because a non-resident Filipino citizen is taxable only in
income sourced within the Philippines
b) Resident alien on income derived from sources within the Philippines: Yes because a
resident alien is taxable for income derived from sources within the Philippines.
c) Resident citizen earning purely compensation income from two employers within the
Philippines, whose income taxes have been correctly withheld: Yes. *****A resident citizen who is
earning purely compensation income from two employers should file income tax return for not being
qualified for substituted filing.
d) Resident citizen who falls under the classification of minimum wage earners: No. Under the
law, all minimum wage earners in the private and public sector shall be exempt from payment
of income tax.
e) An individual whose sole income has been subjected to final withholding tax: No.
Under the law, an individual whose sole income has been subjected to final withholding tax pursuant to
Section 57(A) of the NIRC need not file a return.
218Robert Patterson is an American who first arrived in the Philippines in 1944 as a member of the U.S.
Armed Forces that liberated the Philippines. After the war, he returned to the United States but came
back to the Philippines in 1958 and stayed here up to the present. He is presently employed in
the United States Naval Base. Olongapo City. For the year 1985, he earned US$10,856.00. Sometime
in 1986, the District Revenue Office of the Bureau of Internal Revenue served him a notice informing
him that he did not file his income tax return for the year 1985 and directing him to file said return in
10 days. He refused to file any return claiming that he is not a resident alien and is therefore not
required to file any income tax return. Is Patterson’s claim correct? ANSWER: Patterson’s claim is not
correct. *****While Paterson is exempt from income tax, an exemption from income tax does not,
however, necessarily mean an exemption likewise from the filing of an income tax return
(Garrison vs. Court of Appeals, 187 SCRA 525). (BAR 1991)
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from two or more employers at any time during the taxable year shall file an
income tax return: Provided, further, That an individual whose compensation
income derived from sources within the Philippines exceeds Sixty thousand
pesos (P60,000) shall also file an income tax return;219
(c) An individual whose sole income220 has been subjected to final
withholding tax pursuant to Section 57(A) of this Code; and
(d) An individual who is exempt from income tax pursuant to the
provisions of this Code and other laws, general or special.
****The foregoing notwithstanding, any individual not required to file
an income tax return may nevertheless be required to file an information
return pursuant to rules and regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner.
3. INCOME COVERED BY THE RETURNS: The income tax return shall be
filed in duplicate by the following persons:
(a) A resident citizen - on his income from all sources;
(b) A nonresident citizen - on his income derived from sources within the
Philippines;
(c) A resident alien - on his income derived from sources within the
Philippines; and
(d) A nonresident alien engaged in trade or business in the Philippines -
on his income derived from sources within the Philippines.
WHERE TO FILE?
*Except in cases where the Commissioner otherwise permits, the return shall be
filed with
219A bachelor was employed by Corporation A on the first working day of January 1996 on a part-
time basis with a salary of P3.500.00 a month. He then received the 13th month pay. In September
1996, he accepted another part-time job from Corporation B from which he received a total
compensation of P14,500.00 for the year 1996. The correct total taxes were withheld from both
earnings. With the withholding taxes already paid, would he still be required to file an income tax
return for his 1996 income? ANSWER: *****Yes, because what is exempt from filing are those
individuals who have total compensation income not exceeding P60.000 with the taxes correctly
withheld only by one employer. In this case, even if his aggregate compensation income from both
his employers does not exceed P60.000 and that total withholding taxes were correctly withheld
by his employers, *****the fact that he derives compensation income concurrently from two
employers at anytime during the taxable year, does not exempt him from filing his income tax return
(RA 7497. as implemented by RR No. 4-93). (BAR 1997)
220Is a non-resident alien who is not engaged in trade or business or in the exercise of profession in
the Philippines but who derived rental income from the Philippines required to file an income tax
return on April of the year following his receipt of said income? If not, why not? Explain your answer.
(5%) SUGGESTED ANSWER: No. *****The income tax on all income derived from Philippine
sources by a non-resident alien who is not engaged in trade or business in the Philippines is withheld
by the lessee as a Final Withholding Tax. (Section 57(A), NIRC). The government cannot require
persons outside of its territorial jurisdiction to file a return; for this reason, the income tax on
income derived from within must be collected through the withholding tax system and thus relieve
the recipient of the income the duty to file income tax returns. (Section 51, NIRC). (BAR 2001)
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WHEN TO FILE?
DUE DATES FOR FILING OF RETURNS*****
1. For INCOME TAX RETURNS:
1a. Individual Taxpayers, who are:
a. Purely compensation income earners (CIE): April 15 of each year.
Substituted filing221 can be had if the CIE had only one (1) employer (ER) and
had no other income other than that derived from employment. The latter is filed
on February 28 of each year. It does not apply to individual taxpayers who:
i. have more than one employers;
ii. have sources of income other than from mere employment, i.e., he
is a mixed-income earner.
b. For both (a) Compensation and business income earners; (b) purely
business income earners (BIE); and (c) professional income earners (PIE): File
quarterly returns within 60 days from the close of the quarter, and the last quarter
shall be paid together with the consolidated annual return on April 15, that is:
i. Q1 (Jan to March): pay not later than May 15;
ii. Q2 (April to Jun): pay not later than August 15;
iii. Q3 (July to Sept): pay not later than November 15;
iv. Consolidated/Final return: pay not later than April 15.
221 *If the spouses are qualified under “substituted filing,” they need not file Income Tax Returns. In
case of married individuals who are still required to file returns or in those instances not covered by the substituted filing
of returns, only one return for the taxable year shall be filed by either spouse to cover the income
of the spouses, which return shall be signed by the husband and wife, unless it is physically impossible to
do so, in which case signature of one of the spouses would suffice
[] For individuals receiving purely compensation income from a single employer, although
the income of which has been correctly withheld, but whose spouse is not entitled to substituted
filing, the spouses are required to file income tax returns.
******Substituted filing applies only if all of the following requirements are present :
a. the employee received purely compensation income (regardless of amount) during the
taxable year
b. the employee received the income from only one employer in the Philippines during the
taxable year
c. the amount of tax due from the employee at the end of the year equals the amount of tax withheld by
the employer
d. the employee’s spouse also complies with all 3 conditions stated above
e. the employer files the annual information return (BIR Form No. 1604-CF)
f. the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.
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222How often does a domestic corporation file income tax return for income earned during a single
taxable year? Explain the process. (3%) What is the reason for such procedure? (2%) SUGGESTED
ANSWER: *****A domestic corporation is required to file income tax returns four (4) times for
income earned during a single taxable year. Quarterly returns are required to be filed for the first
three quarters where the corporation shall declare its quarterly summary of gross income and
deductions on a cumulative basis. (Section 75, NIRC). Then, a final adjustment return is required
to be filed covering the total taxable income for the entire year, calendar or fiscal. (Section 76,
NIRC). *****The reason for this procedure is to ensure the timeliness of collection to meet the
budgetary needs of the government. Likewise, it is designed to ease the burden on the taxpayer
by providing it with an installment payment scheme, rather than requiring the payment of the tax
on a lump-sum basis after the end of the year. ALTERNATIVE ANSWER: The reason for the
quarterly filing of tax returns is to allow partial collection of the tax before the end of the taxable
year and also to improve the liquidity of government. (BAR 2001)
223Gerardo died on July 31, 2011. His estate tax return should be filed within: (2011 Bar Question)
(A) six months from filing of the notice of death. (B) sixty days from the appointment of an
administrator. (C) six months from the time he died on July 31, 2011. (D) sixty days from the time
he died on July 31, 2011.
224Also for other prescriptive periods: COMPUTATION OF THE THREE (3) YEAR PERIOD
re ASSESSEMENT: It is computed based on the Administrative Code, where a "year” shall be
understood to be 12 calendar months. E.O. 292 or the Administrative of 1987, specifically Section
31, Chapter VIII, Book I provides “Legal Periods” – ‘Year’ shall be understood to be twelve calendar
months; ‘months’ of thirty days, unless it refers to a specific calendar month in which case it shall be
computed according to the number of days the specific month contains. (Primetown doctrine) (CIR v.
Primetown Property Group, Inc., G.R. No. 162155, August 28, 2007)
NOTE: Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a
leap year. There obviously exists a manifest incompatibility in the manner of computing legal periods
under the Civil Code and the Administrative Code of 1987. The Administrative Code of 1987, being
the more recent law governs the computation of legal periods (id.).
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225 Also in Tax Refund cases: TWO (2)-YEAR PERIOD SHALL BE COMPUTED
1. Under the Administrative Code of 1987, a year is composed of 12 calendar months. The number
of days is irrelevant (CIR v. Primetown Property Group, Inc. 531 SCRA 436,).
2. *****The two-year period for filing tax refund is not jurisdictional: The Supreme Court held that
even if the two-year period had already lapsed, the same is not jurisdictional and may be suspended
for reasons of equity and other special circumstances (CIR v. PNB, 474 SCRA 303).
226 Raffy and Wena, husband and wife, are both employed by XXX Corporation. After office hours,
they jointly manage a coffee shop at the ground floor of their house. The coffee shop is registered in
the name of both spouses. Which of the following is the correct way to prepare their income tax
return? Write the letter only. DO NOT EXPLAIN YOUR ANSWER. (2%)
A. Raffy will declare as his income the salaries of both spouses, while Wena will declare he income
from the coffee shop.
B. Wena will declare the combined compensation income of he spouses, and Raffy will declare the
income from the coffee shop.
C. All the income will be declared by raffy alone, because only one consolidated return is required to be
filed by the spouses.
Page 224 of 450 Law on Taxation
D. Raffy will declare his own compensation income and Wena will declare hers. The income
from the coffee shop shall be equally divided between them. *****Each spouse shall be taxed
separately on their corresponding taxable income to be covered by one consolidated return for
the spouses.
E. Raffy will declare his own compensation income and Wena will declare hers. The income from the
coffee shop shall be equally divided between them. Raffy will file one income tax return to cover all the
income of both spouses, and the tax is computed on the aggregate taxable income of the spouses.
(BAR 2009)
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unmarried minors derived from property received from a living parent shall be
included in the return of the parent, except****
a. when the donor's tax has been paid on such property, or
b. when the transfer of such property is exempt from donor's tax.
3. Persons Under/With Disability: If the taxpayer is unable to make his own
return, the return may be made by his duly authorized agent or representative
or by the guardian or other person charged with the care of his person or
property, the principal and his representative or guardian assuming the
responsibility of making the return and incurring penalties provided for
erroneous, false or fraudulent returns.
4. ****Signature Presumed Correct: The fact that an individual's name is signed
to a filed return shall be PRIMA FACIE EVIDENCE for all purposes that the
return was actually signed by him.
SUBSTITUTED FILING
*It applies to a compensation income earner who:
1. is employed only by one227 employer
2. there is no other form of income but compensation
227In the year 2000, X worked part time as a waitress in a restaurant in Mega Mall from 8:00 a.m. to
4:00 p.m. and then as a cashier in a 24-hour convenience store in her neighborhood. The total income
of X for the year from the two employers does not exceed her total personal and additional exemptions
for the year 2000. Was she required to file an income tax return last April? Explain your answer. (5%)
SUGGESTED ANSWER: Yes. *****An individual deriving compensation concurrently from two or
more employers at any time during the taxable year shall file an income tax return (Sec. 51(A)(2)(b),
NIRC.)(BAR 2001)
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1. Tax Remedies
A. ASSESSMENT
d. Illegal and Void Assessment – tax assessor has no power to assess at all.
e. Erroneous Assessment – assessor has power to assess but errs in the exercise
thereof.
f. Jeopardy Assessment (refer to further discussion below)
2. Concept of assessment
a. It is a written notice and demand made by the BIR on the taxpayer for the
settlement of a due tax liability that is there definitely set and fixed. A written
communication by a revenue officer of tax liability of the taxpayer, giving him an
opportunity to contest or disprove the BIR examiner’s findings is not an
assessment since it is yet indefinite. The recommendation of the Commissioner
cannot be considered a formal assessment. (Adamson v. Cam 588 SCRA 27)
b. An assessment contains not only a computation of tax liabilities, but also
a demand for payment within a prescribed period. It signals the time when the
penalties and interest begin to accrue against the taxpayer. (CIR v. PASCOR, 309
SCRA 402)
c. Generally, an assessment refers to the formal assessment notice (FAN),
which is serially numbered, accountable form of the government. Thus, a pre-
assessment notice (PAN) issued by a revenue official preparatory to the issuance
of a formal or final assessment notice (FAN) as part of procedural due process is
not, legally speaking, an assessment, even if it contains a computation of tax
liabilities of a taxpayer and a demand for payment of the computed tax liabilities.
3. Assessment precedes collection except when the unpaid tax is a tax due per return as
in the case of a self- assessed income tax under the pay-as-you-file system, in which case, the
collection may be instituted without need of assessment pursuant to Section 56 of
the NIRC. Collectibility of the tax liability attaches only when the assessment
becomes final and unappealable (Dimaampao, J., 2015).
PAY-AS-YOU-FILE SYSTEM
1. The Tax Code follows the pay-as-you-file system of taxation under which the
taxpayer computes his own tax liability, prepares the return, and pays the tax as he
files the return.
2. GR: Internal Revenue Taxes are self-assessing. They do not require the issuance
of an assessment notice in order to establish the tax liability of a taxpayer.
3. XPNs:
a. Improperly Accumulated Earnings Tax (Sec. 29, NIRC)
b. When the taxable period of a taxpayer is terminated (Sec. 6 [D], NIRC)
c. In case of deficiency tax liability arising from a tax audit conducted by the
BIR (Sec. 56 [B], NIRC)
d. Tax lien (Sec. 219, NIRC)
e. Dissolving corporation (Sec. 52 [c], NIRC)
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DUE PROCESS
The concept of due process in assessment can be summarized as follows:
1. Taxpayer should be notified that there is an assessment
2. In such notice, he must be informed of the legal and factual basis of
assessment, for both PAN and FAN (CIR v. Metro Star Suprema Inc., G.R. No.
185371, December 8, 2010).
SERVICE OF ASSESSMENT
3 Ways to serve PAN/FAN/FDDA are as follows:
228 settled is the rule that assessments are prima facie presumed correct and made in good faith, with
the taxpayer having the burden of proving otherwise. (FELS Energy, Inc. V. The Province of Batangas, et
al., G.R. No. 168557, February 16, 2007) It is an elementary rule that in the absence of any irregularities
in the performance of official duties, an assessment will not be disturbed. Verily, failure to present
proof of error in assessments will justify judicial affirmance of said assessment. (ACMDC v. CA, 242
SCRA 289)
229Which among the following circumstances negates the prima facie presumption of correctness
of a BIR assessment? (2011 Bar Question): (A) The BIR assessment was seasonably protested within
30 days from receipt. (B) No preliminary assessment notice was issued prior to the assessment notice.
(C) Proof that the assessment is utterly without foundation, arbitrary, and capricious. (D) The
BIR did not include a formal letter of demand to pay the alleged deficiency.
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1. Personal service, or
2. Registered mail
3. Substituted delivery (RR 18-2013)
232When is a revenue tax considered delinquent? [3%I What constitutes prima facie evidence of a false
or fraudulent return? [2%] SUGGESTED ANSWER: *****A revenue tax is considered delinquent
when it is unpaid after the lapse of the last day prescribed by law for its payment. Likewise, it could
also be considered as delinquent where an assessment for deficiency tax has become final and the
taxpayer has not paid it within the period given in the notice of assessment. (BAR 1998)
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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, September 5, 1967). NB:
When an assessment notice is sent by mail, the presumption is that a letter duly
directed and mailed was received in the regular course of mail.
3. Q: GJM filed its Annual Income Tax Return for the taxable year 1999 on April
12, 2000. BIR sent FAN through registered mail on April 14, 2003, well within the
3-year prescriptive period. GJM however denies having received any FAN. BIR
failed to prove that GJM received the FAN. Should the assessment be given due
course? A: NO. The court has held that when an assessment is made within the
prescriptive period, as in the case at bar, receipt by the taxpayer may or may not be
within said period. But the rule does not dispense with the requirement that the
taxpayer should actually receive the assessment notice, even beyond the
prescriptive period. If the taxpayer denies having received the assessment from
the BIR, it then becomes incumbent upon the latter to prove by competent
evidence that such notice was indeed received by the addressee.
Here, the onus probandi has shifted to the BIR to show by contrary evidence
that GJM indeed received the assessment in the due course of mail. While it is
true that an assessment is made when the notice is sent within the prescriptive
period, the release, mailing, or sending of the same must still be clearly and
satisfactorily proved. (CIR v. GJM, G.R. No. 202695, February 29, 2016)
GR: Three (3) years from the date of: 1. Actual filing GR: Five GR: Five Does not express
of the return or 2. From the last date prescribed by (5) years (5) years or prescribes
law for the filing of such return, whichever comes from the from the statute of
later. (Sec. 203, NIRC)
date they date they limitation but it
XPNs: 1. In case of false or fraudulent return with became become provides that the
intent to evade tax, or the failure to file any return at due due entry and
all: Ten (10) years: a. From discovery of the falsity, XPN: Ten XPN: Ten passage free of
b. From discovery of fraud, or c. Omission to file a (10) years (10) years duty will, after
return; 2. If before the expiration of the three (3) from from the expiration of
year period for the assessment of the tax, there is an discovery discovery 3 years from
agreement in writing between the taxpayer and the of: of: date of final
BIR Commissioner – the period agreed upon which 1. Fraud 1. Fraud or
payment of
may be extended by subsequent written agreements or
2. Intent duties, shall
made before the period previously agreed upon. It is 2. Intent to evade become final and
known as “extended assessment”. (Sec. 222 (b), to evade payment of conclusive upon
NIRC) payment of taxes the parties. (Sec.
taxes 4, R.A. 9135)
Bar scenarios:
a. These periods are exceptions to the imprescriptibility of taxes;237
When partial payment has been made, BIR still has to follow the periods set
herein to collect the remainder. It is the postmark on the envelope bearing the
assessment that is material in determining the date.238 Hence, even if the taxpayer
237Taxes were generally imprescriptible; statutes, however, may provide otherwise. State the rules
that have been adopted on this score by – The National Internal Revenue Code; SUGGESTED
ANSWER: The statute of limitation for assessment of tax if a return is filed is within three (3)
years from the last day prescribed by law for the filing of the return or if filed after the last day,
within three years from date of actual filing. If no return is filed or the return filed is false or
fraudulent, the period to assess is within ten years from discovery of the omission, fraud or falsity.
(BAR 1997)
vs. TCC: The rules that have been adopted on prescription are as follows: Tariff and Customs
Code - *****It does not express any general statute of limitation; it provided, however, that
"when articles have entered and passed free of duty or final adjustment of duties made, with
subsequent delivery, such entry and passage free of duty or settlement of duties will, after the
expiration of one (1) year, from the date of the final payment of duties, in the absence of fraud
or protest, be final and conclusive upon all parties, unless the liquidation of import entry was
merely tentative" (Sec 1603, TCC). (BAR 1997)
vs. LGC: The rules that have been adopted on prescription are as follows: *****Local taxes,
fees, or charges shall be assessed within five (5) years from the date they became due. In case of
fraud or intent to evade the payment of taxes, fees or charges the same maybe assessed within ten
years from discovery of the fraud or intent to evade payment. They shall also be collected either by
administrative or judicial action within five (5) years from date of assessment (Sec. 194, LGC).
(BAR 1997)
238Mia, a compensation income earner, filed her income tax return for the taxable year 2007 on
March 30, 2008. On May 20, 2011, Mia received an assessment notice and letter of demand
covering the taxable year 2007 but the postmark on the envelope shows April 10, 2011. Her return is
not a false and fraudulent return. Can Mia raise the defense of prescription? (2011 Bar Question)
(A) No. The 3 year prescriptive period started to run on April 15, 2008, hence, it has not yet
expired on April 10, 2011. (B) Yes. The 3 year prescriptive period started to run on April 15, 2008,
hence, it had already expired by May 20, 2011. (C) No. The prescriptive period started to run on March
30, 2008, hence, the 3 year period expired on April 10, 2011. (D) Yes. Since the 3-year prescriptive
period started to run on March 30, 2008, it already expired by May 20, 2011.
Sancte Mattheus, ora pro nobis! ! 267 of !395
received the mail after the three-year period, it is still valid as long as the postmark
on the envelope is within the said three-year prescriptive period.239
b. If the ITR is filed before April 15, the prescriptive period still starts on
April 15.240 When assessment was issued by BIR beyond the prescriptive periods,
239 On April 15, 2011, the Commissioner of Internal Revenue mailed by registered mail the final
assessment notice and the demand letter covering the calendar year 2007 with the QC Post Office.
Which statement is correct? (2012 BAR) a) The assessment notice is void because it was mailed beyond
the prescriptive period; b) The assessment notice is void because it was not received by the taxpayer
within the three-year period from the date of filing of the tax return; c) The assessment notice is void
if the taxpayer can show that the same was received only after one (1) month from date of mailing; d)
The assessment notice is valid even if the taxpayer received the same after the three-year period from
the date of filing of the tax return. SUGGESTED ANSWER: d) The assessment notice is valid even if
the taxpayer received the same after the three-year period from the date of filing of the tax return.
Section 203, NIRC; BPI v. CIR, G.R. No. 139736, October 17, 2005. [TOM: Since the taxable period is
2007, the last day of filing is on April 15, 2008. Add three years, and so, the deadline for the issuance of
an assessment notice is April 15, 2011.]
240 Q: Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his 2004 ITR on Mar. 30,
2005. On Dec. 30, 2005, he left the Phil. as an immigrant to join his family in Canada. After
investigation of said return, the BIR issued a notice of deficiency income tax assessment on Apr.
15, 2008. Mr. Reyes returned to the Phil. as a balikbayan on Dec. 8, 2008. Finding his name to be in the
list of delinquent taxpayers, he filed a protest against the assessment on the ground that he did not
receive a notice of assessment and the assessment had prescribed. Will the protest prosper?
(2000 Bar) A: NO, the assessment has not yet prescribed since the BIR has a period of 3 years
from the last day prescribed by law for the filing of the return. The return was filed on March 30,
2005, that is, before the last day prescribed by law for its filing, hence the law considers it as being
filed on the last day prescribed by law for the filing of the same, which is April 15, 2005. The
assessment issued on Apr. 15, 2008 is therefore within the 3 year prescriptive period.
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241 The Commissioner of Internal Revenue issued an assessment for deficiency income tax for
taxable year 2000 last July 31, 2006 in the amount of P10 Million inclusive of surcharge and
interests. If the delinquent taxpayer is your client, what steps will you take? What is your defense? 10%
SUGGESTED ANSWER: Since my client has already lost his right to protest the assessment
having been issued on July 31, 2006 and that he is already categorized as a delinquent tax payer.
I will advise him to wait for a collection action to be instituted by the commissioner. Once collection
is pursued. I will file a petition for review with the CTA to question the validity of the
commissioner’s action. My defense would be prescription. Since the assessment was issued
beyond the prescriptive period to assess, the assessment is invalid and any action to collect an
invalid assessment is not warranted (Phil. Journalists, Inc. v. CIR, 447 SCRA 214 [2004])
ANOTHER SUGGESTED ANSWER: I will advise my client, who is a delinquent taxpayer, to
file a request with the Commissioner of Internal Revenue for the abatement of the entire
assessment on the ground that the same is unjustly assessed (Sec, 204, NIRC). I will invoke
prescription as a defense against the assessment. I will tell the Commissioner that the assessment
having been issued beyond the prescriptive period, the deficiency income tax would appear to be
unjustly assessed which would justify the abatement or cancellation of the entire assessment.
ANOTHER SUGGESTED ANSWER: *****I will immediately file a protest within thirty
(30) days from receipt of the assessment by my client addressed to the Commissioner of Internal
Revenue, alleging prescription as my defense because the assessment was issued beyond three (3)
years as required by law (Sec. 228 and 203, NIRC). Should the Commissioner deny my protest, I will file an
appeal to the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision (Sec.
228, NIRC). Should the CTA Division deny my petition for review, I will file a Motion for Reconsideration
within 15 days from receipt of the denial. Should the Division deny my Motion for Reconsideration, I
will appeal to the CTA en banc and from the latter’s denial, I will appeal to the Supreme Court by way
of a petition for certiorari [TOM: isn't this supposed to be petition for review on certiorari under
Rule 45?] within 15 days from receipt of the en banc decision. (BAR 2006) [TOM prefers this one].
242 Q: Mr. Sebastian is a Filipino seaman employed by a Norwegian company which is engaged
exclusively in international shipping. He and his wife, who manages their business, filed a joint
ITR for 1997 on Mar. 15, 1998. After an audit of the return, the BIR issued on Apr. 20, 2001 a
deficiency income tax assessment for the sum of P250,000 inclusive of interest and penalty. For
failure of Mr. and Mrs. Sebastian to pay the tax within the period stated in the notice of assessment,
the BIR issued on Aug. 19, 2001 warrants of distraint and levy to enforce collection of the tax. If
you are the lawyer of Mr. and Mrs. Sebastian, what possible defenses will you raise in behalf of your
clients against the action of the BIR in enforcing collection of the tax? (2002 Bar) A: I will raise the
defense of prescription. The right of the BIR to assess prescribes after three years counted from
the last day prescribed by law for the filing of the income tax returns when the said return is filed
on time (Sec. 203, NIRC). The last day for filing the 1997 income tax return is April 15, 1998. Since
the assessment was issued only on Apr. 20, 2001, the BIR's right to assess has already prescribed.
Sancte Mattheus, ora pro nobis! ! 269 of !395
243KaTato owns a parcel of land in San Jose, Batangas declared for real property taxation, as
agricultural. In 1990, he used the land for a poultry feed processing plant but continued to declare
the property as agricultural. In March 2011, the local tax assessor discovered KaTato’s change
of use of his land and informed the local treasurer who demanded payment of deficiency real
property taxes from 1990 to 2011. Has the action prescribed? (2011 Bar Question) (A) No, the
deficiency taxes may be collected within five years from when they fell due. (B) No. The deficiency
taxes for the period 1990 up to 2011 may still be collected within 10 years from March 2011. (C)
Yes. More than 10 years had lapsed for the period 1990 up to 2000, hence the
right to collect the deficiency taxes has prescribed.(D) Yes. More than 5 years had lapsed for the
collection of the deficiency taxes for the period 1990 up to 2005.
244When liquidation is deemed final - *****An assessment or liquidation by the Bureau of Customs
attains finality and conclusiveness three (3) years from the date of the final payment of duties except when: i.
There was fraud; ii. There is a pending protest; or iii. The liquidation of import entry was merely
tentative. (Sec. 1603 TCC, as amended by R.A. 9135)
[] Q: On October 15, 2011, ABC Corp. imported 1,000 kilos of steel ingots and paid
customs duties and VAT to the Bureau of Customs on the importation. On February 17, 2015, the
Bureau of Customs, citing provisions of the Tariff and Customs Code on postaudit, investigated and
assessed ABC Corp. for deficiency customs duties and VAT. Is the Bureau of Customs correct?
(2013 Bar) A: NO. An assessment or liquidation by the Bureau of Customs attains finality and
conclusiveness three (3) years from the date of the final payment of duties. However, if there was
fraud, pending protest or if the liquidation of the import entry was merely tentative, then the Bureau
of Customs can still assess deficiency duties. (Sec. 1603 TCC, as amended by R.A. 9135).
*****As to the VAT: The Bureau of Customs has no authority to assess ABC Corp. as
this falls under the jurisdiction of the Bureau of Internal Revenue (BIR). Under Sec. 2 of the
NIRC, the BIR’s powers and duties include, among others, the assessment and collection of all national
internal revenue taxes, fees and charges. VAT is a national internal revenue tax under Title IV of the
NIRC. Under Sec. 12 of the NIRC, the Commissioner of Customs and his subordinates are
merely agents and deputies for collection, not assessment of national internal revenue taxes.
ALTERNATIVE [***TOM prefers this because there is no showing of fraud, protest,
compliance audit or mere tentativeness of the liquidation]: *****As to the deficiency customs duties
found on post-audit: The Bureau of Customs was not correct in assessing deficiency customs
duties. The facts show that the investigation and assessment on post-audit were made on February 17,
2009, which is more than three (3) years from October 15, 2005 which is the date of payment by
ABC Corp. Sec. 4 of Republic Act 9135 amended Section 1603 of the Tariff and Customs Code of the
Philippines. *****The provision states that when articles have been entered and passed free of
duty or final adjustments of duties made, with subsequent delivery, such entry and passage
free of duty or settlements of duties will, after the expiration of three (3) years from the date of
the final payment of duties, in the absence of fraud or protest or compliance audit pursuant to the
provisions of this Code, be final and conclusive upon all parties, unless the liquidation of the
import entry was merely tentative. Customs Administrative Order No. 5-2001 which implements RA
9135, confirms the above conclusion.
Sancte Mattheus, ora pro nobis! ! 270 of !395
245 Q: A Co., a DC filed its 1995 ITR on Apr. 15, 1996 showing a net loss. On Nov. 10, 1996, it
amended its 1995 ITR to show more losses. After an investigation, the BIR disallowed certain
deductions claimed by A Co., putting A Co., in a net income position. As a result, on Aug. 5, 1999,
the BIR issued a deficiency income assessment against A Co. A Co., protested the assessment on
the ground that it has prescribed. (1999 Bar) A: The right of the BIR to issue an assessment has not
yet prescribed since the return was amended. The rule is that internal revenue taxes shall be
assessed within 3 years after the last day prescribed by law for the filing of the return (Sec. 203,
NIRC). *****However, if the return originally filed is amended substantially, the counting of the
3-year period starts from the date the amended return was filed. There is substantial amendment
in this case because a new return was filed declaring more losses, which can only be done either in
reducing gross income or in increasing the items of deduction. Thus, the period within which to
assess shall prescribe on November 10, 1999.
246NOTE: The assessment of the tax is deemed made and the three year period for collection of the
assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the
BIR to the taxpayer. *****Thus, failure of the BIR to file a warrant of distraint or serve a levy on
taxpayer's properties nor file collection case within the three year period is fatal. Also, the attempt
of the BIR to collect the tax through its Answer with a demand for the taxpayer to pay the assessed
DST in the CTA is not deemed compliance with the Tax Code (China Banking Corporation vs.
Commissioner of Internal Revenue, G.R. No. 172509, February 04, 2015).
Sancte Mattheus, ora pro nobis! ! 271 of !395
Contains wrong
information due to
mistake,
Intentional and deceitful with the
carelessness or Omission to file a return in the
sole aim of evading the correct tax
ignorance (Aznar v. date prescribed by law
due
CTA, G.R. No.
L-20569, August 23,
1974).
Deviation from the Omission can be intentional or
Intentional or deceitful entry with
truth, whether not,
intent to evade the taxes due.
intentional or not,
Filing a fraudulent return will make the
The mere omission is already a
taxpayer liable for the crime of moral
violation regardless of the
Does not make the turpitude as it entails willfulness and
fraudulent intent or willfulness
taxpayer criminally fraudulent intent on the part of the
of the individual (CIR vs. Bank of
liable individual (Republic v. Marcos II, G.R.
Commerce, CTA EB Case No. 654,
Nos. 130371 & 130855, August 4, 2009,
March 14, 2011).
595 SCRA 43).
The tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the falsity, fraud or
omission
1. False vs. Fraudulent returns247 vs. Effect of filing a wrong return.248
2. GR: The willful neglect to file the required tax return or the fraudulent
247 T/F. A false return and a fraudulent return are one and the same. SUGGESTED ANSWER: False.
There is a difference between a false return and a fraudulent return. *****The first merely implies a
deviation from the truth or fact whether intentional or not, whereas the second is intentional and
deceitful with the aim of evading the correct tax due (Aznar v. Commissioner, GR No. L-20569,
August 23, 1974, 58 SCRA S19[1974]). (BAR 2009)
[] Distinguish a false return from a fraudulent return. ANSWER: The distinction between a
false return and a fraudulent return is that the first merely implies a deviation from the truth or fact
whether intentional or not, whereas the second is intentional and deceitful with the sole aim of
evading the correct tax due [Aznar vs. Commissioner, L-20569. August 23, 1974). ALTERNATIVE
ANSWER: A false return contains deviations from the truth which may be due to mistakes,
carelessness or ignorance of the person preparing the return. A fraudulent return contains an
intentional wrongdoing with the sole object of avoiding the tax and it may consist in the
intentional under declaration of income, intentional over declaration of deductions or the
recurrence of both. A false return is not necessarily tainted with fraud because the fraud
contemplated by law is actual and not constructive. Any deviation from the truth on the other
hand, whether intentional or not, constitutes falsity. [Aznar vs. Commissioner, L-20569, August 23,
1974) (BAR 1996)
248 If what was filed was a wrong return, the ten (10)-year prescriptive period will still apply. This is true
even if the information embodied in the wrong return could enable the BIR to assess the tax liability
of the taxpayer (Butuan Sawmill, Inc., v. CTA, 16 SCRA 277). A taxpayer whose accountant filed a
falsified tax return without his knowledge is only liable for the deficiency tax and interest. The
accountant will however be criminally liable under the NIRC. (2005 BAR)
[] Caveat: The accused’s mere reliance on the representations made by his accountant, with
deliberate refusal or avoidance to verify the contents of his tax return and to inquire on its
authenticity constitutes: (2012 BAR) a) Simple negligence; b) Gross negligence; c) Willful blindness; d)
Excusable negligence. SUGGESTED ANSWER: c) Willful blindness; CTA E.B. Criminal Case No.
006; People vsKintanar, G.R. No. 196340.
Sancte Mattheus, ora pro nobis! ! 272 of !395
249Q: When is a return deemed false or fraudulent? A: A prima facie evidence of false or fraudulent
return arises when there is: a. A substantial under declaration of taxable sales, receipts or income; or b. A
substantial overstatement of deductions (Sec. 248, NIRC)
250What constitutes prima facie evidence of a false or fraudulent return to justify the imposition
of a 50% surcharge on the deficiency tax due from a taxpayer? Explain. (5%) SUGGESTED
ANSWER: There is a prima facie evidence of false or fraudulent return when the taxpayer
substantially underdeclared his taxable sales, receipts or income, or substantially overstated his
deductions, the taxpayer’s failure to report sales, receipts or income in an amount exceeding 30% of
that declared per return, and a claim of deduction in an amount exceeding 30% of actual deduction
shall render the taxpayer liable for substantial underdeclaration and overdeclaration, respectively, and
will justify the imposition of the 50% surcharge on the deficiency tax due from the taxpayer. (Sec. 248,
NIRC). (BAR 2002)
251 Q: When is there a substantial underdeclaration of taxable sales, receipts or income? A: When there
is failure to report sales, receipts or income in an amount exceeding 30% of that declared per return.
252Q: When is there a substantial overstatement of deductions? A: There is a substantial
overstatement of deductions where a claim of deduction exceeds 30% of actual deductions.
253There is prima facie evidence of a false or fraudulent return where the: (2011 Bar Question) (A) tax
return was amended after a notice of assessment was issued. (B) tax return was filed beyond the
reglementary period. (C) taxpayer changed his address without notifying the BIR. (D) deductions
claimed exceed by 30% the actual deductions.
Sancte Mattheus, ora pro nobis! ! 273 of !395
[] Bar scenarios: Is collection five years from receipt of the assessment notice?254
Yes, it’s 5 years from receipt255 of notice of the FAN. However, the prescriptive
period provided by law to make collection by distraint and/or levy or by a
proceeding in court is interrupted once a taxpayer protests the assessment and
254 On September 19, 1973, the BIR sent a notice of assessment to X to pay P300.000.00 as forest
charges for the year 1970-73. X made a partial payment of P100.000.00 on September 28,1973. X
died in November, 1977. On July 29, 1979, the BIR filed in the Testate Estate Proceedings of X
a claim for P200.000.00 the unpaid forest charges left by X. the administrator of the estate opposed
the claim on the ground of prescription. Decide. ANSWER: *****Where assessment was made, the
tax may be collected within five (5) years (now 3 years) [TOM: collection is 5 years] from the
date of assessment [Collection of Internal Revenue v. Pineda, 2 SCRA 401; Umali, Roman A.,
Reviewer in Taxation, 1985. pp. 486-487; Vitug, JoseC., Compendium of Tax Law and Jurisprudence,
2nd Rev., Ed.. 1986, p. 255). In the case at bar, on the basis of the notice of assessment, X voluntarily
made a partial payment to the Bureau of Internal Revenue in the amount of One Hundred
Thousand Pesos (P100,000.00). However, it took the BIR almost more than five (5) years to take
the necessary legal action to collect the remaining amount of taxes due. This is clearly beyond the
five (5) now three (3) year period for the collection of taxes. Hence, the claim filed by the BIR against
the Estate of X for the payment of Two Hundred Thousand Pesos (P200.000.00) has prescribed.
ALTERNATIVE ANSWERS: The claim has prescribed as the BIR has only three (3) years
[TOM: collection is 5 years] from the date of the assessment to collect. Taxes are money claims
that must be filed with the probate court within the period provided for in the Rules of Court (Sections
1 and 2. Rule 86). In the case of Domingo v. Garlttos (8 SCRA 443), the court ruled that the claims
shall be barred if filed beyond the prescribed period Just like any other money claims. But the
ruling in Garlitos was superseded by Vera v. Fernandez which ruled that estate taxes are payable even
if presented beyond the period in the statute of non-claims in the Rules of Court. (BAR 1993)
255On March 30, 2005 Miguel Foods, Inc. received a notice of assessment and a letter of demand
on its April 15, 2002 final adjustment return from the BIR. Miguel Foods then filed a request for
reinvestigation together with the requisite supporting documents on April 25, 2005. On June 2, 2005,
the BIR issued a final assessment reducing the amount of the tax demanded. Since Miguel Foods
was satisfied with the reduction, it did not do anything anymore. On April 15, 2010 the BIR
garnished the corporation's bank deposits to answer for the tax liability. Was the BIR action
proper? (2011 Bar Question) (A) Yes. The BIR has 5 years from the filing of the protest within which
to collect. (B) Yes. The BIR has 5 years from the issuance of the final assessment within which
to collect. (C) No. The taxpayer did not apply for a compromise. (D) No. Without the taxpayer’s prior
authority, the BIR action violated the Bank Deposit Secrecy Law.
Sancte Mattheus, ora pro nobis! ! 275 of !395
256 Fitness, Inc. is a domestic corporation engaged in the manufacture and sale of nutritional products.
It pays royalties to its foreign licensor. After investigation, the BIR on December 17, 1974, sent a
notice of assessment to Fitness, Inc. for allegedly failing to remit withholding tax at source for the
fourth quarter of 1973 on its royalties. It demanded payment of P3,000,000.00. The notice was re-
ceived by Fitness, Inc. on December 19, 1974. On February 8,1975, Fitness, Inc., through its counsel,
protested the assessment and requested its cancellation or withdrawal on the ground that it lacked
factual and legal bases. On December 10, 1979, the Commissioner of the BIR rendered a decision
reducing the assessment to PI.500.000.00. Fitness. Inc. was not satisfied and on January 18, 1980, it
filed a petition for review of the decision in the CTA to enjoin the enforcement of the assessment.
On February 7, 1980, the BIR issued a warrant of distraint against Fitness. Inc. The CTA
enjoined the collection of the deficiency taxes by virtue of the warrant of distraint. It was
argued by Fitness, Inc. that the right of the BIR to collect its alleged deficiency taxes had already
prescribed. Rule on the argument. ANSWER: The warrant of distraint was served on the taxpayer
within the prescriptive period (then 5 years, now three (3) years) [now back to 5 years]. In
Commissioner v. WyethSuaco (202 SCRA125), the court ruled that the prescriptive period provided by
law to make collection by distraint and/or levy or by a proceeding in court is interrupted once a
taxpayer protests the assessment and requests for its cancellation. Thus, when the taxpayer
protested the assessment on 8 February 1975, the prescriptive period to collect was interrupted
and resumed on 10 December 1979. When the Commissioner issued the warrant of distraint on 7
February 1980 it was well within the five-year (now 3 years) prescriptive period [now back to 5] to
collect. NB: Beginning 1984, the prescriptive period of the right of the government to assess and
collect internal revenue taxes was reduced from five (5) to three (3) years. (BAR 1993) [TOM: now it’s
back to 5 years—see the table]
257Q: May the collection of taxes be barred by prescription? Explain your answer. (2001 Bar) A: YES.
The collection of taxes may be barred by prescription. The prescriptive periods for collection of taxes
are governed by the tax law imposing the tax. However, if the tax law does not provide for
prescription, the right of the government to collect taxes becomes imprescriptible.
Sancte Mattheus, ora pro nobis! ! 276 of !395
258What is the effect of the execution by a taxpayer of a “waiver of the statute of limitations” on his
defense of prescription? (2%) SUGGESTED ANSWER: ******The waiver of the statute of
limitation executed by a taxpayer is not a waiver of the right to invoke the defense of prescription.
The waiver of the statute of limitation is merely an agreement in writing between the taxpayer and
the BIR that the period to assess and collect taxes due is extended to a date certain. If prescription has
already set in at the time of the execution of the waiver is invalid (sic), the taxpayer can still raise
prescription as a defense (Phil. Journalists Inc., v. CIR, GR No. 162852, Dec. 16, 2004)
Sancte Mattheus, ora pro nobis! ! 277 of !395
and agreed to the waiver. NB: For tax cases involving P1 million or above, the
Commissioner must sign.
4. The date of the acceptance by the BIR should be indicated.
5. The waiver must be executed in 3 copies, the original to be attached to the
docket, the second copy for the taxpayer and the third copy for the Office
accepting the waiver (RMO 20-90).
261Q: In 1993, the BIR issued against respondent assessment notice for deficiency income tax for 1989.
A waiver of the defense of prescription was executed but it was not signed by the Commissioner or
any of his authorized representatives and did not state the date of acceptance. Has the right to collect
of the Commissioner prescribed? A: YES. The Court held that the Commissioner’s right to collect
has prescribed. The period to assess and collect deficiency taxes may be extended only upon a
written agreement between the Commissioner and the taxpayer prior to the expiration of the three-
year prescribed period. The BIR cannot claim the benefits of extending the period when it was
the BIR’s inaction which is the proximate cause of the defects of the waiver. (CIR v. The Stanley Works
Sales (Phils.), Incorporated, G.R. No. 187589, December 03, 2014)
Sancte Mattheus, ora pro nobis! ! 279 of !395
262[] SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of
Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of
distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be
SUSPENDED for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days
thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner;
when the taxpayer cannot be located in the address given by him in the return filed upon which a
tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any
change in address, the running of the Statute of Limitations will not be suspended; when the
warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.
263 When the taxpayer requests for reinvestigation which is granted by the Commissioner (Collector v.
Suyoc Consolidated Mining Co., G.R. L-11527, November 25, 1958); *****NOTE: A request for reconsideration
alone does not suspend the period to assess/collect.
[] The prescriptive period for the collection of the deficiency tax assessment will be tolled:
(2012 BAR) a) If the taxpayer files a request for reconsideration with the Asst. Commissioner; b) If the
taxpayer files a request for reinvestigation that is approved by the Commissioner of Internal Revenue;
c) If the taxpayer changes his address in the Philippines that is communicated to the BIR official; d) If
a warrant of levy is served upon the taxpayer’s real property in Manila. SUGGESTED ANSWER: b)
If the taxpayer files a request for reinvestigation that is approved by the Commissioner of
Internal Revenue Section 223, NIRC; BPI v. Commissioner, G.R. No. 139736, October 17, 2005.
When taxpayer cannot be located in the address given by him in the return, unless he informs the
264
CIR of any change in his address thru a written notice to the BIR;
265When 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
Sancte Mattheus, ora pro nobis! ! 280 of !395
(Hermanos v. CIR, GR. No. L-24972. September 30, 1969) where the court justified
this by saying that in the answer filed by the BIR, it prayed for the collection of
taxes.
266What is a “deficiency interest" for purposes of the income tax? Illustrate. ANSWER:
*****Deficiency interest for purposes of the income tax is the interest due on any amount of tax
due or installment thereof which is not paid on or before the date prescribed for its payment
computed at the rate of 20% per annum or the Manila Reference Rate, whichever is higher, from the
date prescribed for its payment until it is fully paid. If for example after the audit of the books of
XYZCorp. for taxable year 1993 there was found to be due a deficiency income tax of PI25,000.00
inclusive of the 25% surcharge imposed under Section 248 of the Tax Code, the interest will be
computed on the P125.000.00 from April 15, 1994 up to its date of payment. (BAR 1995)
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the tax on installment under the provisions of the NIRC, but fails to pay the
tax or any installment hereof, or any part of such amount or installment on or
before the date prescribed for its payment; or ii) Where the CIR has authorized
an extension of time within which to pay a tax or a deficiency tax or any part
thereof (Sec. 249 (A)(D)).
c. Delinquency interest.267 The unpaid amount shall be subject to twenty
(20%) per annum, or such higher rate as may be prescribed by regulations in
case of: i) The amount of the tax due on any return required to be filed; or ii)
The amount of the tax due for which no return is required; or iii) A deficiency
tax, or any surcharge or interest thereon on the due date appearing in the notice
and demand of the CIR (Sec. 249 (C), NIRC). *****Collection of delinquency
interest is mandatory: The intention of the law is to discourage delay in the
payment of taxes to the State and, in this sense, the surcharge and interest
charged are not penal in nature – they are compensation to the State for the
delay in payment or for the concomitant use of the funds by the taxpayer
beyond the date he is supposed to have paid them to the State
[] Q: When does the period of interest commence to run? A: Interest shall
be assessed and collected from the date prescribed for payment until the
amount is fully paid (Sec. 249, NIRC).
2. SURCHARGE: It is a civil penalty imposed by law as an addition to the
main tax required to be paid. It is a civil administrative sanction provided as a
safeguard for the protection of the State revenue and to reimburse the
government for the expenses of investigation and the loss resulting from the
taxpayer’s fraud. A surcharge added to the main tax is subject to interest.
There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to be paid:
a. 25% surcharge of the amount due in the following cases: i.
i. Failure to file any return and pay the tax due thereon as required
under the provisions of the NIRC or rules and regulations on the date prescribed
ii. Failure to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment
iii. Unless otherwise authorized by the CIR, filing a return with an
internal revenue officer other than those with whom the return is required
to be filed
267What is a “delinquency interest" for purposes of the income tax? Illustrate. ANSWER:
*****Delinquency interest is the interest of 20% or the Manila Reference Rate, whichever is higher,
required to be paid in case of failure to pay: 1. the amount of the tax due on any return required
to be filed; or 2. the amount of the tax due for which return is required; or 3. the deficiency tax or
any surcharge or interest thereon, on the due date appearing in the notice and demand of the
Commissioner of Internal Revenue. If in the above illustration the assessment notice was
released on December 31,1994 and the amount of deficiency tax, inclusive of surcharge and
deficiency interest were computed up to January 30, 1995 which is the due date for payment per
assessment notice, failure to pay on this latter date will render the tax delinquent and will require
the payment of delinquency interest. (BAR 1995)
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iv. Failure to pay the full or part of the amount of tax shown on
any return required to be filed under the provisions of the NIRC or rules and
regulations, or the full amount of tax due for which no return is required to be
filed, on or before the date prescribed for its payment (Sec 248 [A], NIRC)
b. *****The penalty shall be fifty percent (50%) of the tax or of the
deficiency tax, in the following cases:
i. Willful neglect to file the return within the period prescribed; or
ii. False or fraudulent return is willfully made (Sec. 248 [B], NIRC)
3. Compromise Penalty: It is a certain amount of money which the taxpayer
pays to compromise a tax violation. *****Compromise penalties are paid in lieu
of criminal prosecution, and cannot be imposed in the absence of a showing
that the taxpayer consented268 thereto. If an offer of compromise is rejected by
the taxpayer, the compromise penalty cannot be enforced through an action in
court or by distraint and levy. The CIR should file a criminal action if he
believes that the taxpayer is criminally liable for violation of the tax law as the
only way to enforce a penalty (Dimaampao, J. 2015).
—————————————
268Q: A domestic corporation failed to withhold and remit the tax on income received from
Philippine sources by a non-resident foreign corporation. In addition to the civil penalties provided
for under the Tax Code, a compromise penalty was imposed for violation of the withholding tax
provisions. May the Commissioner of Internal Revenue legally enforce the collection of compromise
penalty? (2000 Bar) A: No. There is no showing that the compromise penalty was imposed by the
Commissioner of Internal Revenue with the agreement and conformity of the taxpayer (Wonder
Mechanical Engineering Corporation u. Court of Tax Appeals, et. al., 64 SCRA 555)
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b. Policy cases under audit by the Special Teams in the National Office
(RMO 36-99).
3. Service of Letter of Authority (LA) - It must be served to the taxpayer within
30 days from its date of issuance; otherwise, it shall become null and void. The
taxpayer shall then have the right to refuse the service of this LA, unless the LA is
revalidated.
4. Q: How is LA revalidated? How often can it be revalidated? A: Revalidated
through the issuance of a new LA. It can be revalidated only once, if issued by the
Regional Director; twice, if issued by the CIR. The suspended LA(s) must be
attached to the new issued LA (RMO 38-88).
5. Period within which an RO should conduct an audit - A RO is allowed only 120
days to conduct the audit and submit the required report of investigation from the
date of receipt of a LA by the taxpayer. If the RO is unable to submit his final
report of investigation within the 120-day period, he must then submit a Progress
Report to his Head of Office, and surrender the LA for revalidation.
6. Q: How many times can a taxpayer be subjected to examination and
inspection for the same taxable year?******
a. GR: Only once per taxable year.
b. XPNs: [FRC3]
i. When the CIR determines that Fraud, irregularities, or mistakes
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PRINCIPLE OF ESTOPPEL
1. The error made by a tax official in the assessment of his tax liabilities does not
have the effect of relieving the taxpayer from the obligation to pay the full
amount of his tax liability, for taxes are fixed by law and the government is never
stopped to collect the legitimate taxes because of errors committed by its agents
(Commissioner v. Atlas Consolidated Mining Co., 102 SCRA 246).
2. Like other principles, the principle of estoppels also admits of exceptions in the
interest of justice and fair play.
or
b. When a discrepancy272 has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
c. 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
270Q: Mr. Tiaga has been a law-abiding citizen diligently paying his income taxes. On May 5, 2014, he
was surprised to receive an assessment notice from the Bureau of Internal Revenue (BIR) informing
him of a deficiency tax assessment as a result of a mathematical error in the computation of his
income tax, as appearing on the face of his income tax return for the year 2011, which he filed on
April 15, 2012. Mr. Tiaga believes that there was no such error in the computation of his income tax
for the year 2011. Based on the assessment received by Mr. Tiaga, may he already file a protest
thereon? (2014 Bar) A: YES, Mr. Tiaga may already file a protest. Rev. Regs. No. 18-2013, implementing
Sec. 228 of the Tax Code, states that no PAN is required if the deficiency tax is a result of a
mathematical error in the computation of tax as appearing on the face of the tax return. In such
case, an FLD/FAN shall be issued outright. ******Thus, the assessment notice sent by the BIR
is deemed an FLD/FAN which may be the subject of a protest.
271A preliminary Assessment Notice (PAN) is NOT required to be issued by the BIR before issuing
a Final Assessment Notice (FAN) on one of the following cases: (2012 BAR) a) When a taxpayer does
not pay the 2010 deficiency income tax liability on or before July 15 of the year; b) When the finding
for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; c) When a discrepancy has been determined between the value
added tax paid and the amount due for the year; d) When the amount of discrepancy shown in the
Letter Notice is not paid within thirty (30) days from date of receipt.
272Q: In the investigation of the withholding tax returns of AZ Medina Security Agency (AZ) for the
taxable years 1997 and 1998, a discrepancy between the taxes withheld from its employees and the
amounts actually remitted to the government was found. Accordingly, before the period of prescription
commenced to run, the BIR issued an assessment and a demand letter calling for the immediate
payment of the deficiency withholding taxes in the total amount of P250,000.00. Counsel for AZ
protested the assessment for being null and void on the ground that no pre-assessment notice had
been issued. Is the contention of the counsel tenable? (2002 Bar) A: NO, the contention of the
counsel is untenable. *****Sec. 228, NIRC expressly provides that no pre-assessment notice is
required when a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent. Since the amount assessed relates to deficiency
withholding taxes, the BIR is correct in issuing the assessment and demand letter calling for the
immediate payment of the deficiency withholding taxes.
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over and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
d. When the excise tax due on exciseable articles has not273 been paid; or
e. When the 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.
*****The taxpayers shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request
for reconsideration or reinvestigation within thirty (30) days from receipt of
the assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment
shall become final.
****If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of documents, the
taxpayer adversely affected by the decision or inaction may appeal to the Court
of Tax Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall become
final, executory and demandable.
3. Requirements of a valid PAN******
a. In writing; and
b. Should inform the taxpayer of the law and the facts on which the
assessment is made (Sec. 228, NIRC).
[] Compare with this one (to be followed by TOM): REQUISITES OF
VALID ASSESSMENT
a. Be in writing and signed by the BIR;
273 When is a pre-assessment notice required under the following cases? (1%)(A) When the finding
for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on
the face of the return. (B) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent. (C) When the excise tax due on excisable
articles has been paid. (D) 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. (2014 Bar Question)
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b. Contain the law and the facts274 on which the assessment is based; [This
is part of the DUE PROCESS REQUIREMENT275 in the issuance of a deficiency
tax assessment. Otherwise, it is void.]; and
c. Contain a demand for payment276 within the prescribed period (Sec.
228, NIRC).
REPLY TO PAN
274Mr. Alvarez is in the retail business. He received a deficiency tax assessment from the BIR
containing only the computation of the deficiency tax and the penalties, without any explanation of the
factual and legal bases for the assessment. Is the assessment valid? (1%) (2013 Bar Question) (A) The
assessment is valid; all that Mr. Alvarez has to know is the amount of the tax. (B) The assessment is
invalid; the law requires a statement of the facts and the law upon which the assessment is based. (C)
The assessment is valid but Mr. Alvarez can still contest it. (D) The assessment is invalid because Mr.
Alvarez has no way to determine if the computation is erroneous. SUGGESTED ANSWER: (B) The
assessment is invalid; the law requires a statement of the facts and the law upon which the
assessment is based. Section 228 of the NIRC provides that a preliminary assessment notice shall
inform the taxpayer in writing of the law and the facts on which the assessment is based as part of due
process; otherwise, the assessment shall be void. In relation to this provision, *****Section 3 of RR No.
12-99 states that the preliminary assessment notice shall show in detail the facts and the law,
rules and regulations, or jurisprudence on which the assessment is based. (See also:
Commissioner of Internal Revenue v. Reyes, G.R. No. 159694, January 27, 2006)
275NOTE: The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to
informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made. Otherwise, the assessment itself would be invalid. Thus, the sending of PAN to taxpayer to
inform him of the assessment made is but part of the “due process requirement in the issuance of a
deficiency tax assessment,” the absence of which renders nugatory any assessment made by the
tax authorities. Therefore, for its failure to send the PAN stating the facts and the law on which the
assessment was made as required by the law, the assessment made by CIR is void (CIR v. Metro Star
Suprema, Inc., G.R. No. 185371, December 8, 2010).
276After examining the books and records of EDS Corporation, the 2004 final assessment notice,
showing basic tax of PI ,000,000., deficiency interest of P400,000, and due date for payment of April
30, 2007 but without the demand letter, was mailed and released by the BIR on April 15, 2007. The
registered letter, containing the tax assessment, was received by the EDS Corporation on April 25,
2007. What is an assessment notice? SUGGESTED ANSWER: An assessment notice is a formal
notice to the taxpayer stating that the amount thereon is due as a tax and containing a demand for
the payment thereof. {Alhambra Cigar and Cigarette Mfg. Co.v. Collector, 10S PR 1337[1959]; CIR v.
Pascor Realty and Development Corp., 309 SCRA 402 [1999]). To be valid, the taxpayer must be
informed in writing of the law and the facts on which the assessment is made. (Section 228, NIRC).
(BAR 2008)
[] The requisites of a valid assessment are: It must be made within the prescriptive period to
assess; (Section 203, NIRC); There must be a preliminary assessment previously issued, except in those
instances allowed by law; (Section 228, NIRC); The taxpayer must be informed in writing about the law
and facts on which the assessment is based; (Section 228, NIRC) and It must be served upon the
taxpayer or any of his authorized representatives. (Estate of Juliana Diez vda. De Gabriel v. CIR, 421
SCRA 266[2004]).
[] As tax lawyer of EDS Corporation, what legal defense(s) would you raise against the
assessment? Explain. (3%) SUGGESTED ANSWER: I will question the validity of the assessment
because of the failure to send the demand letter which contains a statement of the law and the facts
upon which the assessment is based. If an assessment notice is sent without informing the taxpayer in
writing about the law and facts on which the assessment is made, the assessment is void. (Section 228,
NIRC; Azucena T. Reyes v. CIR, 480 SCRA 382 [2006]). (BAR 2008)
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3. For (1) & (2), what if they do not want to receive the FAN? Go to the barangay
office and ask help from a barangay officer, to show proof that it was served but
the TP did not want to receive it. *****Failure to follow this procedure is
tantamount to a denial of due process.
4. By mail: usually through an accredited courier or registered mail—show proof
of receipt of mail.
5. For corporate TPs:
a. [] [Section 11, Rule 14]. When the defendant is a corporation,
partnership or association organized under the laws of the Philippines with a
juridical personality, service may be made on the
i. president,
ii. managing partner, (not on any other partner)
iii. general manager,
iv. corporate secretary, (not on any secretary)
v. treasurer, or (not on the cashier)
vi. in-house counsel. (not on any other counsel)
b. Substituted service: to anybody with sufficient discretion. EG: someone
doing OJT in the corporation is not qualified.
PENALTIES/DEFICIENCY ASSESSMENT******
1. For one day (or a second) of delay: 25% penalty on the principal amount of
tax due;
2. Plus 20% per annum computed per day of delay;
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3. And if there is fraud,277 plus 50% surcharge.278 NB: when the word
‘surcharge’ is used, it connotes the commission of a criminal offense.
4. On top of the three, a taxpayer shall pay a 25% DELINQUENCY
INTEREST on the total amount due if he does not pay the amount of tax due
on or before the date specified in the FA.
5. EG: Taxpayer (TP) paid the tax due (on April 15) in July. He was issued a FAN
saying “pay on or before December 8, 2016”. Compute for the tax due:
a. Say, deficiency assessment is P100K
b. Add the following penalties:
277Danilo, who is engaged in the trading business, entrusted to his accountant the preparation of his
income tax return and the payment of the tax due. The accountant filed a falsified tax return by
underdeclaring the sales and overstating the expense deductions by Danilo. Is Danilo liable for the
deficiency tax and the penalties thereon? What is the liability, if any, of the accountant? Discuss. (5%)
SUGGESTED ANSWER: Yes, Danilo is liable for the deficiency tax as well as for the deficiency
interest. However, *****he is not liable to the fraud penalty because the accountant acted beyond
the limits of his authority. A tax return which does not correctly reflect taxable income may only be
false but not necessarily fraudulent where it appears that the return was not prepared by the
taxpayer himself but by his accountant. Accordingly, the 50% surcharge for fraud could not be
imposed. [Aznar v. CTA, 58 SCRA 719, (1974)]. On the other hand, the accountant may be held
criminally liable for violation of the Tax Code when he falsified the tax return by underdeclaring
the sale and overstating the expense deductions. (Sec. 257, NIRC). If Danny's accountant is a Certified
Public Accountant, his certificate as CPA shall automatically be revoked or cancelled upon
conviction. (BAR 2005)
278 Q: Businessman Lincoln filed an income tax return for 1993 showing business net income of
P350,000 on which he paid an income tax of P61,000. After filing the return he realized that he
forgot to include an item of business income in 1993 for P50.000. Being an honest taxpayer, he
included this income in his return for 1994 and paid the corresponding income tax thereon. In the
examination of his 1993 return the BIR examiner found that Lincoln failed to report this item of
P50.000 and assessed him a deficiency income tax on this item, plus a 50% fraud surcharge.
a. Is the examiner correct? A: The examiner is correct in assessing a deficiency income tax
for taxable year 1993 but not in imposing the 50% fraud surcharge. The amount of all items of
gross income must be included in gross income during the year in which received or realized (Sec. 38,
NIRC). The 50% fraud surcharge attaches only if a false or fraudulent return is willfully made by
Lincoln (Sec. 248, NIRC). The fact that Lincoln included it in his 1994 return belies any claim of
willfulness but is rather indicative of an honest mistake which was sought to be rectified by a
subsequent act that is the filing of the 1994 return.
b. If you were the lawyer of Lincoln, what would you have advised your client before he
included in his 1994 return the amount of P50.000 as 1993 income to avoid the fraud surcharge?
Lincoln should have amended his 1993 income tax return to allow for the inclusion of the P50,000
income during the taxable period it was realized.
c. Considering that Lincoln had already been assessed a deficiency income tax for 1993 for
his failure to report the P50.000 income, what would you advise him to do to avoid the penalties for tax
delinquency? Lincoln should file a protest questioning the 50% surcharge and ask for the
abatement thereof.
d. What would you advise Lincoln to do with regard to the income tax he paid for the P50,000
in his 1994 return? In case your remedy fails, what is your other recourse? (1995 Bar) Lincoln should
file a written claim for refund with the CIR of the taxes paid on the P50,000 income included in 1994
within 2 years from payment pursuant to Sec. 204 [3] of the NIRC. *****Should this remedy fail in
the administrative level, a judicial claim for refund can be instituted before the expiration of
the 2 year period.
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1. It was signed and executed by the TP before the expiration of the original
period of prescription;279
2. The date of acceptance by the BIR and the TP is indicated on the face of the
waiver;
[] Two (2) material dates that need to be present on the waiver:
a. The date of execution of the waiver by the taxpayer or its authorized
representative; and
b. The expiry date of the period the taxpayer waives the statute of
limitations
3. The signatures of the BIR representative and the TP are indicated on the face
of the waiver;
[] The date and the signature will determine if the period shall be extended.
4. Three copies of the waiver are executed for:
a. the BIR;
b. the TP;
c. the files.
279T/F. In civil cases involving the collection of internal revenue taxes, prescription is construed
strictly against the government and liberally in favor of the taxpayer. (1%) SUGGESTED
ANSWER: TRUE. [CIR v. BF Goddrich., Phils. Inc., GR No. 104171, Feb 24, 1999; Phil. Journalists
Inc. v. CIR G.R. No. 162852, Dec. 16, 2004]
[] T/F. In criminal cases involving tax offenses punishable under the National Internal
Revenue Code (NIRC), prescription is construed strictly against the government. (1%)
SUGGESTED ANSWER: FALSE. [Lim v. Court of Appeals, GR No. 48134-37, Oct 18, 1990.]
[] In criminal cases where the Court of Tax Appeals (CTA) has exclusive original jurisdiction,
the right to file a separate civil action for the recovery of taxes may be reserved. (1%)
SUGGESTED ANSWER: False.
[] Proceedings before the CTA in the exercise of its exclusive original jurisdiction are in the
nature of trial de novo. (1%) SUGGESTED ANSWER: True.
[] Judgments, resolutions or orders of the Regional Trial Court in the exercise of its
original jurisdiction involving criminal offenses arising from violations of the NIRC are appealable
to the CTA, which shall hear the cases en banc. (1%) SUGGESTED ANSWER: False.
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against the FAN since the language used and the tenor of the demand letter
indicate that it is the final decision of the CIR on the matter. The court reminded
the CIR to indicate, in a clear and unequivocal language, whether its action on a
disputed assessment constitutes its final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court
accrues. Thus, the CIR is now estopped from claiming that it did not intend the
FAN to be a final decision (Allied Banking Corp. v. CIR, G.R. No. 175097, February
5, 2010).
that the FDDA still complied with the requirements of the law as it was issued in
connection with the PAN and FLD/FAN, which had an attachment of the details
of discrepancies. Hence, the CIR concludes that Liquigaz was sufficiently
informed in writing of the factual bases of the assessment. Is the CIR correct? A:
NO. It is undisputed that the FDDA merely showed Liquigaz’ tax liabilities
without any details on the specific transactions which gave rise to its supposed tax
deficiencies. While it provided for the legal bases of the assessment, it fell short of
informing Liquigaz of the factual bases thereof. The CIR erred in claiming that
Liquigaz was informed of the factual bases of the assessment because the FDDA
made reference to the PAN and FAN/FLD, which were accompanied by details
of the alleged discrepancies.
The CTA En Banc highlighted that the amounts in the FAN and the FDDA
were different. Section 3.1.6 of RR No. 12- 99 specifically requires that the
decision of the CIR or his duly authorized representative on a disputed
assessment shall state the facts, law and rules and regulations, or jurisprudence on
which the decision is based. Failure to do so would invalidate the FDDA. To
rule otherwise would tolerate abuse and prejudice. Taxpayers will be unable to file
an intelligent appeal before the CTA as they would be unaware on how the CIR or
his authorized representative appreciated the defense raised in connection with the
assessment. On the other hand, it raises the possibility that the amounts reflected
in the FDDA were arbitrarily made if the factual and legal bases thereof are not
shown. (CIR v. Liquigaz Philippines Corp., G.R. No. 215534, April 18, 2016)
5. Q: What is the effect of a void FFDA? A: FDDA that does not inform the
taxpayer in writing of the facts and law on which it is based renders the decision
void. It is as if there was no decision rendered by the CIR. It is tantamount
to a denial by inaction by the CIR, which may still be appealed before the CTA
and the assessment evaluated on the basis of the available evidence and
documents. However, a void FDDA does not ipso facto render the assessment
void. Court has long recognized that a “decision” differs from an “assessment”.
Clearly, a decision of the CIR on a disputed assessment differs from the
assessment itself. Hence, the invalidity of one does not necessarily result to the
invalidity of the other—unless the law or regulations otherwise provide. (CIR v.
Liquigaz Philippines Corp., G.R. No. 215534, April 18, 2016)
B. COLLECTION
1. The legislature may adopt any reasonable method for the effective enforcement of
the collection of taxes, subject to:
a. The right of the person to notice; and
b. The opportunity to be heard.
2. The power to impose taxes is clothed with the implied authority to devise ways
and means to accomplish collection in the most effective manner. Without this
implied power, the ends of government may fail (CIR v. Pineda, G.R. No. L-22734,
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B1. REQUISITES
*****Collection is only allowed when there is already a final281 assessment made
for the determination of the tax due. Assessments are deemed final when:
1. The taxpayer failed to file a protest 30 days from receipt of the assessment
2. After the 180 day period and the CIR has not yet acted on the protest, the
taxpayer fails to appeal it
3. After 30 days from the receipt of the decision of the CIR the taxpayer fails
281 Q: Minolta is an EPZA-registered enterprise enjoying preferential tax treatment under a special
law. After investigation of its withholding tax returns for the taxable year 1997, the BIR issued a
deficiency withholding tax assessment in the amount of P150,000. On May 15, 1999, because of
financial difficulty, the deficiency tax remained unpaid, as a result of which the assessment became
final and executory. The BIR also found that, in violation of the provisions of the NIRC, Minolta
did not file its final corporate income tax return for the taxable year 1998, because it allegedly
incurred net loss from its operations. On May 17, 2002, the BIR filed with the RTC an action for
collection of the deficiency withholding tax for 1997.
a. Will the BIR's action for collection prosper? As counsel of Minolta, what action will you
take? A: YES. BIR's action for collection will prosper because
the assessment is already final and executory, it can already be enforced through judicial
action. As counsel of Minolta, I will introduce evidence that the income payment was reported by the
payee and the income tax was paid thereon in 1997 so that my client may only be allowed to pay
the civil penalties for non-withholding pursuant to RMO 38-83.
b. May criminal violations of the NIRC be compromised? If Minolta makes a voluntary
offer to compromise the criminal violations for non- filing and non-payment of taxes for the year
1998, may the CIR accept the offer? (2002 Bar). A: *****All criminal violations of the NIRC may be
compromised except those already filed in court or those involving fraud (Sec. 204, NIRC).
Accordingly, if Minolta makes a voluntary offer to compromise the criminal violations for non-filing
and non-payment of taxes for the year 1998, the CIR may accept the offer which is allowed by law.
*****However, if it can be established that a tax has not been paid as a consequence of non-
filing of the return, the civil liability for taxes may be dealt with independently of the criminal
violations. The compromise settlement of the criminal violations will not relieve the taxpayer
from its civil liability. But the civil liability for taxes may also be compromised if the financial position
of the taxpayer demonstrates a clear inability to pay the tax.
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to appeal.
Within Metro P0.00 to More than P400,000 to P 1M & above exclusive of interest,
Manila P400,000 below P 1 M penalties, surcharges
Outside Metro P0.00 to More than P300,000 to P 1M & above exclusive of interest,
Manila P300,000 below P 1 M penalties, surcharges
withholding tax assessment on July 10, 1997, covering the taxable year 1994. After
administrative hearings, the original assessment of P150,000 was reduced to
P75,000. A modified assessment was thereafter issued on Aug. 5, 1999. Despite
repeated demands, Adam failed and refused to pay the modified assessment.
Consequently, the BIR brought an action for collection in the RTC on Sept. 15,
2000. Adam moved to dismiss the action on the ground that the government right
to collect the tax by judicial action has prescribed. Decide. (2002 Bar) A: The right
of the Government to collect by judicial action has not prescribed. The filing of
the request for reconsideration which was acted upon by the CIR suspended the
running of the 5-year prescriptive period for collection and commenced to run
again when a decision on the protest was made on August 5, 1999.
———————————————————————
2. TAXPAYER’S REMEDIES
A. PROTEST
A.1 PROTESTED ASSESSMENT
1. The TP files a protest of the BIR assessment within 30 days from the receipt
of the FAN, failure to file such protest would mean that the FAN has become
super-final, i.e., it can no longer be questioned. 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.
2. TWO (2) KINDS OF PROTEST
a. Complete – the protest includes all necessary documents
b. Incomplete – the documents may be completed within a period of
time as maybe required by the BIR which period shall not exceed 60 days;
3. Codal [] SEC. 228. Protesting of Assessment. - When the Commissioner or his
duly authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings: provided, however, That a
preassessment notice shall not be required in the following cases:
[see (a) to (e) supra RE: exceptions to PAN]
******The taxpayers shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request
for reconsideration or reinvestigation within thirty (30) days from receipt of
the assessment in such form and manner as may be prescribed by implementing
Sancte Mattheus, ora pro nobis! ! 301 of !395
rules and regulations.282 Within sixty (60) days from filing of the protest,283 all
relevant supporting documents shall have been submitted; otherwise, the
282[] Antonio Cruz was appointed by the Regional Trial Court as Administrator in the testate
proceedings for the settlement of the estate of his deceased father. On 12 February 1987, the
Commissioner of Internal Revenue issued a deficiency estate tax assessment for the estate in
question in the amount of P2.816,514.60. The notice of deficiency assessment was received by the
Administrator on 19 February 1987. In his letter to the Commissioner, dated 21 February 1987, which
was received by the latter’s office two (2) days later, the Administrator requested for a
reconsideration of the assessment on the ground that the same is contrary to law and is not
supported by sufficient evidence. He also requested for a period of fifteen (15) days within
which to submit the estate’s position paper. On 4 August 1988, not having received the promise
position paper, the Commissioner filed with the Court a motion for allowance of claim and for an
order of payment of estate taxes, praying therein that the administrator be directed to pay the BIR
the aforementioned deficiency tax. The Administrator opposed the motion alleging that by
reasons of the pendency of his request for reconsideration, the deficiency assessment has not
become final and executory and, therefore, the absence of a decision on the disputed'
assessment is a bar against collection of taxes. He further argued that it is the Court of Tax
Appeals, and not the Regional Trial Court, which has exclusive jurisdiction over the claim. Resolve the
motion and issues raised. ANSWER: Evidently, the request for reconsideration did not express or
specify the grounds therefor. A request for reconsideration in the tenor stated in the problem is
insufficient, not being substantiatied, to stop the running of the 30-day period within which the
assessment may be disputed (Dayrit vs. Cruz, G.R No. 39919, 26 September 1988). *****The failure of
the taxpayer to submit the promised position paper within the said 30-day period had the effect
of rendering the assessment final and executory. In addition, the pendency of a decision on a
disputed assessment does not bar the collection of the NIRC taxes, and no injunction maybe
issued by any court (except by the Court of Tax Appeals as an incident to a timely petition for
review). In the absence of a petition for review with the Court of Tax Appeals which may be brought
by a taxpayer within thirty (30) days from the receipt of the final decision of the Commissioner, the
Court of Tax Appeals has no jurisdiction to take cognizance thereof (See Sec. 11, RA. 1125).
Premises considered, the action taken by the Commissioner with the Regional Trial Court was
appropriate and in accordance with law. ALTERNATIVE ANSWER: Once a request for
reconsideration is made by the taxpayer on an assessment of the BIR within 30 days from receipt
thereof, the Commissioner is bound to make a decision thereon. That decision is the one appealable
to the Court of Tax Appeals. But if the taxpayer does not appeal within the 30-day period, the
assessment becomes final and executory and demandable. The implication of this new provision in the
NIRC is that the Commissioner cannot collect the tax as long as the taxpayer has still the right to
appeal from the Commissioner’s action. (BAR 1991)
283******The submission of the required documents within sixty (60) days from the filing of the
protest is available only where: (2012 BAR) a) The taxpayer previously filed a Motion for
Reconsideration with the BIR official; b) The taxpayer previously filed a request for reconsideration
with the BIR official; c) The taxpayer previously filed a request for reinvestigation with the BIR official;
d) The taxpayer previously filed an extension to file a protest with the BIR official. SUGGESTED
ANSWER: c) The taxpayer previously filed a request for reinvestigation with the BIR official
Section 228, NIRC; RCBC v. CIR.
Sancte Mattheus, ora pro nobis! ! 302 of !395
284 What is the effect on the tax liability of a taxpayer who does not protest an assessment for
deficiency taxes? (2011 Bar Question) (A) The taxpayer may appeal his liability to the CTA since the
assessment is a final decision of the Commissioner on the matter. (B) The BIR could already enforce
the collection of the taxpayer's liability if it could secure authority from the CTA. (C) The taxpayer's
liability becomes fixed and subject to collection as the assessment becomes final and collectible.
(D) The taxpayer's liability remains suspended for 180 days from the expiration of the period to
protest. SUGGESTED ANSWER: (C) The taxpayer's liability becomes fixed and subject to
collection as the assessment becomes final and collectible.
Sancte Mattheus, ora pro nobis! ! 303 of !395
Q: A taxpayer receives two final assessments, one for Net Income Tax
(NIT) and one for VAT. If the taxpayer would only like to protest the one
for NIT and not the one for VAT, what should he do to file a protest for the
NIT?
A: The taxpayer should first pay the tax due under the VAT, where he does not
intend to file a protest.
NOTE: This is not payment under protest for this is neither a tax under the TCC
nor a Real Property Tax (RR 12-99).
285The BIR issued in 2010 a final assessment notice and demand letter against X Corporation
covering deficiency income as for the year 2008 in the amount of P10 Million. X Corporation earlier
requested the advice of a lawyer on whether or not it should file a request for reconsideration or a
request for reinvestigation. The lawyer said it does not matter whether the protest against the
assessment is a request for reconsideration or a request for reinvestigation, because it has same
consequences or implications.
a. What are the differences between a request for reconsideration and a request for
reinvestigation? Suggested Answer: ******Request for Reconsideration – plea for evaluation of
assessment on the basis of existing records without need of presentation of additional evidence. It
does not suspend the period to collect the deficiency tax. Request for Reinvestigation – plea for re-
evaluation on the basis of newly discovered evidences which are to be introduced for examination
for the first time. It suspends the prescriptive period to collect.
b. Do you agree with the advice of the lawyer? Explain your answer (2012) NO, in view of the
aforesaid difference between Request for Reconsideration & Request for Reinvestigation.
286 NOTE: *****A motion for reconsideration of the denial of the administrative protest does
not toll the 30-day period to appeal to the CTA (Fishwealth Canning Corporation v. CIR, G.R. No. 179343,
January 21, 2010). A reinvestigation which entails the reception and evaluation of additional evidence
will take more time than a reconsideration of a tax assessment, which will be limited to the evidence
already at hand; this justifies why the reinvestigation can suspend the running of the statute of
limitations on collection of the assessed tax, while the reconsideration cannot. Hence, the period for
BIR to collect the deficiency DST already prescribed as the protest letter of BPI was a request for
reconsideration, which did not suspend the running of the prescriptive period to collect. (BPI v.
CIR, G.R. No. 181836, July 9, 2014)
[] Caveat (it refers to withholding tax assessment though): On August 5, 1997, Adamson Co.,
Inc. (Adamson) filed a request for reconsideration of the deficiency withholding tax assessment
on July 10, 1997, covering the taxable year 1994. After administrative hearings, the original
assessment of P150,000.00 was reduced to P75,000.00 and a modified assessment was thereafter
issued on August 5, 1999. Despite repeated demands, Adamson failed and refused to pay the
modified assessment. Consequently, the BIR brought an action for collection in the Regional Trial
Court on September 15, 2000. Adamson moved to dismiss the action on the ground that the
government’s right to collect the tax by judicial action has prescribed. Decide the case. (5%)
SUGGESTED ANSWER: The right of the Government to collect by judicial action has not
prescribed. The filing of the request for reconsideration suspended the running of the
prescriptive period and commenced to run again when a decision on the protest was made on
August 5, 1999. *****It must be noted that in all cases covered by an assessment, the period to
collect shall be five (5) years from the date of the assessment but this period is suspended by the
filing of a request for reconsideration which was acted upon by the Commissioner of internal
Revenue (CIR v. Wyeth Suaco Laboratories, Inc., 202 SCRA 125 [1991]). (BAR 2002)
Sancte Mattheus, ora pro nobis! ! 305 of !395
287What are the requisites before a taxpayer's request for reinvestigation may be granted by the BIR?
Discuss briefly. ANSWER: A request for re-investigation refers to a plea for re- evaluation of an
assessment on the basis of newly-discovered evidence or additional evidence the taxpayer intends
to present in the re-investigation. (BAR 1992)
Sancte Mattheus, ora pro nobis! ! 306 of !395
288 On June 1, 2003, Global Bank received a final notice of assessment from the BIR for deficiency
documentary stamp tax in the amount of P5 Million. On June 30, 2003, Global Bank filed a request
for reconsideration with the Commissioner of Internal Revenue. The Commissioner denied the
request for reconsideration only on May 30, 2006, at the same time serving on Globed Bank a
warrant of distraint to collect the deficiency tax. If you were its counsel, what will be your advice to
the bank? Explain. 5% SUGGESTED ANSWER: The denial of the request for reconsideration is a
final decision of the Commissioner of Internal Revenue. I would advise Global Bank to appeal the
Commissioner’s denial to the Court of Tax Appeals (CTA) within 30 days from receipt, if the
remedy of appeal is still available. I will further advise the bank to file a motion for injunction with
the Court of Tax Appeals to enjoin the Commissioner from enforcing the assessment pending
resolution of the appeal. While an appeal to the CTA will not suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of its tax liability, the CTA
is authorized to give injunctive relief if the enforcement would jeopardize the interest of the
taxpayer, as in this case where the assessment has not become final.
ANOTHER SUGGESTED ANSWER: Since the denial of the protest was made on May
30, 2006, I would assume that Global Bank has already lost its right to appeal. The assessment
having become final for failure to file a timely appeal, I will now advise my client to file a request
with the Commissioner of Internal Revenue for a compromise settlement of the tax assessed, which
has already become final by invoking doubtful validity of the assessment (Sec. 204, NIRC).
ANOTHER SUGGESTED ANSWER: Since the assessment has already become final, I will
now advise Global Bank to pay the assessment in order to save on the 20% interest which
continues to run indefinitely until the entire obligation is paid (Sec. 249, NIRC). This will also save
the taxpayer and its officers from possible criminal prosecution for non-payment of taxes considering
that in taxation, criminal liability arises as a result of the civil liability to pay taxes (Republic v.
Patanao,L-22356, 20 SCRA 712 [1967]). (BAR 2006)
Sancte Mattheus, ora pro nobis! ! 307 of !395
289 CFB Corporation, a domestic corporation engaged in food processing and other allied activities,
received a letter from the BIR assessing it for deliquency income taxes. CFB filed a letter of protest.
One month after, a warrant of distraint and levy was served on CFB Corporation. If you were the
lawyer engaged by CFB Corporation to contest the assessment made by the BIR, what steps will you
take to protect your client? (5%) SUGGESTED ANSWER: I shall immediately file a motion for
reconsideration of the issuance of the warrant of distraint and levy and seek from the BIR
Commissioner a denial of the protest “in clear and unequivocal language.” This is so because
the issuance of a warrant of distraint and levy is not considered as a denial by the BIR of the protest
filed by CFB Corporation (CIR v. Union Shipping Corp. 185 SCRA 547). Within thirty (30) days from
receipt of such denial “ln clear and unequivocal language," I shall then file a petition for review with
the Court of Tax Appeals. [TOM: it may be considered an indirect denial, hence the alternative answer
looks better].
ALTERNATIVE ANSWER: *****Within thirty (30) days from receipt of the warrant of
distraint and levy, I shall file a petition for review with the Court of Tax Appeals with an
application for issuance of a writ of preliminary injunction to enjoin the Bureau of Internal
Revenue from enforcing the warrant. This is the action I shall take because I shall consider the
issuance of the warrant as a final decision of the Commissioner of Internal Revenue which could
be the subject of appeal to the Court of Tax Appeals (Yabes Flojo, 15 SCRA 278). The CTA may,
however, remand the case to the BIR and require the Commissioner to specifically rule on the protest.
The decision of the Commissioner, if adverse to my client, would then constitute an appeal- able
decision. (BAR 1998)
[] If the request for re-investigation is denied, is it possible or advisable to file a petition for
review with any court or agency as a last resort? ANSWER: A denial of a request for re-investigation
on an assessment partakes the nature of a decision if made by the Commissioner. In this a case, an
appeal may be filed with the CTA within thirty days from receipt of the notice of denial.
ALTERNATIVE ANSWER: On the assumption that the denial by the BIR was not made by the
Commissioner himself but by the regional officer, for instance, or that the request for re-
investigation is not on an assessment as yet, then it may not necessarily constitute a decision on a
disputed assessment from which an appeal may be made to the Court of Tax Appeals. (BAR 1992)
290 Q: A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding
payment within 10 days, otherwise, it would collect through summary remedies. The taxpayer
requested for a reconsideration stating the grounds therefor. Instead of resolving the request for
reconsideration, the BIR sent a Final Notice before Seizure to the taxpayer. May this action of the
Commissioner of Internal Revenue be deemed a denial of the request for reconsideration of the
taxpayer to entitle him to appeal to the Court of Tax Appeals? Decide with reasons. (2005 Bar) A:
*****YES, the final notice before seizure was in effect a denial of the taxpayer's request for
reconsideration, not only was the notice the only response received, its nature, content and tenor
supports the theory that it was the BIR's final act regarding the request for reconsideration. (CIR v.
Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001)
Sancte Mattheus, ora pro nobis! ! 308 of !395
*******The protest may result to the following actions by the BIR:291 Note that
291 Describe separately the procedures on the legal remedies under the Tax Code available to an
aggrieved taxpayer both at the administrative and judicial levels. (5%) SUGGESTED ANSWER:
******The legal remedies of an aggrieved taxpayer under the Tax Code, both at the administrative and
judicial levels, may be classified into those for (a) assessment, (2) collection and (3) refund.
1a. The procedures for the administrative remedies for assessment are as follows: a) After
receipt of the Pre-Assessment Notice, he must within fifteen (15) days from receipt explain why no
additional taxes should be assessed against him [TOM—this is the reply to the PAN, which has a
prescriptive period of 15 days, although it is not required]; b) If the Commissioner of Internal Revenue
Issues an assessment notice [TOM: this should be a FAN and the TP’s remedy is a protest within 30
days from receipt], the taxpayer must administratively protest or dispute the assessment by filing a
motion for reconsideration or reinvestigation within thirty (30) days from receipt of the notice
of assessment. (4th par., Sec. 228, NIRC of 1997); c) Within sixty (60) days from filing of the
protest, the taxpayer shall submit all relevant supporting documents.
1b. The judicial remedies of an aggrieved taxpayer relative to an assessment notice are as
follows: a) Where the Commissioner of Internal Revenue has not acted on the taxpayer’s protest
within a period of one hundred eighty (180) days from submission of all relevant documents,
then the taxpayer has a period of thirty (30) days from the lapse of said 180 days within which to
interpose a petition for review with the Court of Tax Appeals; b) Should the Commissioner deny
the taxpayer's protest, then he has a period of thirty (30) days from receipt of said denial within
which to interpose a petition for review with the Court of Tax Appeals. In both cases the taxpayer
must apply with the Court of Tax Appeals for the issuance of an injunctive writ to enjoin the Bureau
of Internal Revenue from collecting the disputed tax during the pendency of the proceedings; c)
The adverse decision of the Court of Tax Appeals is appealable to the Court of Appeals by
means of a petition for certiorari within a period of fifteen (15) days from receipt of the adverse
decision, extendible for another period of fifteen (15) days for compelling reasons, but the
extension is not to exceed a total of thirty (30) days in all. [TOM: this is no longer applicable since the
CTA is now on the same level as the CA]; d) The adverse decision of the Court of Appeals [now, the
CTA] is appealable to the Supreme Court by means of a petition for review on certiorari within a
period of fifteen (15) days from receipt of the adverse decision of the Court of Appeals [now,
CTA].
2a. The employment by the Bureau of Internal Revenue of any of the administrative
remedies for the collection of the tax like distraint, levy, etc. may be administratively appealed
by the taxpayer to the Commissioner whose decision is appealable to the Court of Tax Appeals
under other matter arising under the provisions of the National Internal Revenue Code. The judicial
appeal starts with the Court of Tax Appeals, and continues in the same manner as shown above.
2b. Should the Bureau of Internal Revenue decide to utilize its judicial tax remedies for
collecting the taxes by means of an ordinary suit filed with the regular courts for the collection of
a sum of money, the taxpayer could oppose the same going up the ladder of judicial processes from
the Municipal Trial Court (as the case may be) to the Regional Trial Court, to the Court of Appeals
[now, CTA] thence to the Supreme Court.
3. The remedy of an aggrieved taxpayer on a claim for refund is to appeal the adverse decision
of the Commissioner to the CTA in the same manner outlined above. (BAR 2000)
Sancte Mattheus, ora pro nobis! ! 309 of !395
the taxpayers files a reply to the PAN within 15 days292 from its receipt of the
notice, while he files a protest on the FAN within 30 days.293 But a reply to the
PAN is not necessary before BIR can issue a FAN.294
1. GRANT: end of the process
2. DENIAL: the decision may be appealed to a CTA Division within 30 days
from receipt of the same;
******Although the TP has all the right to appeal the decision of BIR
RDO to the BIR commissioner, then to the Secretary of Finance, then to the
292On July 31, 2011, Esperanza received a preliminary assessment notice from the BIR demanding
that she pays P180,000.00 deficiency income taxes on her 2009 income. How many days from July 31,
2011 should Esperanza respond to the notice? (2011 Bar Question) (A) 180 days. (B) 30 days. (C) 60
days. (D) 15 days.
[] On March 10, 2010, Continental, Inc. received a preliminary assessment notice (PAN) dated
March 1, 2010 issued by the Commissioner of Internal Revenue (CIR) for deficiency income tax for its
taxable year 2008. It failed to protest the PAN. The CIR thereupon issued a final assessment
notice (FAN) with letter of demand on April 30, 2010. The FAN was received by the corporation on
May 10, 2010, following which or on May 25, 2010, it filed its protest against it. The CIR denied the
protest on the ground that the assessment had already become final and executory, the corporation
having failed to protest the PAN. Is the CIR correct? Explain. (2010 Bar Question) SUGGESTED
ANSWER: *****The issuance of preliminary assessment notice (PAN) does not give rise to the
right of the taxpayer to protest. What can be protested by a taxpayer is the final assessment
notice (FAN) or that assessment issued following the PAN. Since the FAN was timely protested,
within 30 days from receipt thereof, the assessment did not become final and executory. Sec.
228, NIRC; RR No. 12-99).
293A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer on
June 15, 2000. The taxpayer protested the assessment on July 31, 2000. The protest was initially
given due course, but was eventually denied by the Commissioner of Internal Revenue in a
decision dated June 15, 2005. The taxpayer then filed a petition for review with the Court of Tax
Appeals (CTA), but the CTA dismissed the same. Is the CTA correct in dismissing the petition for
review? Explain your answer. (4%) SUGGESTED ANSWER: Yes. ******The protest was filed out of
time, hence the CTA does not acquire jurisdiction over the matter (CIR v. Atlas Mining and
Development Corp. [2000]). (BAR 2009)
[] Assume that the CTA’s decision dismissing the petition for review has become final.
May the Commissioner legally enforce collection of the delinquent tax? Explain. (4%)
SUGGESTED ANSWER: No. ******The protest was filed out of time and, therefore, did not
suspend the running of the prescriptive period for the collection of the tax. Once the right to
collect has prescribed, the Commissioner can no longer enforce collection of the tax liability against
the taxpayer (CIR v. Atlas Mining and Development Corp., February 14,2000). (BAR 2009)
294 Q: Taxpayer Andy received on January 3, 2010 a preliminary assessment notice (PAN) from the
BIR, stating that he had fifteen (15) days from its receipt to comment or to file a protest. Eight (8) days
later (or on January11, 2010), before he could comment or file a protest, Andy received the final
assessment notice (FAN). Is the FAN valid? (2013 Bar) A: YES. There is no legal requirement that the
FAN should await the protest [TOM: this should be reply] to the PAN because protest [TOM: better
use the world reply for PAN, and protest for FAN] to the PAN is not mandatory.
[] Now, upon issuance of the FAN, Andy may still file an administrative protest within thirty
(30) days from the date of receipt thereof. In case of denial of the protest by the Commissioner’s
authorized representative, Andy may still elevate the adverse decision to the Commissioner within 30
days form its receipt. He may, thereafter, elevate the adverse decision to the CTA and, finally, to the
Supreme Court. Considering, therefore, that Andy could present his side before and after the issuance
of the PAN, the reply to the latter is mandatory [???].
Sancte Mattheus, ora pro nobis! ! 310 of !395
Office of the President, note that that 30-day period shall not be tolled by
these appeals. It is non-extendible unless it falls on a weekend or a holiday, in
which case, it falls on the next working day.
[] Compare tax remedies as per assessment with claim for refund.295 Hence,
as a general rule a deficiency tax assessment is not a bar for claim of refund or tax
credit.296
3. PARTIAL GRANT/DENIAL
4. NON-ACTION WITHIN 180 DAYS FROM FILING: Appeal may be taken
at any time from the 181st to the 210th day (30 days from lapse of 180-day
period)
a. When BIR sits on the protest, the TP has two mutually exclusive options:
i. File an appeal to a CTA division within the 30-day period from the
lapse of the 180-day period from the filing of the protest;
295 [] ALTERNATIVE: ******Under the NIRC, an aggrieved taxpayer may either (1) dispute an
assessment within thirty (30) days from receipt thereof by filing with the Commissioner of Internal
Revenue a request for reconsideration of reinvestigation, or (2) pay the assessment within the thirty
days then file a written claim with the Commissioner of Internal Revenue for refund within two
years from full and final payment. Upon an adverse decision of the Commissioner and within thirty days from
receipt of notice of denial, an appeal may be filed with the Court of Tax Appeals. However, with respect
to claims for refunds, an appeal must also be filed within two years from the date of full and final
payment. From the decision of the Court of Tax Appeals, an appeal or petition for review by certiorari
may be taken to the CA[now CTA] and then to the Supreme Court in appropriate cases. (BAR 1992)
[] Distinguish between a taxpayer’s remedies in connection with his tax assessment and/or
demand and his claim for refund of taxes alleged to have been erroneously or illegally collected.
ANSWER: A tax assessment becomes final unless it is disputed or contested within 30 days from
receipt thereof by the taxpayer. If the action taken by the Commissioner on the request for
reconsideration is unacceptable to the taxpayer, the latter must then appeal, by way of Petition for
Review to the Court of Tax Appeals within thirty days from receipt of the decision of the
Commissioner of Internal Revenue. *****The taxpayer may also opt to pay the tax before the
finality of the assessment (e.g., within 30 days from receipt of the assessment) and then file within
two years a written claim for the refund of the tax. A denial by the Commissioner of a claim for
refund must be appealed to the CTA within thirty days from receipt of notice of denial and within
two years from the day of full and final payment. Continued inaction by the Commissioner on
claims for refund may thus be taken as a denial appealable to the Court of Tax Appeals, in order to
permit the appeal to be considered or having been made within the two-year mandatory period. (BAR
1992)
296Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? Explain. SUGGESTED
ANSWER: No. *****As a general rule, a deficiency tax assessment is not a bar to a claim for tax
refund or tax credit. It is logically appropriate, however, that if the deficiency tax assessment is
already final, the Commissioner should not grant the claim unless the taxpayer pays the
deficiency. Likewise, no tax refund or tax credit will be granted as long as there is pending a
deficiency tax assessment for the same taxable period. To award a tax refund or tax credit despite
the existence of deficiency assessment for the same taxable period is an absurdity and a polarity in
conceptual effects. A taxpayer cannot be entitled to a refund and at the same time be liable for a
tax deficiency assessment. *****In order to avoid multiplicity of suits, it is logically necessary and
legally appropriate that the issue of deficiency tax assessment be resolved jointly with the
taxpayer’s claim for tax refund, to determine once and for all in a single proceeding the true and
correct amount of tax due or refundable. [CIR v. CA, City trust Banking Corp. and CTA, 234 SCRA
348 (1994)]. (BAR 2005)
Sancte Mattheus, ora pro nobis! ! 311 of !395
ii. Wait for BIR’s decision, and if it’s a denial of the protest, file an
appeal to a CTA division within 30 days from the receipt of the decision.
[] NB: BIR is not precluded from issuing a decision if the TP went
ahead and filed an appeal to the CTA after the 180-day period. See (c), infra.
b. In case of an incomplete protest, the 180-day period will start to run
on the day the required documents are completed (actual receipt of
documents by the BIR)
i. If the taxpayer refuses to submit the documents, the 180-day
period will not run;
ii. If submission of complete documents is made beyond the
given period, the 180-day rule will still apply provided that the BIR
recognizes the late submission
c. If BIR issues a decision granting/denying the protest AFTER the
180-day period and there is already an appeal pending in the CTA division,
the appeal shall continue and the taxpayer shall manifest before the CTA
that BIR has issued a decision. *****Is there a need to file another appeal on the
decision of the BIR? There is no need for filing of a new appeal as one is already
pending before the CTA.
i. If the BIR decision is in favor of the taxpayer, the taxpayer can
withdraw his appeal or
ii. inform CTA of BIR decision if protest is denied—it can be
consolidated in the case filed before the CTA.
7. What is the effect if the BIR issues a second assessment pending a
protest regarding the first assessment?
a. If the second assessment is substantially the same as the first, there is
no need to file another protest
b. If the two assessments are ****substantially different, another protest
is necessary, otherwise, the second assessment will become FINAL &
EXECUTORY
2. DENY:
a. file a motion for reconsideration to the CTA division;297
b. If denied, file an appeal to the CTA en banc
3. PARTLY GRANT/DENY: appeal to the CTA en banc
[] What is the ****PERIOD TO APPEAL to the CTA en banc? RA 9282
does not provide a period so we follow the Rules of Court (15 days from
receipt of decision). In the meantime, the prejudiced party may file a motion
for reconsideration or motion for new trial within 15 days from receipt of
the unfavorable decision rendered by the Court of Appeals Division.
[] Is the BIR allowed to appeal to the CTA? *****The BIR may not appeal
its own decision to CTA division but it may appeal the decision of CTA
Division to CTA en banc. Either party or both parties may file the appeal to CTA
En Banc.
4. From the CTA en banc, go to SC under Rule 45 for pure questions of law.
Should there be GADALEJ, file a Rule 65 petition.
297 On May 15, 2013, CCC, Inc. received the Final Decision on Disputed Assessment issued by
the Commissioner of Internal Revenue (CIR) dismissing the protest of CCC, Inc. and affirming the
assessment against said corporation. On June 10, 2013, CCC, Inc. filed a Petition for Review with the
Court of Tax Appeals (CTA) in division. On July 31, 2015, CCC, Inc. received a copy of the
Decision dated July 22, 2015 of the CTA division dismissing its Petition. CCC, Inc. immediately
filed a Petition for Review with the CTA en banc on August 6, 2015. Is the immediate appeal by
CCC, Inc. to the CTA en banc of the adverse Decision of the CTA division the proper remedy? (2015
Bar Question) SUGGESTED ANSWER: No, CCC, Inc. should first file a motion for
reconsideration with the CTA Division. ******Petition for review of a decision or resolution of
the Court in Division must be preceded by the filing of a timely motion for reconsideration or
new trial with the Division. Before the CTA En Banc could take cognizance of the petition for review
concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show
that it sought prior reconsideration or moved for a new trial with the concerned CTA division.
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298 A taxpayer received an assessment notice from the BIR on February 3, 2009. The following day, he
filed a protest, in the form of a request for reinvestigation, against the assessment and submitted all
relevant documents in support of the protest. On September 11, 2009, the taxpayer, apprehensive
because he had not yet received notice of a decision by the Commissioner on his protest, sought your
advice. What remedy or remedies are available to the taxpayer? Explain. (4%) SUGGESTED
ANSWER: *****The remedy of a taxpayer is to avail of either of two options: a. File a petition for
review with the CTA within 30 days after the expiration of the 180- day period from submission
of all relevant documents; or b. Await the final decision of the Commissioner on the disputed
assessment and appeal such final decision to the CTA within 30 days after receipt of a copy of
such decision. These options are mutually exclusive such that resort to one bars the application of
the other (RCBC v. OR, 522SCRA 144(2007]). (BAR 2009)
299On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of assessment
against Blue Water Industries Inc. (BWI), a domestic corporation, informing the latter of its alleged
deficiency corporate income tax for the year 2009. On April 20, 2012, BWI filed a letter protest
before the BIR contesting said assessment and demanding that the same be cancelled or set aside.
However, on May 19, 2013, that is, after more than a year from the filing of the letter protest, the
BIR informed BWI that the latter’s letter protest was denied on the ground that the assessment had
already become final, executory and demandable. The BIR reasoned that its failure to decide the
case within 180 days from filing of the letter protest should have prompted BWI to seek
recourse before the Court of Tax Appeals (CTA) by filing a petition for review within thirty (30) days
after the expiration of the 180-day period as mandated by the provisions of the last paragraph of
Section 228 of the National Internal Revenue Code (NIRC). Accordingly, BWI’s failure to file a petition
for review before the CTA rendered the assessment final, executory and demandable. Is the contention
of the BIR correct? Explain. (2014 Bar Question) SUGGESTED ANSWER : No.
*****Notwithstanding the lapse of the 180-day period, BWI had the option to await the BIR’S
final decision on its protest before filing a Petition for Review with the CTA. Pursuant to the case of
Lascona Land Co., Inc. v. Commissioner of Internal Revenue (G.R. No. 171251, March 5, 2012), in
case the Commissioner fails to act on a taxpayer’s protest within the 180-day period, a taxpayer can
either: (i) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of
the 180-day period; or (ii) await the final decision of the Commissioner on the disputed assessments,
and thereafter appeal such final decision to the CTA within 30 days after the receipt of a copy of such
decision. In the present case, BWI simply availed itself of the second option.
300When the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it
to a single remedy of filing an appeal after the lapse of 180-day prescribed period. Precisely, when a
taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively.
A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the
protested assessment. More so, because the law and jurisprudence have always contemplated a scenario
where the CIR will decide on the protested assessment (Lascona Land Co., Inc. v. CIR, G.R. No. 171251,
March 5, 2012). (2014 Bar)
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appeal the final decision to the CTA within 30 days301 from the receipt of the
decision.302
c. *******In case the action filed by the taxpayer is a claim for refund and
not protesting the amount of the tax, the period of 180 days and 30 days must
concur with the 2 year prescriptive period. Hence, a petition for review may
already be filed even before the expiration of the 180 day period if the
period of 2 years from the date of payment will already lapse.
3. The following are the three options of the taxpayer, IOW, when he files a
protest.
a. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days from
receipt of the whole or partial denial of the protest.
b. If the protest is wholly or partially denied by the CIR's authorized
representative, then the taxpayer may appeal to the CIR within 30 days from
receipt of the whole or partial denial of the protest.
c. If the CIR or his authorized representative failed to act upon the
protest within 180 days from submission of the required supporting
documents, then the taxpayer may appeal to the CTA within 30 days from the
lapse of the 180-day period. NB: As to ‘failure to act” by the CIR’s
representative, there is no such 180-30-day period provided to appeal to the
301 The taxpayer seasonably filed his protest together with all the supporting documents. It is already
July 31, 2011, or 180 days from submission of the protest but the BIR Commissioner has not yet
decided his protest. Desirous of an early resolution of his protested assessment, the taxpayer should
file his appeal to the Court of Tax Appeals not later than: (2011 Bar Question) (A) August 31, 2011.
(B) August 30, 2011. (C) August 15, 2011. (D) August 1, 2011.
[] The taxpayer received an assessment notice on April 15, 2011 and filed its request for
reinvestigation against the assessment on April 30, 2011. Additional documentary evidence in support
of its protest was submitted by it on June 30, 2011. If no denial of the protest was received by the
taxpayer, when is the last day for the filing of its appeal to the CTA? (2012 BAR) a) November 30,
2011; b) December 30, 2011; c) January 30, 2012; d) February 28, 2012.
[] Using the same facts in the immediately preceding number, but assuming that the final
decision on the disputed assessment was received by the taxpayer on July 30, 2011, when is the last day
for filing of the appeal to the CTA? (2012 BAR) a) August 30, 2011; b) September 30, 2011; c)
December 30, 2011; d) January 30, 2012. SUGGESTED ANSWER: a) August 30, 2011;
Section 228, NIRC (nearest answer but not correct answer) [TOM: should’ve been Aug 29].
302 Spanflex Int’l Inc. received a notice of assessment from the BIR. It seasonably filed a protest with
all the necessary supporting documents but the BIR failed to act on the protest. Thirty days
from the lapse of 180 days from the filing of its protest, Spanflex still has not elevated the matter to
the CTA. What remedy, if any, can Spanflex take? (2011 Bar Question) (A) It may file a motion to
admit appeal if it could prove that its failure to appeal was due to the negligence of counsel. (B) It may
no longer appeal since there is no BIR decision from which it could appeal. (C) It may wait for the
final decision of the BIR on his protest and appeal it to the CTA within 30 days from receipt of
such decision. (D) None. Its right to appeal to the CTA has prescribed.
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CIR.303 The third option refers to the failure to act of either the CIR or his
authorized representative, and the next level of appeal is already with the CTA.
a new assessment.
304*****A compromise validly entered into between the CIR and the taxpayer prior to the institution
of the corresponding criminal action arising out of a violation of the provisions of the Tax Code
becomes a bar to such criminal action (People v. Magdaluyo, G.R. No. L-16235, Apr. 20, 1965).
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305NOTE: If an offer of compromise is rejected by the taxpayer, the CIR should file a criminal
action if he believes that the taxpayer is criminally liable for violation of the tax law as the only way to
enforce a penalty. A penalty can be imposed only on a finding of criminal liability (CIR v. Abad G.R.
No. L-19627, June 27, 1968).
306REMEDIES IN CASE THE TAXPAYER REFUSES OR FAILS TO FOLLOW THE TAX
COMPROMISE
1. Enforce the compromise: a. If it is a judicial compromise, it can be enforced by mere execution. A
judicial compromise is one where a decision based on the compromise agreement is rendered by the
court on request of the parties; b. Any other compromise is extrajudicial and like any other contract
can only be enforced by court action.
2. Regard it as rescinded and insist upon original demand (Art. 2041, NCC).
307State and discuss briefly whether the following cases may be compromised or may not be
compromised: (5%) SUGGESTED ANSWER:******
[] Delinquent accounts may be compromised if either of the two conditions is present: (1)
the assessment is of doubtful validity, or (2) the financial position of the taxpayer demonstrates a
clear inability to pay the tax. (Sec. 204(A), NIRC; Sec. 2 of Revenue Regulations No. 30- 2002).
[] Cases under administrative protest, after issuance of the final assessment notice to the
taxpayer, which are still pending: These may be compromised, provided that it is premised upon
doubtful validity of the assessment or financial incapacity to pay (ibid).
[] Criminal tax fraud cases: These may not be compromised, so that the taxpayer may not
profit from his fraud, thereby discouraging its commission (ibid).
[] Criminal violations already filed in court: These may not be compromised in order that the
taxpayer will not profit from his criminal acts (ibid).
[] *****Cases where final reports of reinvestigation or reconsideration have been issued
resulting in the reduction of the original assessment agreed to by the taxpayer when he signed the
required agreement form, cannot be compromised. By giving his conformity to the revised
assessment, the taxpayer admits the validity of the assessment and his capacity to pay the same.
(Sec. 2 of Revenue Regulations No. 30-2002). (BAR 2005)
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6. The CTA310 may issue an injunction to prevent the government from collecting taxes under
a compromise agreement when such would be prejudicial to the government.
7. PRESCRIPTIVE PERIOD TO ENFORCE COMPROMISES: 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
1. Abatement is the cancellation311 of a tax liability
2. *****Grounds for Abatement (Sec. 204[B], NIRC)
a. The tax or any portion thereof appears to be unjustly or excessively
310Does the Court of Appeals have the power to review compromise agreements forged by the
Commissioner of Internal Revenue and a taxpayer? Explain. (2010 Bar) A: As a general rule, the Court
of Appeals does not have the power to review compromise agreements made between the
Commissioner of Internal Revenue and the tax payer considering that the Commissioner is vested with
the authority to compromise and such authority is exercised according to his discretion. Such authority
should be exercised in accordance with the CIR discretion and courts have no power, as a general rule,
to compel him to exercise such discretion one way or another. *****If the CIR abuses his discretion
by not following the parameters set by law, the CTA, not the CA, may correct such abuse if the
matter is appealed to it. In case of arbitrary or capricious exercise by the CIR of the power to
compromise, the compromise can be attacked and reversed through judicial process. It must be noted
however, that a compromise is considered as other matters arising under the NIRC which vests the
CTA with jurisdiction and since the decision of the CTA is appealable to the Supreme Court, the Court
of Appeals is devoid of any power to review a compromise settlement forged by the CIR.
311*NOTE: The abatement shall only cover the surcharge and the compromise penalty and not the
interest imposed under Sec. 249, NIRC (also applicable in number 5)
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assessed;312
b. The administration and collection costs involved do not justify the
collection of the amount due.313
3. Distinguish Compromise from Abatement******
COMPROMISE ABATEMENT
Nature Involves a reduction of the taxpayer’s Involves the cancellation of the entire
liability. tax liability of a taxpayer.
Authorized Officer CIR and Regional Evaluation Board CIR
Grounds 1. Reasonable doubt as to the 1.The tax or any portion thereof appears
validity of assessment; to be unjustly or excessively assessed;
2. Financial incapacity of the or 2.The administration and collection
taxpayer costs involved do not justify the
collection of the amount due.
TAX REFUND
1. It is an actual reimbursement of tax.
2. Two-fold purpose of refund
a. To afford the collector an opportunity to correct the mistake, if any,
committed by him or his subordinate officers and
b. To notify the government that such taxes have been questioned, and the
notice should be borne in mind in estimating the revenue available for expenditure
(Bermejo v. CIR, 87 Phil. 96).
against any internal revenue tax, excluding withholding taxes, for which the
taxpayer is directly liable (Sec. 204 [C], NIRC).
2. A transferee in good faith and for value of the TCC who has relied on the
transferor’s representation of the genuineness and validity of the TCC transferred
to it may not be legally required to pay again the tax covered by the TCC,
which have been fully utilized through settlement of internal revenue tax liabilities
and later on were declared null and void. Conversely, when the transferee is party
to the fraud as when it did not obtain the TCC for value or was a party to or has
knowledge of its fraudulent issuance, said transferee is liable for the taxes and for
the fraud committed as provided for by law (CIR v. Petron Corporation G.R., No.
185568, March 21, 2012).
credit.315
315 TRANSITIONAL INPUT TAX CREDIT IS A FORM OF TAX CREDIT, NOT TAX
REFUND: A transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior
payment of taxes is not required before a taxpayer could avail of transitional input tax credit. A tax
credit is not synonymous to tax refund. *****Tax refund is defined as the money that a taxpayer overpaid
and is thus returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted
directly from one’s total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or
an incentive to encourage investment. As such being a tax credit, prior payment of taxes is not required in order
to avail of tax credit (Fort Bonifacio Development Corporation v. Comm., G.R. No. 173425, January 22, 2013).
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316 Q: Does a withholding agent have the right to file an application for tax refund? Explain.
(2005 Bar) A: YES. A withholding agent should be allowed to claim for tax refund, because under the
law said agent is the one who is held liable for any violation of the withholding tax law should
such violation occur (Commissioner of Internal Revenue v. Wander Philippines Inc., 160 SCRA 570, 1988).
Furthermore, since the withholding agent is made personally liable to deduct and withhold any tax
under Section 53(c) of the Tax Code, it is imperative that he be considered the taxpayer for all legal
intents and purposes. Thus, by any reasonable standard, such person should be regarded as a party in
interest to bring suit for refund of taxes [Commissioner of Internal Revenue v. Procter and Gamble Philippines
Manufacturing Corporation and CTA, 204 SCRA 377, (1991).
[] DEF Corporation is a wholly owned subsidiary of DEF, Inc., California, USA. Starting
December 15, 2004. DEF Corporation paid annual royalties to DEF, Inc., for the use of the latter's
software, for which the former, as withholding agent of the government, withheld and remitted
to the BIR the 15% final tax based on the gross royalty payments. The withholding tax return was
filed and the tax remitted to the BIR on January 10 of the following year. On April 10, 2007, DEF
Corporation filed a written claim for tax credit with the BIR, arising from erroneously paid income
taxes covering the years 2004 and 2005. The following day, DEF Corporation filed a petition for
review with the Court of Tax Appeals. involving the tax credit claim for 2004 and 2005. Can the BIR
lawyer raise the defense that DEF Corporation is not the proper party to file such claim for tax credit?
Explain. (3%) SUGGESTED ANSWER: No. *****The withholding agent who is mandated by law
to withhold and remit the tax on the income of a non-resident in the Philippines becomes
directly liable for the payment of the tax. Therefore, it is the proper party to file a claim for
refund in case of over- withholding. (Commissioner v. Wander Philippines, Inc., 160SCRA 573 [1988]).
(BAR 2008)
[] As a BIR lawyer handling the case, would you raise the defense of prescription in your
answer to the claim for tax credit? Explain. (3%) SUGGESTED ANSWER: Yes. *****The claim for
refund for the 2004 erroneously paid income tax was filed out of time because the claim was only
filed after more than two years had elapsed from the payment thereof. (Section 204 (c) and 229,
NIRC). (BAR 2008)
317 ABCD Corporation (ABCD) is a domestic corporation with individual and corporate
shareholders who are residents of the United States. For the 2nd quarter of 1983, these U.S.- based
individual and corporate stockholders received cash dividends from the corporation. The
corresponding withholding tax on dividend income — 30% for individual and 35% for corporate non-
resident stockholders — was deducted at source and remitted to the BIR. On May 15,1984, ABCD
filed with the Commissioner of Internal Revenue a formal claim for refund, alleging that under
the RP-US Tax Treaty, the deduction withheld at source as tax on dividends earned was fixed at
25% of said income. Thus, ABCD asserted that it overpaid the withholding tax due on the cash
dividends given to its non-resident stockholders in the U.S. the Commissioner denied the claim.
On January 17, 1985, ABCD filed a petition with the Court of Tax Appeals (CTA) reiterating its
demand for refund. Does ABCD Corporation have the legal personality to file the refund on behalf
of its non-resident stockholders? Why or why not? (3%) SUGGESTED ANSWER: *****Yes,
withholding agents is (sic) not only an agent of the government but is also an agent of the
taxpayer/income earner. Hence, ABCD is also an agent of the beneficial owner of the dividends
with respect to the actual payment of the tax to the government, such authority may reasonably be
held to include the authority to file a claim for refund and to bring an action for recovery of
such for refund and to bring an action for recovery of such claim (CIR v. Procter & Gamble, 204
SCRA 377, {1991}) (BAR 2009)
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318,319
c. Claim for refund at the BIR is necessary before raising the issue at the
318 A Co. is the wholly owned subsidiary of B Co., a non-resident German company. A Co. has a
trademark licensing agreement with B Co. On Feb. 10, 1995, A Co. remitted to B Co. royalties of P
10,000,000, which A Co. subjected to a WT of 25% or P2,500,000. Upon advice of counsel, A Co.
realized that the proper WT rate is 10%. On March 20, 1996, A Co. filed a claim for refund of
P2,500,000 with the BIR The BIR denied the claim on Nov. 15, 1996. On Nov. 28, 1996, ACo. filed a
petition for review with the CTA The BIR attacked the capacity of A Co.. as agent, to bring the refund
case. Decide the issue. (5%) SUGGESTED ANSWER: A Co., the withholding agent of the non-
resident foreign corporation is entitled to claim the refund of excess withholding tax paid on the
income of said corporation in the Philippines. *****Being a withholding agent, it is the one held
liable for any violation of the withholding tax law should such a violation occur. In the same vein,
it should be allowed to claim a refund in case of overwithholding. (CIR v. Wander Phils. Inc., GR
No. 68378, April 15, 1988, 160 SCRA 573; CIR v. Procter & Gamble PMC, 204 SCRA 377). (BAR 1999)
319Corporation X declared cash dividends in favor of its non-resident stockholders in the United States
from which amount, the tax on dividend income was withheld. Under the RP-US Tax Treaty,
deductions allowed as tax on dividends earned at source were fixed at lower rates giving rise to
overpayment of the tax on dividends paid to the nonresident US stockholders (representing the
difference between the amount of withholding tax paid and the amount supposed to have been
withheld under the mentioned tax covenant). Corporation X filed a claim for refund of said
overpayment with the Commissioner of Internal Revenue within the prescribed period which however,
remained unacted upon, and before the expiration of the two (2) year reglementary period, it filed a
judicial claim for refund with the Court of Tax Appeals. Respondent Commissioner of Internal
Revenue argues that Corporation X is not the real party in interest to prosecute a claim for
refund of the overpaid taxes of the nonresident US stockholders, who are the real parties in
interest. But neither could it maintain an action for refund in a representative capacity having failed to
show proof of authorization. Will Corporation X*s case prosper? Explain. ANSWER: Yes. *****A
subsidiary, while not the real party in interest, could prosecute a claim of refund in behalf of its
non-resident stockholders by virtue of its being the withholding agent for the government in
respect of the cash dividends it declared [Comm. vs. Wander Phils.).
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proper court.320
320 Q: On June 16, 1997, the BIR issued against the Estate of Mott a notice of deficiency estate
tax assessment, inclusive of surcharge, interest and compromise penalty. The Executor of the Estate
of Mott filed a timely protest against the assessment and requested for waiver of the surcharge,
interest and penalty. The protest was denied by the CIR with finality on Sept. 13, 1997.
Consequently, the Executor was made to pay the deficiency assessment on Oct. 10, 1997. The
following day, the Executor filed a Petition with the CTA praying for the refund of the surcharge,
interest and compromise penalty. The CTA took cognizance of the case and ordered the CIR to
make a refund. The CIR filed a Petition for Review with the CA assailing the jurisdiction of the
CTA and the Order to make refund to the Estate on the ground that no claim for refund was filed
with the BIR.
a. Is the stand of the CIR correct? A: YES, for there was no claim for refund or credit that has
been duly filed with the CIR which is required before a suit or proceeding can be filed in any
court. (Sec. 229, NIRC) *****The denial of the claim by the CIR is the one which will vest the
CTA jurisdiction over the refund case should the taxpayer decide to appeal on time.
b. Why is the filing of an administrative claim with the BIR necessary? (2000 Bar) A: *****The
filing of an administrative claim for refund with the BIR is necessary in order: i) To afford the CIR
an opportunity to consider the claim and to have a chance to correct the errors of subordinate
officers (Gonzales v. CTA, G.R. No. 14532, May 26, 1965); and ii) To notify the Government that such
taxes have been questioned and the notice should be borne in mind in estimating the revenue
available for expenditures. (Bermejo v. Collector, G.R. No. L-3028, July 29, 1950)
321State the conditions required by the Tax Code before the Commissioner of Internal Revenue could
authorize the refund or credit of taxes erroneously or illegally received. SUGGESTED ANSWER:
*****The conditions are: 1) A written claim for refund is filed by the taxpayer with the Commissioner
of Internal Revenue. (Sec. 204, NIRC); 2. The claim for refund must be a categorical demand for
reimbursement. [Bermejo v. Collector of Internal Revenue, 87 Phil. 96 (1950)]; 3. The claim for
refund or tax credit must be filed with the Commissioner, or the suit or proceeding therefore must
be commenced in court within 2 years from date of payment of the tax or penalty regardless of
any supervening cause (Sec. 229, NIRC). (BAR 2005)
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3221. Payment under protest is not a requirement: a. A suit or proceeding for tax refund may be
maintained “whether or not such tax, penalty or sum has been paid under protest or duress” (Sec. 204 [3],
NIRC); b. The taxpayer’s willingness to pay the tax is no waiver to raise, defenses against the tax’s
legality (CIR v. Gonzales, G.R. No. L-19495, November 24, 1966).
2. Payment under protest required: ******It is necessary in claims for refund for real property
taxes under Sec. 252, LGC and for customs duties under Sec. 2308, TCC.
323Is protest at the time of payment of taxes/duties a requirement to preserve the taxpayers’
right to claim a refund? Explain. ANSWER: For taxes imposed under the NIRC, protest at the time
of payment is not required to preserve the taxpayers’ right to claim refund. This is clear under Section
230 of the NIRC which provides that a suit or proceeding maybe maintained for the recovery of
national internal revenue tax or penalty alleged to have been erroneously assessed or collected, whether
such tax or penalty has been paid under protest or not. For duties imposed under the Tariff and
Customs Code, a protest at the time of payment is required to preserve the taxpayers’ claim for
refund. The procedure under the TCC is to the effect that when a ruling or decision of the Collector
of Customs is made whereby liability for duties is determined, the party adversely affected may
protest such ruling or decision by presenting to the Collector, at the time when payment is
made, or within fifteen days thereafter, a written protest setting forth his objections to the ruling
or decision in question (Sec. 2308, TCC). (BAR 1996)
324*****If the retiree is within his legal rights in claiming refund of the taxes withheld, will the BIR
automatically grant his claim? Explain your answer. ANSWER: No. Because he must file a written
claim. (BAR 1992)
325Can the Commissioner grant a refund or tax credit even without a written claim for it? (2%)
SUGGESTED ANSWER: Yes. When the taxpayer files a return which on its face shows an
overpayment of the tax and the option to refund/ claim a tax credit was chosen by the taxpayer,
the Commissioner shall grant the refund or tax credit without the need for a written claim. This is so,
because a return filed showing an overpayment shall be considered as a written claim for credit
or refund. (Secs. 76 and 204, NIRC). Moreover, the law provides that the Commissioner may, even
without a written claim therefore, refund or credit any tax where on the face of the return upon which
payment was made, such payment appears clearly to have been erroneously paid. ('Sec. 229, NIRC).
(BAR 2002)
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penalty regardless of any supervening cause326 that may arise after payment.
No suit or proceeding shall be instituted after the expiration of the such period;
and (2008 Bar). NB: The two (2) year period applies only to suits or proceedings
for the recovery of taxes or penalties erroneously, excessively, illegally or
wrongfully collected. Accordingly, an ordinary claim for tax credit would
prescribe in ten (10) years under Art. 1144 of the Civil Code (Victorias Milling
Co. v. Central Bank, 13 SCRA 479).
e. The taxpayer must present proof of payment327 of the tax. NB: It is
necessary that the tax be paid in full, and that the claim for refund in the BIR as
well as the proceedings in the CTA be commenced within two (2) years counted
from the payment of the tax.
payment of the tax or from the date of the filing of the Final Adjustment Return;
2. It must be shown in the return of the recipient that the income payment
received was declared as part of the gross income; and
3. The fact of withholding is established by a copy of a statement duly issued by
the payor to the payee showing the amount of the tax withheld therefrom.
a. With regard to the second requirement, it is fundamental that the findings
of fact by the CTA in Division are not to be disturbed without any showing of
grave abuse of discretion considering that the members of the Division are in the
best position to analyze the documents presented by the parties. Consequently, the
Court adopts the findings of the CTA in Division, which the CTA En Banc
concurred with. (Republic of the Philippines, represented by the CIR vs. Team (Phils.)
Energy corporation (formerly Mirant Phils. Energy Corporation), G.R. No. 188016, January
14, 2015)
Dimaampao, 2015)
b. The pertinent laws governing this principle are found in Article 2142 and
Article 2154 of the New Civil Code.
2. Statutory basis for tax refund under the tax code (Provisions of the Tax Code
regarding refund)
a. Corporations entitled to refund of excess estimated quarterly income paid
as shown on its final adjustment return (Sec. 75 and 76, NIRC)
b. Claims for refund of VAT-registered persons, whose sales are zero-rated
or effectively zero-rated, with regard to their creditable input tax due, except
transitional input tax, to the extent that such input tax has not been applied
against output tax (Sec. 112, NIRC)
c. Locally produced or manufactured goods, whether in their original state
or as ingredients, any excise tax paid thereon shall be credited or refunded upon
submission of proof of actual exportation (Sec. 130(d), NIRC)
d. National Internal Revenue Tax: a) erroneously or illegally assessed or
collected; b) any penalty claimed to have been collected without authority; or c)
any sum allegedly to have been excessively or in any manner wrongfully collected,
may be recovered in a suit or proceeding for that purpose (Sec. 229 and Sec. 204(c),
NIRC)
The claimants have the burden of proof to establish the factual basis of their
claim for refund or tax credit (Hitachi Global Storage Philippines v. CIR G.R. No.
174212, October 20, 2010). It is logical to assume that in order to discharge this
burden, the law intends the filing of an application for a refund to necessarily
include the filing of complete supporting documents to prove entitlement for the
refund. Otherwise, the mere filing of an application without any supporting
document would be as good as filing a mere scrap of paper. (Hedcor v. CIR,
G.R. No. 207575, July 15, 2015)
3. XPN: The contention that a tax refund takes on the nature of a tax exemption
does not apply where the claim for refund is premised on erroneous payment of
tax. There is parity between tax refund and tax exemption only when the former is
based wither on a tax exemption or tax refund statute. (CIR. v. Fortune Tobacco,
Corp., G.R. No. 167274-75, July, 21, 2008).
4. Q: Fortune Tobacco Corp. was granted a tax refund representing excise taxes
erroneously collected from its tobacco products. The tax refund is being re-
claimed by the BIR in a petition before the SC. The BIR argued that tax refund
partakes of the nature of a tax exemption and should be construed against the
claimant. Is the BIR correct? A: NO, not all claims for tax refunds are in the
nature of tax exemptions. A tax refund may only be considered as a tax exemption
when it is based either on a tax-exemption statute or a tax-refund statute. The
company’s claim for tax refund is not based on either a tax-exemption statute or a
tax-refund statute, but is premised on either an erroneous payment of tax or the
government’s exaction in the absence of a law. Thus, what is controlling in this
case is the well-settled doctrine of strict interpretation in the imposition of taxes,
and not the doctrine as applied to tax exemptions. As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the tax laws (CIR v.
Fortune Tobacco Corp., GR 167274-75, July 21, 2008).
5. Nature of erroneously paid tax/ illegally assessed collected (Illegally collected tax
vis-a-vis erroneously collected tax)
ILLEGALLY COLLECTED ERRONEOUSLY
TAX COLLECTED TAX
There is a violation of certain No violation of the law but
Definition provisions of tax law or statute. there is a mistake in collection.
The tax was paid by him under The payment was made under a
On the part of the Taxpayer duress. mistake of fact.
The tax was collected in patent The collection was made based
On the part of the Government disregard of the law. on a misapplication of the law.
“party adversely affected” who is given the right to appeal the decision or ruling
of the Commissioner.
b. XPN: Under the following situations:
CASE THE ONE ENTITLED FOR REASON
THE REFUND
Where the tax The taxpayer (even if the tax was The sales tax is imposed directly on the
has been shifted shifted by the taxpayer to his seller as an occupation tax. Once
customers as in sales tax and even if recovered, the seller must hold the
the tax has been billed as a separate refunded taxes in trust for the
item in the invoice) (CIR v. American individual purchasers who advanced
Rubber G.R. No. L-19667, November 29, payment thereof and whose name must
1966). appear on his record
Where the payer is Theater goers can claim the illegally The amount collected (the illegal
not the taxpayer exacted taxes not the theater owners municipal taxes) from the theater goers
(i.e. theater owners (Medina v. Baguio, G.R. No. L-4060, by theater owners are owned by the
who paid illegal Aug. 29, 1952). theater goers. Only owners of property
municipal taxes have the right to claim it. The theater
billed and collected owners merely acted as agents of the
from theater goers) theater goers and as such they cannot
claim the amount illegally imposed by the
municipality (Medina v. Baguio, G.R. No.
L-4060, Aug. 29, 1952).
Where the payer is 1. The withholding agent (CIR v. 1. The withholding agent is considered
the withholding Procter and Gamble, G.R. No. L-66838, a ‘taxpayer” under the NIRC as he is
agent April 15,1988). personally liable for the withholding tax
2. Withholding agent may file a as well as for deficiency assessments,
claim for refund for taxes which was surcharges, and penalties, should the
withheld and paid on behalf of a amount of the tax withheld be finally
non-resident foreign corporation found to be less than the amount that
(Filipinas Synthetic Fiber Corporation v should have been withheld under law,”
CA, G.R. Nos. 118498 & 124377. 2. As an agent of the taxpayer, the
October 12, 1999). 3. In case the withholding agent has the authority to file
taxpayer does not file a claim for the necessary income tax return and to
refund, the withholding agent has the remit the tax withheld to the government
right to file the claim, even when it is impliedly includes the authority to file a
unrelated to, or is not a wholly owned claim for refund and to bring an action
subsidiary of, the principal taxpayer for recovery of such claim.” (CIR v. Smart
(CIR vs. Smart Communications, Inc., Communications, Inc., Ibid).
G.R. No.179045-46; 25 August 2010).
*Since this is merely an exception, the
rule is, at the withholding agent is not
considered as the taxpayer, hence he is
not entitled to a tax amnesty due for
the taxpayer’s account.
Where the donor’s Done is the proper party to claim the
tax was assumed by refund of the donor’s tax (even if the
the done tax was advanced by the donor)
1. The proper party is the statutory taxpayer, the person on whom the tax is
imposed by law and who paid the tax even when he shifts the burden thereof to
another because once shifted, it is no longer in the nature of a tax, but part of the
purchase price or the cost of goods or services sold (Exxon Mobil Petroleum and
Chemical Holdings, Inc. vs. CIR, G.R. No. 180909, January 19, 2011; Silkair (Singapore)
Pte., Ltd. v. CIR, G.R. No. 166482, January 25, 2012).
2. Q: Silkair purchased aviation jet fuel from Petron for use on Silkair international
flights. Silkair, contending that it is exempt from the payment of excise taxes, filed
a formal claim for refund with the CIR. Silkair claims that it is exempt from the
payment of excise tax under the NIRC, specifically Sec. 135, and under Art. 4 of
the Air Transport Agreement between the Governments of the Republic of the
Philippines and the Republic of Singapore (Air Agreement). The CIR denied the
claim contending that since the liability for the excise tax payment is imposed by
law on Petron as the manufacturer of the petroleum products, any claim for
refund should only be made by Petron as the statutory taxpayer. On appeal, the
CTA resolved to deny the claim. Silkair thus filed this Petition for Review.
a. Whether or not Silkair is the proper party to claim a refund for the excise
taxes paid.
A: The SC held that “the proper party to question, or seek a refund of an indirect
tax is the statutory taxpayer, the person on whom the tax is imposed by law and
who paid the same even if he shifts the burden thereof to another.”
Excise tax on petroleum is an indirect tax. Although the burden to pay an indirect
tax can be passed on to the purchaser of the goods, the liability to pay the indirect
tax remains with the petroleum manufacturer or seller. When the manufacturer or
seller decides to shift the burden of the excise tax to the tax-exempt purchaser, the
tax becomes a part of the price of the commodity. Thus, in this case, the
petroleum manufacturer who is the statutory taxpayer is the proper party to claim
the refund.
b. What is the proper remedy of the Silkair? A: The exempt entity’s remedy
is to invoke its tax exemption before buying the petroleum so that the petroleum
manufacturer would not pass on the excise taxes as part of the purchase price.
(Silkair Singapore PTE. Ltd. v. CIR, GR 171383 & 172379, Nov. 14, 2008).
3. Q: Chevron filed a claim for refund or tax credit for the excise taxes paid on its
importation of petroleum products that it had sold to the Clark Development
Corporation (CDC), en entity exempt from direct and indirect taxes. CTA
Division and CTA En banc denied its claim for refund. Is Chevron entitled to the
tax refund or tax credit? A: The basic tax principle applicable in this is case is that
excise tax is a tax on property; hence, the exemption from the excise tax expressly
granted under Section 135 of the NIRC must be construed in favor of the
petroleum products on which the excise tax was initially imposed. Accordingly, the
excise taxes that Chevron paid on its importation of petroleum products
subsequently sold to CDC were illegal and erroneous, and should be credited or
Sancte Mattheus, ora pro nobis! ! 333 of !395
328The exercise of an option is irrevocable and a decision to carry-over and apply tax overpayment
continues until the overpayment has been fully applied to tax liabilities (until fully exhausted) (CIR vs.
McGeorge Food Industries, Inc., G.R. No. 174157, October 20, 2010).
a. Once the option to carry-over excess income tax payments to the succeeding years has been
made, it becomes irrevocable. Thus, applications for refund of the unutilized excess income tax
payments may no longer be allowed (Belle Corporation v. CIR, G.R. No. 181298, January 10, 2011).
b. The exercise of the option to carry-over precludes a claim for a refund (CIR v. Philippine
American Life and General Insurance Company, G.R. No. 175124, September 29, 2010).
Sancte Mattheus, ora pro nobis! ! 334 of !395
credits for refund in the succeeding taxable year.329 Sec. 76 of the NIRC provides
that *****once the option to carry over and apply the excess quarterly income
tax due for the taxable quarters of the succeeding taxable years has been made,
329Mirador, Inc., a domestic corporation, filed its Annual Income Tax Return for its taxable year 2008
on April 15, 2009. In the Return, it reflected an income tax overpayment of P1,000,000.00 and
indicated its choice to carry-over the overpayment as an automatic tax credit against its income
tax liabilities in subsequent years. On April 15, 2010, it filed its Annual Income Tax Return for its
taxable year 2009 reflecting a taxable loss and an income tax overpayment for the current year
2009 in the amount of P500,000.00 and its income tax overpayment for the prior year 2008 of
P1,000,000.00. *****In its 2009 Return, the corporation indicated its option to claim for refund
the total income tax overpayment of P1,500,000.00 Choose which of the following statements is
correct. A. Mirador, Inc. may claim as refund the total income tax overpayment of P1,500,000.00
reflected in its income tax return for its taxable year 2009; B. It may claim as refund the amount of
P500,000.00 representing its income tax overpayment for its taxable year 2009; or C. No amount may
be claimed as refund. Explain the basis of your answer. (2010 Bar Question) SUGGESTED
ANSWER: b. It may claim as refund the amount of P500,000.00 representing its income tax
overpayment for its taxable year 2009. *****Since it has opted to carry-over the Php 1.0M
overpaid income tax for taxable year 2008, said option is considered irrevocable and no application
for cash refund shall be allowed for it.
Sancte Mattheus, ora pro nobis! ! 335 of !395
such option shall be considered irrevocable330 for that taxable period331 and no
application for cash refund or issuance of tax credit certificate shall be
330 On April 16, 2012, the corporation filed its annual corporate income tax return for 2011, showing
an overpayment of income tax of P1 Million which is to be carried over to the succeeding
year(s). On May 15, 2012, the corporation sought advice from you and said that it contemplates to file
an amended return for 2011, which shows that instead of carryover of the excess income tax
payment, the same shall be considered as a claim for tax refund and the small box shown as "refund"
in the return will be filled up. Within a year, the corporation will file the formal request for refund for
the excess payment. (2012 BAR):
a. Will you recommend to the corporation such a course of action and justify that the amended
return is the latest official act of the corporation as to how it may treat such overpayment of tax or
should you consider the option granted to taxpayers as irrevocable, once previously exercised by it?
Explain your answer. Suggested Answer: NO. *****Once the option to carry-over and apply the
excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable
years has been made, such options shall be considered IRREVOCABLE for the taxable year
period and no application for tax refund or issuance of tax credit certificate shall be allowed
therefor (Sec. 76, NIRC).
b. Should the petition for review filed with the CTA on the basis of the amended tax
return be denied by the BIR and the CTA, could the corporations till carry over such excess payment
of income tax in the succeeding years, considering that there is no prescriptive period provided for
in the income tax law with respect to carry over of excess income tax payments? Explain your
answer. YES. The carry-over of excess income tax payments is no longer limited to the succeeding
taxable years until fully utilized. In addition, the option to carry-over excess income tax payments is
now irrevocable. Hence, unutilized excess income tax payments may no longer be refunded (Belle
Corp. v. CIR, G.R. No. 181298, Jan. 10, 2011).
331 Q: In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax credits
arising from its over-withholding of income payments. It opted to carry over the excess tax credits
to the following year. Subsequently, ABC Corp. changed its mind and applied for a refund of the
excess tax credits. Will the claim for refund prosper? (2013 Bar) A: NO, it is barred by the
irrevocability rule. If the corporation opts to carry-over its excess credit in the final adjustment
return, its choice shall be irrevocable for that taxable period. *****The purpose of this rule is to
prevent a taxpayer from claiming excess tax credits twice. In the given problem, ABC Corp. opted
to carry-over its excess tax credits for the 2010 taxable year. Consequently, ABC Corp. can no longer
revoke its choice to carry-over the excess tax credits and instead claim for a refund.
ALTERNATIVE: The claim for refund will not prosper as it is barred by the irrevocability
rule. Paragraph 2, Section 76 of the NIRC embodies the irrevocability rule. *****This rule provides
that a corporation which is entitled to a tax credit or refund of the excess estimated quarterly
income taxes paid has two options: (1) to carry-over the excess credit; or (2) to apply for the
issuance of a tax credit certificate or to claim a cash refund. If the corporation opts to carry-over
its excess credit in the final adjustment return, its choice shall be irrevocable for that taxable period.
The purpose of this rule is to prevent a taxpayer from claiming excess tax credits twice.
In the given problem, ABC Corp. opted to carry-over its excess tax credits for the 2010 taxable year.
Consequently, ABC Corp. can no longer revoke its choice to carry-over the excess tax credits and
instead claim for a refund.
Sancte Mattheus, ora pro nobis! ! 336 of !395
allowed.332 These remedies are in the alternative and the choice of one precludes
the other. NB: ******the amount being claimed as refund may be utilized in
succeeding years until fully exhausted because there is no prescriptive period
for carry over of excess income tax payments.333
a. The phrase “such option shall be considered irrevocable for that taxable
period” in Sec. 76 of the NIRC means that the option to carry over the excess tax
credits of a particular taxable year can no longer be revoked (SYSTRA Phil., Inc. v.
CIR, G.R. No. 176290, September 21, 2007).
b. Under the old provision, the option to carry-over the excess or overpaid
income tax for a given taxable year is limited to the immediately succeeding
taxable year only. In contrast, under Section 76 of the NIRC of 1997, the application
of the option to carry over the excess of creditable tax is not limited only to the
immediately following taxable year but extends to the next succeeding taxable
years. The clear intent in the amendment under section 76 is to make the option,
once exercised, irrevocable for the “succeeding taxable years” (Asiaworld Properties
Philippines Corporation v. CIR, G.R. No. 171766, July 29, 2010).
332Those who claim for refund must not only prove its entitlement to the excess credits, but likewise
must prove that no carry over has been made in cases where refund is sought. However, proving that
no carry over has been made does not absolutely require the presentation of the quarterly ITRs. With
Winebrenner Inigo Insurance Brokers, Inc. having complied with the requirements for refund, and
without the CIR showing contrary evidence other than its bare assertion of the absence of the
quarterly ITRs, copies of which are easily verifiable by its very own records, the burden of proof of
establishing the propriety of the claim for refund has been sufficiently discharged. Hence, the grant of
refund is proper (Winebrenner Iñigo Insurance Brokers, Inc. vs. Commissioner of Internal Revenue, G.R. No.
206526, January 28, 2015).
333 X Corporation had excess income tax payment for the year 2008, which it chose to carry over in
2009. In filing its 2009 corporate income tax return, it signified its intention (by checking the small box
"refund" at the bottom of the return) to get a refund of the overpaid amount in 2008. Can the refund
be allowed or not, and if disallowed, does X Corporation lose the claimed amount? (2012 BAR) a) X
Corporation may not get the refund because the decision to carry over in 2008 was irrevocable for that
year, and it may not change that decision in succeeding years; b) X Corporation may not get the refund in
2009, but the amount being claimed as refund may be utilized in succeeding years until fully exhausted because there is no
prescriptive period for carry over of excess income tax payments; c) X Corporation may get the refund, provided
that it will no longer carry over such amount or utilize the same against its income tax liability in the
future; d) X Corporation may file instead a claim of tax credit, in lieu of refund. SUGGESTED
ANSWER: b) X Corporation may not get the refund in 2009, but the amount being claimed as
refund may be utilized in succeeding years until fully exhausted because there is no
prescriptive period for carry over of excess income tax payments. Section 76, NIRC. T******he
carry-over of excess income tax payments is no longer limited to the succeeding taxable year.
Unutilized excess income tax payments may now be carried over to the succeeding taxable years until
fully utilized. In addition, the option to carry-over excess income tax payments is now irrevocable.
Hence, unutilized excess income tax payments may no longer be refunded. (Belle Corp. v. CIR,
G.R. No. 181298, January 10, 2011)
Sancte Mattheus, ora pro nobis! ! 337 of !395
assessment and/or demand and his claim for refund of taxes alleged to have been
erroneously or illegally collected.******
AGAINST AN ASSESSMENT
A tax assessment becomes final unless it is disputed or contested within 30 days from receipt
thereof by the taxpayer. If the action taken by the CIR on the request for reconsideration is
unacceptable to the taxpayer, the latter must then appeal, by way of Petition for Review to the
CTA within 30 days from receipt of the decision of the CIR.
The taxpayer may also opt to pay the tax before the finality of the assessment (e.g., within 30 days
from receipt of the assessment) and then file within 2 years a written claim for the refund of the
tax.
CLAIM FOR REFUND (SEC. 229)
A denial by the CIR of a claim for refund must be appealed to the CTA within 30 days from
receipt of notice of denial and within 2 years from the day of full and final payment.
Continued inaction by the CIR on claims for refund may thus be taken as a denial appealable to
the CTA, in order to permit the appeal to be considered or having been made within the two-
year mandatory period.
2. Period of filing an appeal to CTA in case of denial by CIR of the claim for
refund:334 ******It must be filed within 30 days335 from receipt of the decision
of the CIR but not to exceed the 2-year period from date of payment of the
tax or penalty regardless of any supervening cause that may arise after
payment.
3. *****Distinction between the Application of the 2-Year Prescriptive Period
under Sec. 229 and Under Sec. 112 (VAT)
a. Section 229 refers to recovery of tax erroneously or illegally collected.
The decision of the CIR is appealable to the CTA sitting in division within 30
days after the receipt but must be within the 2-year period from payment or filing
of the final adjusted return.336 Thus, if the Commissioner denies the claim for
refund within the 2-year period, the remedy is to file an appeal with the CTA 30
days from the receipt of such denial. But, such 30-day period must also be
334In case the decision of the CIR takes too long and the 2- year period is about to end,
proceedings in the CTA must be commenced and there would no longer be any need to wait
for the decision of the CIR.
335As a general rule, within what period must a taxpayer elevate to the Court of Tax Appeals a
denial of his application for refund of income tax overpayment? (2011 Bar Question): (A) Within 30
days from receipt of the Commissioner’s denial of his application for refund. (B) Within 30 days
from receipt of the denial which must not exceed 2 years from payment of income tax. (C)
Within 2 years from payment of the income taxes sought to be refunded. (D) Within 30 days from
receipt of the denial or within two years from payment.
336Q: Alyanna has a pending claim for refund with the CIR. The 2-year period is about to end and
the CIR has yet to decide on the claim. What must Alyanna do to pursue her claim for refund? A:
*****A claim for refund must be filed with the BIR and the commencement of the proceedings in
the CTA must be done within the 2-year period from the date of full payment of the tax or penalty
regardless of any supervening event. Thus, Alyanna must commence the proceedings with the CTA
before the end of the 2-year period without waiting for the decision of the CIR.
Sancte Mattheus, ora pro nobis! ! 338 of !395
within the 2-year period.337 For example, if there are only 10 days left within
such 2-year period, then, the taxpayer has only 10 days within which to appeal his
claim. However, if there is an inaction on the part of the Commissioner and
the 2-year period is about to lapse, the remedy is to file an appeal also with
the CTA. NB: ******the two-year prescriptive period for tax refunds is counted
from the filing of the final, adjustment return338 under Sec. 67339 of the NIRC,
337Q: On Mar. 12, 2001, REN paid his taxes. Ten months later, he realized that he had overpaid and
immediately filed a claim for refund with the CIR. On Feb. 27, 2003, he received the decision of the
CIR denying REN's claim for refund. On Mar. 24, 2003, REN filed an appeal with the CTA. Was his
appeal filed on time or not? (2004 Bar) A: NO, his appeal was not filed on time. *****The 2-year
period for filing a claim for refund is not only a limitation for pursuing the claim at the
administrative level but also for appealing the case to the CTA. The law provides that "no suit or
proceeding shall be filed after the expiration of 2 years from the date of the payment of the tax or
penalty regardless of any supervening cause that may arise after payment. Since the appeal was only
made on Mar. 24, 2003, more than two years had already elapsed from the time the taxes were
paid on Mar. 12, 2003. Accordingly, REN had lost his judicial remedy because of prescription.
(BAR 2004)
338 XCEL Corporation filed its quarterly income tax return for the first quarter of 1985 and paid an
Income tax of P500.000.00 on May 15, 1985. In the subsequent quarters, XCEL suffered losses so
that on April 15, 1986 it declared a net loss of PI,000,000.00 in its annual income tax return. After
failing to get a refund, XCEL filed on March 1, 1988 a case with the Court of Tax Appeals to
recover the P500.000.00 in taxes paid on May 15, 1985. Is the action to recover the taxes filed
timely? ANSWER: The action for refund was filed in the Court of Tax Appeals on time. In the case of
Commissioner v. TMX Sales.fnc., 205 SCRA 184, which is similar to this case, the Supreme Court ruled
that *****in the case of overpaid quarterly corporate income tax, the two-year period for filing
claims for refund in the BIR as well as in the institution of an action for refund in the CTA, the two-
year prescriptive period for tax refunds (Sec. 230, Tax Code) is counted from the filing of the final,
adjustment return under Sec. 67 of the Tax Code, and not from the filing of the quarterly return
and payment of the quarterly tax. The CTA action on March 1, 1988 was clearly within the
reglementary two-year period from the filing of the final adjustment return of the corporation on
April 15, 1986. (BAR 1994)
339 A corporation files its income tax return on a calendar year basis. For the first quarter of 1993,
it paid on 30 May 1993 its quarterly income tax in the amount of P3.0 million. On 20 August 1993,
it paid the second quarterly income tax of P0.5 million. The third quarter resulted in a net loss,
and no tax was paid. For the fourth and final return for 1993, the company reported a net loss for the
year, and the taxpayer Indicated in the income tax return that it opted to claim a refund of the quarterly
income tax payments. On 10 January 1994, the corporation filed with the Bureau of Internal
Revenue a written claim for the refund of P3.5 million. BIR failed to act on the claim for refund;
hence, on 02 March 1996, the corporation filed a petition for review with the Court of Tax Appeals
on its claim for refund of the overpayment of its 1993 quarterly income tax. BIR, in its answer to
the petition, alleged that the claim for refund was filed beyond the reglementary period. Did the claim
for refund prescribe? ANSWER: The claim for refund has prescribed. ******The counting of the
two-year prescriptive period for filing a claim for refund is counted not from the date when the
quarterly income taxes were paid but on the date when the final adjustment return or annual
income tax return was filed (CIR v. TMX Sales Inc., G.R. No. 83736, January 15, 1992; CIR v. PhilAm
Life Insurance Co., Inc., G.R. No. 105208, May 29, 1995). It is obvious that the annual income tax
return was filed before January 10, 1994 because the written claim for refund was filed with the BIR
on January 10,1994. Since the two-year prescriptive period is not only a limitation of action in the
administrative stage but also a limitation of action for bringing the case to the judicial stage,
the petition for review filed with the CTA on March 02, 1996 is beyond the reglementary period.
(BAR 1997)
Sancte Mattheus, ora pro nobis! ! 339 of !395
and not from the filing of the quarterly return and payment of the quarterly
tax.340
b. *****Section 112341 refers to refunds or tax credits of input tax. It is
only the administrative claim342 that must be filed within the two-year
prescriptive period; the judicial claim need not fall within the two-year
prescriptive period. If he files his claim on the last day of the two year
prescriptive period, his claim is still filed on time. The Commissioner will then
have 120 days from such filing to decide the claim. If the Commissioner
decides the claim on the 120th day or does not decide it on that day, the taxpayer
340Q: XCEL Corp. filed its quarterly income tax return for the first quarter of 1985 and paid P500.000
on May 15, 1985. In the subsequent quarters, XCEL suffered losses. On Apr. 15, 1986 it declared a
net loss of P1,000,000 in its annual income tax return. After failing to get a refund, XCEL filed on
Mar. 1, 1988 a case with the CTA to recover the P500.000 in taxes paid on May 15, 1985. Is the
action to recover the taxes filed timely? (1994 Bar) A: The action for refund was filed in the CTA on
time. In the case of CIR v. TMX Sales, Inc., GR 83736, January 15, 1992, which is similar to this case, the
SC ruled that in the case of overpaid quarterly corporate income tax, the two- year period for filing
claims for refund in the BIR as well as in the institution of an action for refund in the CTA,
*****the two-year prescriptive period for tax refunds is counted from the filing of the final,
adjustment return under Sec. 67 of the NIRC, and not from the filing of the quarterly return and
payment of the quarterly tax. The CTA action on Mar. 1, 1988 was clearly within the
reglementary 2- year period from the filing of the final adjustment return of the corporation on Apr.
15, 1986.
341 APPLICATION FOR THE ISSUANCE OF THE TAX CREDIT CERTIFICATE OR
REFUND OF CREDITABLE INPUT TAX DUE OR PAID ATTRIBUTABLE TO ZERO-RATED
SALES OR EFFECTIVELY ZERO- RATED SALES MUST BE FILED WITH THE CIR
WITHIN TWO (2) YEARS AFTER THE CLOSE OF THE TAXABLE QUARTER WHEN
THE SALES WERE MADE.
1. Section 112(D) of the NIRC, the CIR shall grant a refund or issue the tax credit certificate for
creditable input tax within 120 days from the date of the submission of the complete documents in
support of the application.
2. The 2nd paragraph of Section 112(D) of the NIRC, clearly provides for a specific period within
which a taxpayer should appeal the decision or inaction of the CIR. It envisions two scenarios:
a. When a decision is issued by the CIR before the lapse of the 120-day period; and
b. When no decision is made after the 120-day period.
3. In both instances, the taxpayer has 30 days within which to file an appeal to CTA. The 120-day
period is crucial in the filing of an appeal. If taxpayer did not wait for the decision of the CIR or
lapse of the 120-day period, the filing of claim with CTA is premature (CIR v. Aichi Forging Company of
Asia, Inc., G.R. No. 184823, October 6, 2010).
a. In claiming a tax refund or tax credit over an excess input VAT, the 30-day period of appeal
to the CTA need not necessarily fall within the two-year prescriptive period, as long as the
administrative claim before the CIR is filed within the two-year prescriptive period. This is because
section 112 (D) of the 1997 Tax Code mandates that a taxpayer can file the judicial claim: (1) only
within thirty days after the Commissioner partially or fully denies the claim within the 120-day period,
or (2) only within thirty days from the expiration of the 120-day period if the Commissioner does not
act within the 120- day period. (CIR v. San Roque Power Corporation, G.R. No. 187485, February 12, 2013).
342*Under Sec. 112, the 2-year prescriptive period applies only to the ADMINISTRATIVE
CLAIM BEFORE THE CIR AND NOT TO JUDICIAL CLAIM BEFORE THE CTA
because the taxpayer always has 30 days from the decision of the CIR or from the lapse of the 120-day period
even after the lapse of 2 years from the taxable quarter where the sales were made. (CIR v.
Mindanao Geothermal II Partnership, 713 SCRA 645, [2014])
Sancte Mattheus, ora pro nobis! ! 340 of !395
still has 30 days to file his judicial claim with the CTA. The Court summarized the
rules on the determination of the prescriptive period for filing a tax refund or
credit of unutilized input VAT as provided in section 112 of the 1997 Tax Code,
as follows:
i. An administrative claim must be filed with the CIR within two
years after the close of the taxable quarter when the zero-rated or effectively
zero-rated sales were made and
ii. The CIR has 120 days from the date of submission of complete
documents in support of the administrative claim within which to decide
whether to grant a refund or issue a tax credit certificate (Mindanao II Geothermal
Partnership v. CIR G.R. No. 193301/194637, March 11, 2013).
—————————————————————————
Sancte Mattheus, ora pro nobis! ! 341 of !395
3. GOVERNMENT REMEDIES
A. ADMINISTRATIVE REMEDIES
343 In the examination conducted by the revenue officials against the corporate taxpayer in 2010, the
BIR issued a final assessment notice and demand letter which states: "It is requested that the
above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to
delinquency. This is our final decision based on investigation. If you disagree, you may appeal
this final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and demandable." The assessment was immediately
appealed by the taxpayer to the Court of Tax Appeals, without filing its protest against the
assessment and without a denial thereof by the BIR. If you were the judge, would your deny the
petition for review filed by the taxpayer and consider the case as prematurely filed? Explain your
answer (2012 BAR) Suggested Answer: NO, the Petition for Review should not be denied. The case
is an exception to the rule on exhaustion of administrative remedies. The BIR is estopped from
claiming that the filing of the Petition for Review is premature because the taxpayer failed to exhaust all
administrative remedies. The statement of the BIR in its Final Assessment Notice and Demand Letter
led the taxpayer to conclude that only a final judicial ruling in his favor would be accepted by
the BIR. The taxpayer cannot be blamed for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used and the tenor of the demand letter
indicate that it is the final decision of the respondent on the matter. The CIR should indicate, in
a clear and unequivocal language, whether his action on a disputed assessment constitutes his
final determination thereon in order for the taxpayer concerned to determine when his or her
right to appeal to the tax court accrues. Although there was no direct reference for the taxpayer to
bring the matter directly to the CTA, it cannot be denied that the word “appeal” under
prevailing tax laws refers to the filing of a Petition for Review with the CTA (Allied Bank v. CIR,
G.R. No. 175097, Feb. 5, 2010).
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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).
a. The claim of the government predicated on a tax lien is superior to the
claim of a private litigant predicated on a judgment. The tax claim must be given
preference over any other claim of any other creditor, in respect of any and all
properties of the insolvent (Republic v. Peralta, 150 SCRA 37).
b. A valid assessment is required to be issued before a tax lien shall be
annotated at the proper registry of property.
3. When Tax lien is applied
a. 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).
NOTE: the tax lien attaches not only from the service of the warrant of distraint
of personal property but form the time the tax became due and payable.
b. With respect to real property – from time of registration with the register of
deeds.
*The residue, if any, goes back to the taxpayer or owner of the property.
4. Extinguishment of Tax Lien
a. By payment or remission of the tax
b. By prescription of the right of government to assess or collect
c. By failure to file notice of such tax lien in the office of Register of Deeds
d. By destruction of property subject to tax lien
e. By replacing it with a bond
*A buyer in an execution sale acquires only the rights of the judgment
creditor.
5. Distinguish lien from distraint*****
LIEN DISTRAINT
Directed against The property subject to the tax Need not be directed against the property
subject to tax
To whom directed The property itself regardless of The property should be presently owned by
the present owner of the property the taxpayer
348[] How is actual distraint of personal property effected? Upon failure to pay the delinquent tax at
the time required, the proper officer shall seize and distraint any goods, chattels, or effects, and the
personal property, including stocks and other securities, debts, credits, bank accounts and interests in
and rights to personal property of the taxpayer in sufficient quantity to satisfy the tax, expenses of
distraint and the cost of the subsequent sale (Sec. 207 [A], NIRC).
[] Procedure that must be observed in effecting actual distraint
a. Commencement of distraint proceedings by the CIR or his duly authorized representatives or
by the revenue district officer as the case may be
b. Service of warrant of distraint upon taxpayer or upon any person in possession of the
property
c. 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
d. 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
e. Disposition of proceeds of the sale
f. Residue over and above what is required to pay the entire claim, including expenses, shall be
returned to the owner of the property sold
349 CONSTRUCTIVE DISTRAINT
1. It is effected by requiring the taxpayer or any person having possession of the property:
a. To sign a receipt covering the property distrained;
b. To obligate himself to preserve it intact and unaltered; and
c. Not to dispose of it without the express authority of the CIR.
2. Cases when Constructive Distraint is Proper [CARL]
a. Retirement from any business subject to the tax;
b. Intending to Leave the Philippines or to remove his property therefrom; or to hide or
Conceal his property;
c. Intending to perform any Act tending to obstruct the
proceedings for collecting the tax due or which may be due from him. (Sec. 206, NIRC)
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property;
6. Taxpayer keeps Bank deposits and other properties under the name of other
persons, whether or not related to him, and the same are not under any lawful
fiduciary or trust capacity;
7. Taxpayer uses Aliases in bank accounts other than the name for which he is
legally and/or popularly known (R.M. 5- 2001).
sale – no interest on purchase price since the Government did not “purchase” the
property, for it was forfeited (Sec. 214, NIRC).
2. Effect of the redemption to the property sold - 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).
3. Person entitled to the 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).
4. Final deed of purchaser - In case the taxpayer shall not redeem the property, the
Revenue District Officer (RDO) shall, as grantor, execute a deed conveying to the
purchaser so much of the property as has been sold, free from all liens of any
kind whatsoever, and the deed shall succinctly recite all the proceedings upon
which the validity of the sale depends (Sec. 204, NIRC).
5. Forfeiture in favor of the government for want of bidder - BIR is allowed to
forfeit the property subject to levy - It is allowed only if:
a. There is no bidder; or
b. The bid amount is insufficient.
FORFEITURE
1. It is the divestiture of property without compensation, in consequence of a
default or offense. It transfers the title to the specific thing from the owner to the
government. Also there would no longer be any further levy for such such would
be for the total satisfaction of the tax due (Sec. 215 NIRC).
2. The erring taxpayer may still be criminally prosecuted even if the property has
already been forfeited (Garcia v. Coll., 66 Phil. 441).
3. Rules governing Forfeiture
a. 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 by the Officer to the government.
b. Within 2 days, the Officer shall make a return of the forfeiture. The
Register of Deeds shall transfer the title of forfeited property to the Government
without necessity of a court order.
c. 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).
d. The Commissioner may, after 20 days notice, sell property at public
auction or at private sale with approval of the Secretary of Finance. Proceeds shall
Sancte Mattheus, ora pro nobis! ! 349 of !395
Philippines which must be completed at least 20 days prior to the date of such
public auction.
5. Minimum bid price
a. Unless the Commissioner of Internal Revenue provides otherwise, the
minimum bid price or floor price shall be the latest fair market value (FMV) as
determined by the CIRor the FMV shown in the latest tax declaration issued by the
provincial, city, or municipal assessor, whichever is higher.
6. Persons allowed to bid
a. Anyone could bid except foreign nationals, corporate or otherwise, and
those qualified under existing laws, rules and regulations, including employees of
the BIR.
b. Bidders shall be required to post bond in cash or manager’s check in an
amount representing 10% of the minimum bid price
7. Who will bear the expenses relative to the issuance of title to the property sold?
A: All taxes and expenses will be borne by the winning bidder. Furthermore, he
shall be responsible at his own expense for the ejectment of squatters and/or
occupants, if any, of the auctioned property.
8. Q: May a private sale be resorted to? A: A negotiated or a private sale shall be
resorted to as a consequence of failed public bidding for two consecutive times. It
shall, in all cases, be approved by the Secretary of Finance.
disposed of ? A: All judgments and monies recovered and received for taxes, costs,
forfeitures, fines and penalties shall be paid to the Commissioner or his authorized
deputies as the taxes themselves are required to be paid, and except as specially
provided, shall be accounted for and dealt within the same way (Sec. 226, NIRC).
NOTE: All the proceeds from the sale of forfeited property go to the
government (U.S. v. Aurea, 20 Phil. 163). In case of seizure for enforcement of tax
lien, the residue goes to the taxpayer (BPI v. Trinidad, 42 Phil. 220).
2. Further distraint or levy - *****The remedy of distraint and levy may be
repeated if necessary until the full amount of the tax delinquency due including
all expenses is collected from the taxpayer (Sec. 217, NIRC).350 Otherwise, a
clever taxpayer who is able to conceal most of the valuable part of his property
would escape payment of his tax liability by sacrificing an insignificant
portion of his holdings. However, Further distraint and levy does not apply
when the real property was forfeited to the government for it is in satisfaction
of the claim in question (Sec 215, NIRC).
3. Comparison between levy and distraint
a. Similarities between distraint and levy
i. Summary in nature
ii. Requires notice of sale
iii. May not be resorted to if the amount involved is less
b. Distinctions among warrants of distraint, levy and garnishment
DISTRAINT LEVY GARNISHMENT
Subject matter Personal property Real property owned Personal property owned
owned by and in and in the possession by the taxpayer but in
possession of the of the taxpayer the possession of the
taxpayer third party
Acquisition by the Gov’t Personal property Real property subject Personal property
distrained are to levy is forfeited to garnished are purchased
purchased by the the Government then by the Government and
Government and sold to meet the resold to meet deficiency
resold to meet deficiency.
deficiency
350 Which statement is correct? The collection of a deficiency tax assessment by distraint and levy:
(2012 BAR) a) May be repeated, if necessary, until the full amount due, including all expenses, is
collected; b) Must be done successively, first by distraint and then by levy;c) Automatically covers the
bank deposits of a delinquent taxpayer; d) May be done only once during the taxable year.
SUGGESTED ANSWER: a) May be repeated, if necessary, until the full amount due, including
all expenses, is collected. Section 217, NIRC.
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351In "Operation Kandado," the BIR temporarily closed business establishments, including New
Dynasty Corporation that failed to comply with VAT regulations. New Dynasty contends that it should
not be temporarily closed since it has a valid and existing VAT registration, it faithfully issued VAT
receipts, and filed the proper VAT returns. The contention may be rejected if the BIR investigation
reveals that: (2011 Bar Question) (A) the taxpayer has not been regularly filing its income tax returns
for the past 4 years. (B) the taxpayer deliberately filed a false and fraudulent return with deliberate
intention to evade taxes. (C) the taxpayer used falsified documents to support its application for refund
of taxes. (D) there was an understatement of taxable sales or receipts by 30% or more for the
taxable quarter.
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B. JUDICIAL REMEDIES
APPROVAL OF THE COMMISSIONER
1. No civil or criminal action for the recovery of taxes or the enforcement of any
fine, penalty or forfeiture under the NIRC shall be filed in court without the
approval of the CIR (Sec. 220 NIRC). Regional Directors may approve the filing
of such if this power is expressly delegated to him by the CIR (Sec. 7, NIRC).
a. Approval of the filing of an action in court for collection of taxes may be
delegated under a revenue regulation since this is not one of the powers which
cannot be validly delegated. (Republic v. Hizon, G.R. No. 130420, December 13, 1999)
from the submission of the documents and the taxpayer failed to appeal with the
CTA within 30 days from the lapse of the 180 days period (Sec. 228,
NIRC).
3. Form and mode of proceeding
a. Civil actions shall be brought in the name of the Government of the
Philippines.
b. It shall be conducted by legal officers of the BIR.
c. 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.352,353
2. Purpose for Filing a Criminal complaint
a. Criminal complaint is instituted to penalize taxpayer for the violation
of the NIRC, and not to demand payment.
b. Criminal action is resorted for collection of taxes and enforcement of
statutory penalties of all sorts.
3. Two common crimes punishable under the NIRC
a. Willful attempt to evade or defeat tax (Sec. 254, NIRC). -the conviction or
acquittal obtained under this Section shall not be a bar to the filing of a civil
suit for the collection of taxes.
b. 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).
4. What is the prescriptive period for filing of a criminal action? A: The period is
352 Based on the Affidavit of the Commissioner of Internal Revenue (CIR), an Information for failure
to file income tax return under Section 255 of the National Internal Revenue Code (NIRC) was
filed by the Department of Justice (DOJ) with the Manila Regional Trial Court (RTC) against XX, a
Manila resident. XX moved to quash the Information on the ground that the RTC has no
jurisdiction in view of the absence of a formal deficiency tax assessment issued by the CIR. Is a
prior assessment necessary before an Information for violation of Section 255 of the NIRC could be
filed in court? Explain. (2010 Bar Question) SUGGESTED ANSWER: No. *****In case of failure to
file a return, a proceeding in court for the collection of the tax may be filed without an
assessment. The tax can be collected by filing a criminal action with the RTC *****because a
criminal action with the RTC is a mode of collecting the tax liability. Besides, the CIR is
empowered to prepare a return on the basis of his own knowledge and upon such information
and he can obtain from testimony or otherwise, which shall be prima facie correct and sufficient
for legal purposes. The issuance of a formal deficiency tax assessment, therefore, is not required.
353 The acquittal of the accused in the criminal action for the failure to file income tax return and
failure to supply correct information will have the following consequence: (2012 BAR) a) The CTA
will automatically exempt the accused from any civil liability; b) The CTA will still hold the taxpayer
liable for deficiency income tax liability in all cases, since preponderance of evidence is merely required
for tax cases; c) The CTA will impose civil or tax liability only if there was a final assessment notice
issued by the BIR against the accused in accordance with the prescribed procedures for issuing
assessments, which was presented during the trial; d) The CTA will impose civil or tax liability, provided
that a computation of the tax liability is presented during the trial. SUGGESTED ANSWER: c) The
CTA will impose civil or tax liability only if there was a final assessment notice issued by the
BIR against the accused in accordance with the prescribed procedures for issuing
assessments, which was presented during the trial OR d) The CTA will impose civil or tax liability,
provided that a computation of the tax liability is presented during the trial. Republic v. Patanao,
L-22356, July 1, 1967; (Castro v. Collector of Internal Revenue, L- 12174, April 26, 1962).
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354The prescriptive period to file a criminal action is: (2012 BAR) a) Ten (10) years from the date of
discovery of the commission of fraud or non- filing of tax return; b) Five (5) years from the date of
issuance of the final assessment notice; c) Three (3) years from the filing of the annual tax return; d)
Five (5) years from the commission of the violation of the law, and if the same be not known at the
time, from the discovery thereof and the institution of judicial proceedings for its investigation and
punishment. SUGGESTED ANSWER: d) Five (5) years from the commission of the violation of
the law, and if the same be not known at the time, from the discovery thereof and the
institution of judicial proceedings for its investigation and punishment. Section 281, NIRC.
355 Gerry was being prosecuted by the BIR for failure to pay - his income tax liability for Calendar
Year 1999 despite several demands by the BIR in 2002. The Information was filed with the RTC
only last June 2006. Gerry filed a motion to quash the Information on the ground of prescription,
the Information having been filed beyond the 5-year reglementary period. If you were the judge, will
you dismiss the Information? Why? 5% SUGGESTED ANSWER: No. The trial court can exercise
jurisdiction. *****Prescription of a criminal action begins to run from the day of the commission
of the violation of the law. The criminal violation was committed when Gerry willfully refused to
pay despite repeated demands in 2002. Since the information was filed in June 2006, the criminal
case was instituted within the five- year period required by law (Tupaz v. Ulep, 316 SCRA 118 [1999];
Sec. 281, NIRC). (BAR 2006)
356 Q: TY Corp. filed its final adjusted income tax return for 1993 on Apr. 12, 1994 showing a net
loss. After investigation, the BIR issued a pre-assessment notice on Mar. 30, 1996. A final notice
and demand letter dated Apr. 15, 1997 was issued, personally delivered to and received by the
company's chief accountant. For willful refusal and failure of TY Corp. to pay the tax, warrants of
distraint and levy on its properties were issued and served upon it. On Jan. 10, 2002, a criminal
charge for violation of the NIRC was instituted in the RTC with the approval of the CIR. The
company moved to dismiss the criminal complaint on the ground that an act for violation of any
provision of the NIRC prescribes after 5 years and, in this case, the period commenced to run on
Mar. 30, 1996 when the pre-assessment was issued. How will you resolve the motion? (2002 Bar) A:
The motion to dismiss should not be granted. *****It is only when the assessment has become
final and unappealable that the 5-year period to file a criminal action commences to run. (Tupaz
v. Ulep, G.R. No. 127777, 1 October 1999) The pre-assessment notice issued on Mar. 30, 1996 is not a
final assessment which is enforceable by the BIR. It is the issuance of the final notice and demand
letter dated Apr. 15, 1997 and the failure of the taxpayer to protest within 30 days from receipt
thereof that made the assessment final and unappealable. The earliest date that the assessment has
become final is May 16, 1997 and since the criminal charge was instituted on Jan. 10, 2002, the same
was timely filed. (BAR 2002)
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357Q: May a criminal action be filed despite the lapse of the period to file a civil action for
collection of taxes? A: Yes, provided that the criminal action is instituted within 5 years from the
commission of the violation or from the discovery thereof, whichever is later. Also the two have
different prescriptive periods and such period would run independently from each other.
358 Q: Is assessment necessary before a taxpayer may be prosecuted for willfully attempting in any
manner to evade or defeat any tax imposed by the NIRC? (1998 Bar) A: NO, provided there is a
prima facie showing of a willful attempt to evade taxes as in the taxpayer’s failure to declare a
specific item of taxable income in his income tax returns. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax (Ungab
v. Cusi, G.R. No. L-41919-24, May 30, 1980).
Sancte Mattheus, ora pro nobis! ! 359 of !395
acts charged did not exist (Castro v. Collector of Internal Revenue, L-12174, April
26, 1962).
e. What is the effect of the subsequent satisfaction of civil liability? A:
*****The subsequent satisfaction of civil liability by payment or prescription
does not extinguish the taxpayer’s criminal liability. [Note that in this bar
problem, there is no showing of the filing of a criminal case359 ]
f. Can there be subsidiary imprisonment in case the taxpayer is
insolvent? A: *****In case of insolvency on the part of the taxpayer, subsidiary
imprisonment cannot be imposed as regards the tax which he is sentenced to
pay. However, it may be imposed in cases of failure to pay the fine imposed
(Sec. 280, NIRC).
g. Should the accused be found guilty beyond reasonable doubt for
violation of Sec. 255 of the Tax Code for failure to file tax return or to supply
correct information, the imposition of the civil liability by the CTA should be
automatic and no assessment notice from the BIR is necessary [Bar 2012].
*****If the failure to file tax return or to supply correct information resulted to
unpaid taxes the amount of which is proven during trial, the CTA shall not only
impose the criminal penalty but must likewise order the payment of the
civil liability (Sec. 205(b), NIRC). As a matter of fact, it is well-recognized that in
the case of failure to file a return, a proceeding in court for the collection of
the tax may be filed without the need of an assessment (Sec. 222(a), NIRC).
359 Q: Mr. Chan, a manufacturer of garments, was investigated for failure to file tax returns and to pay
taxes. Despite the subpoena duces tecum issued to him, he refused to submit his books of
accounts and allied records. Investigators, raided his factory and seized several bundles of
manufactured garments, supplies and unpaid imported textile materials. After his apprehension and
based on the testimony of a former employee, deficiency income and business taxes were
assessed against Mr. Chan. It was then that he paid the taxes. Criminal action was nonetheless
instituted against him in the RTC for violation of the NIRC. Mr. Chan moved to dismiss the
criminal case on the ground that he had already paid the taxes assessed against him. He also
demanded the return of the garments and materials seized from his factory. How will you resolve Mr.
Chan's motion? (2012 BAR) Suggested Answer: The motion to dismiss should be denied. *****The
satisfaction of the civil liability is not one of the grounds for the extinction of criminal action
(People v. Ildefonso Tierra, 12 SCRA 666 [1964]). Likewise, the payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution for violation of any provision
of the Tax Code (Sec. 253[a], NIRC). *****However, the garments and materials seized from the
factory should be ordered returned because the payment of the tax had released them from any
lien that the Government has over them.
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INFORMER’S REWARD
1.Reward to persons instrumental:
a. In the discovery of violations of the NIRC; and
b. In the discovery and seizure of smuggled goods.
2. Q: What are the legal requirement/s must be complied with to claim the
reward? (2002 Bar)
a. Voluntarily file a confidential information under oath with the Law
Division of the BIR alleging therein the specific violations constituting fraud;
b. The information must not yet be in the possession of the BIR, or
refer to a case already pending or previously investigated by the BIR;
c. One should not be a government employee or a relative of a
government employee within the sixth degree of consanguinity; and
d. The information must result to collections of revenues and/or fines
and penalties (Sec. 282, NIRC).
3. Amount of the reward
a. For discovery of violations of the NIRC - The amount of reward shall be
whichever is lower between:
i. 10% of the revenues, surcharges or fees recovered and/or fine/
penalty imposed; or
ii. One Million Pesos (P1, 000,000)
NOTE: The same amount of reward shall also be given to an informer where the
offender has offered to compromise the violation of law committed by him and
his offer has been accepted by the CIR and collected from the offender.
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360The proceeding before the CTA in the exercise of its exclusive original jurisdiction are in the nature
of trial de novo. (1%) SUGGESTED ANSWER: TRUE. [CIR v.Manila Mining Corp. GR No.153204,
Aug 31, 2005]
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361 The City of Liwliwa assessed local business taxes against Talin Company. Claiming that there is
double taxation, Talin Company filed a Complaint for Refund or Recovery of Illegally and/or
Erroneously-collected Local Business Tax; Prohibition with Prayer to Issue Temporary
Restraining Order and Writ of Preliminary Injunction with the Regional Trial Court (RTC). The
RTC denied the application for a Writ of Preliminary Injunction. Since its motion for reconsideration
was denied, Talin Company filed a special civil action for certiorari with the Court of Appeals
(CA). The government lawyer representing the City of Liwliwa prayed for the dismissal of the
petition on the ground that the same should have been filed with the Court of Tax Appeals
(CTA). Talin Company, through its lawyer, Atty. Frank, countered that the CTA cannot entertain a
petition for certiorari since it is not one of its powers and authorities under existing laws and
rules. Decide. (2014 Bar Question) SUGGESTED ANSWER: The petition for certiorari before the CA
must be dismissed, since such petition should have been filed with the CTA. As stated in City of Manila
v. Caridad H. Grecia-Cuerdo (G.R. No. 175723, February 2, 2014, 715 SCRA 182), ******the CTA has
the power to determine whether or not there has been grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the RTC in issuing interlocutory orders in cases
falling within the CTA’s exclusive appellate jurisdiction. The CTA therefore has jurisdiction to
issue writs of certiorari in such cases. Furthermore, its authority to entertain petitions for
certiorari questioning interlocutory orders issued by the RTC is included in the powers
granted by the Constitution and inherent in the exercise of its appellate jurisdiction.
362GGG, Inc. offered to sell through competitive bidding its shares in HHH Corp., equivalent to 40%
of the total outstanding capital stock of the latter. JJJ, Inc. acquired the said shares in HHH Corp. as
the highest bidder. Before it could secure a certificate authorizing registration/tax clearance for the
transfer of the shares of stock to JJJ, Inc., GGG, Inc. had to request a ruling from the BIR confirming
that its sale of the said shares was at fair market value and was thus not subject to donor's tax. In BIR
Ruling No. 012-14, the CIR held that the selling price for the shares of stock of HHH Corp. was
lower than their book value, so the difference between the selling price and the book value of said
shares was a taxable donation. GGG, Inc. requested the Secretary of Finance to review BIR Ruling
No. 012-14, but the Secretary affirmed said ruling. GGG, Inc. filed with the Court of Appeals a
Petition for Review under Rule 43 of the Revised Rules of Court. The Court of Appeals, however,
dismissed the Petition for lack of jurisdiction declaring that it is the CTA which has
jurisdiction over the issues raised. Before which Court should GGG, Inc. seek recourse from the
adverse ruling of the Secretary of Finance in the exercise of the latter's power of review? (2015
Bar Question) SUGGESTED ANSWER: GGG should file its petition with the Court of Tax
Appeals. The Supreme Court held that *****the jurisdiction to review the rulings of the
Commissioner of Internal Revenue pertains to the CTA which has the authority to issue, among
others, a writ of certiorari in the exercise of its appellate jurisdiction.
Sancte Mattheus, ora pro nobis! ! 365 of !395
363Q: MSI Corp. imports orange and lemon concentrates as raw materials for the fruit drinks it sells
locally. The Bureau of Customs (BOC) imposed a 1% duty rate on the concentrates. Subsequently,
the BOC changed its position and held that the concentrates should be taxed at 7% duty rate.
MSI disagreed with the ruling and questioned it in the CTA which upheld MSI's position. The
Commissioner of Customs appealed to the CTA en banc without filing a motion for
reconsideration. Is the appeal of the Custom’s commissioner proper? (2013 Bar) A. NO the appeal by
the Custom’s Commissioner is not proper and should be dismissed. *****This is because a Motion for
Reconsideration from the decision of a division of the Court of Tax Appeals is mandatory
prior to elevating the case to the Court of Tax Appeals en banc.
[Commissioner of Customs vs. Marina Sales, Inc. (G.R. No. 183868, November 22, 2010) where the
Supreme Court held that Rule 8, Section 1 of the Revised Rules of Court of Tax Appeals requires that
“the petition for review of a decision or resolution of the Court in Division must be preceded by
the filing of a timely motion for reconsideration or new trial with the Division.” The word “must”
clearly indicates the mandatory, not merely directory, nature of a requirement.”]
364T/F. In criminal cases where the Court of Tax Appeals (CTA) has exclusive original jurisdiction, the
right to file a separate civil action for the recovery of taxes may be reserved. (1%) SUGGESTED
ANSWER: FALSE. [Sec. 11, Rule 9, 2005 Rules of the Tax Appeals, as amended.]
365 After filing an Information for violation of Section 254 of the National Internal Revenue Code
(Attempt to Evade or Defeat Tax) with the CTA, the Public Prosecutor manifested that the People
is reserving the right to file the corresponding civil action for the recovery of the civil liability for
taxes. As counsel for the accused, comment on the People's manifestation. (2015 Bar Question)
SUGGESTED ANSWER: I will move for the denial of the manifestation. *****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 filing of such civil action separately from the criminal action shall be
recognized.
Sancte Mattheus, ora pro nobis! ! 366 of !395
deciding on the protest, it is deemed as a denial of the same.366 The 30-day period
to file a petition before the CTA is counted from the receipt of the final
assessment of the CIR.367 Note that before going up to the CTA, under the
doctrine of exhaustion of administrative remedies, a protest must first be filed
before the CIR within 30 days from receipt of the final assessment notice.368 Also,
366 A Co., a Philippine corporation, received an income tax deficiency assessment from the BIR on
May 5, 1995. On May 31, 1995, A Co. filed its protest with the BIR. On July 30, 1995. A Co. submitted
to the BIR all relevant supporting documents. The CIR did not formally rule on the protest but on
January 25. 1996, A Co. was served a summons and a copy of the complaint for collection of the
tax deficiency filed by the BIR with the Regional Trial Court (RTC). On February 20. 1996, A Co.
brought a Petition for Review before the CTA. The BIR contended that the Petition is premature
since there was no formal denial of the protest of A Co. and should therefore be dismissed. Has the
CTA jurisdiction over the case? SUGGESTED ANSWER: *****Yes, the CTA has jurisdiction over the
case because this qualifies as an appeal from the Commissioner's decision on disputed
assessment. When the Commissioner decided to collect the tax assessed without first deciding on
the taxpayer's protest, the effect of the Commissioner is action of filing a judicial action for collection
is a decision of denial of the protest, in which event the taxpayer may file an appeal with the CTA.
(Republic v. Lim Tian Teng &. Sons, Inc., 16 SCRA 584; Dayrit v. Cruz, L-39910, Sept. 26, 1988) (BAR
1999)
367 A Co., a Philippine corporation, received an income tax deficiency assessment from the BIR on
November 25, 1996. On December 10, 1996, A Co. filed its protest with the BIR. On May 20. 1997,
the BIR issued a warrant of distraint to enforce the assessment. ‘This warrant was served on A Co.
on May 25,1997. In a letter dated June 4,1997 and received by A Co. 5 days later, the CIR formally
denied A Co.’s protest stating that it constitutes his final decision on the matter. On July 6, 1997, A
Co. filed a Petition for Review with the CTA. The BIR moved to dismiss the Petition on the ground
that the CTA has no jurisdiction over the case. Decide. (10%) SUGGESTED ANSWER: The CTA has
jurisdiction over the case. *****The appealable decision is the one which categorically stated that
the Commissioner's action on the disputed assessment is final and, therefore, the reckoning of the
30-day period to appeal was on June 9, 1999. The filing of the petition for review with the CTA
was timely made. The Supreme Court has ruled that the CIR must categorically state that his action
on a disputed assessment is final; otherwise, the period to appeal will not commence to run. That
final action cannot be implied from the mere issuance of a warrant of distraint and levy. (CIR v.
Union Shipping Corporation, 185 SCRA 547). (BAR 1999)
368 A taxpayer received, on 15 January 1996, an assessment for an internal revenue tax deficiency.
On 10 February 1996, the taxpayer forthwith filed a petition for review with the Court of Tax
Appeals. Could the Tax Court entertain the petition? ANSWER: No. *****Before taxpayer can avail
of judicial remedy he must first exhaust administrative remedies by filing a protest within 30
days from receipt of the assessment. It is the Commissioner's decision on the protest that give
the Tax Court jurisdiction over the case provided that the appeal is filed within 30 days from
receipt of the Commissioner’s decision. *****An assessment by the BIR is not the Commissioner's
decision from which a petition for review may be filed with the Court of Tax Appeals. Rather, it
is the action taken by the Commissioner in response to the taxpayer's protest on the assessment
that would constitute the appeallable decision (Section 7, RA 1125).
[] Under the above factual setting, the taxpayer, instead of questioning the assessment he
received on 15 January 1996, paid, on 01 March 1996 the "deficiency tax" assessed. The taxpayer
requested a refund from the Commissioner by submitting a written claim on 01 March 1997. It was
denied. The taxpayer, on 15 March 1997, filed a petition for review with the Court of Appeals.
Could the petition still be entertained? No, the petition for review cannot be entertained by the
Court of Appeals, since decisions of the Commissioner on cases involving claim for tax
refunds are within the exclusive and primary jurisdiction of the Court of Tax Appeals (Section
7, RA 1125). (BAR 1997)
Sancte Mattheus, ora pro nobis! ! 367 of !395
the filing of a civil action for collection (by the CIR) during the pendency of
an administrative protest constitutes the final decision of the Commissioner
on the protest.369
2. CTA has jurisdiction to determine if the warrant of distraint and levy issued by
the BIR is valid and to rule if the waiver of the Statute of Limitations was validly
effected;370
3. A claim for refund or tax credit that has been duly filed with the CIR is
required before a suit or proceeding can be filed in any court (Sec. 229, NIRC of
1997). The denial of the claim by the CIR is the one which will vest the CTA
with jurisdiction over the refund case should the taxpayer decide to appeal on
369 On March 15, 2000, the BIR issued a deficiency income tax assessment for the taxable year
1997 against the Valera Group of Companies (Valera) in the amount of P10 million. Counsel for
Valera protested the assessment and requested a reinvestigation of the case. During the
investigation, it was shown that Valera had been transferring its properties to other persons. As no
additional evidence to dispute the assessment had been presented, the BIR issued on June 16, 2000
warrants of distraint and levy on the properties and ordered the filing of an action in the
Regional Trial Court for the collection of the tax. Counsel for Valera filed an injunctive suit in the
Regional Trial Court to compel the BIR to hold the collection of the tax in abeyance until the
decision on the protest was rendered. Can the BIR file the civil action for collection, pending decision
on the administrative protest? Explain. (3%) SUGGESTED ANSWER: Yes, because there is no
prohibition for this procedure considering that the filing of a civil action for collection during the
pendency of an administrative protest constitutes the final decision of the Commissioner on the
protest (CIR v. Union Shipping Corp., 85 SCRA 548 [1990]).
[] As counsel for Valera, what action would you take in order to protect the interest of your
client? Explain your answer. (2%) SUGGESTED ANSWER: I will wait for the filing of the civil
action for collection and consider the same as an appealable decision. I will not file an
injunctive suit because it is not an available remedy. I would then appeal the case to the Court
of Tax Appeals and move for the dismissal of the collection case with the RTC. Once the appeal
to the CTA Is filed on time, the CTA has exclusive jurisdiction over the case. Hence, the
collection case in the RTC should be dismissed (Yabes v. Flojo, 115 SCRA 278 [1982]). (BAR 2002)
370Which court has jurisdiction to determine if the warrant of distraint and levy issued by the BIR is
valid and to rule if the waiver of the Statute of Limitations was validly effected? (2012 BAR)
a) City Courts; b) Regional Trial Court; c) Court of Tax Appeals; d) Court of Appeals. SUGGESTED
ANSWER: c) Court of Tax Appeals Section 7, RA 9282.
Sancte Mattheus, ora pro nobis! ! 368 of !395
time.371
4. The power to review rulings issued by the Commissioner is lodged with the
CTA, not the RTC.372
5. The Court of Appeals does not have power to review compromise agreements
forged between the CIR and the taxpayer.373
6. The CTA is not vested with original jurisdiction to issue writs of
prohibition or injunction independently of and apart from an appealed case. The power
to issue writ of injunction provided for under Section 11 of RA 1125 is only
371On June 16, 1997, the Bureau of Internal Revenue (BIR) issued against the Estate of Jose de la
Cruz a notice of deficiency estate tax assessment, inclusive of surcharge, interest and compromise
penalty. The Executor of the Estate of Jose de la Cruz (Executor) filed a timely protest against the
assessment and requested for waiver of the surcharge, interest and penalty. The protest was denied by
the Commissioner of Internal Revenue (Commissioner) with finality on September 13, 1997.
Consequently, the Executor was made to pay the deficiency assessment on October 10, 1997. The
following day, the Executor filed a Petition with the Court of Tax Appeals (CTA) praying for
the refund of the surcharge, interest and compromise penalty. The CTA took cognizance of the case
and ordered the Commissioner to make a refund. The Commissioner filed a Petition for Review with
the Court of Appeals [TOM: now, file this at the SC] assailing the jurisdiction of the CTA and the
Order to make refund to the Estate on the ground that no claim for refund was filed with the BIR. Is
the stand of the Commissioner correct? Reason. (2%) SUGGESTED ANSWER: Yes. There was no
claim for refund or credit that has been duly filed with the Commissioner of Internal Revenue
which is required before a suit or proceeding can be filed in any court (Sec. 229, NIRC of 1997). The
denial of the claim by the Commissioner is the one which will vest the Court of Tax Appeals
jurisdiction over the refund case should the taxpayer decide to appeal on time. (BAR 2000)
372Mr. Abraham Eugenio, a pawnshop operator, after having been required by the Revenue District
Officer to pay value-added tax pursuant to a Revenue Memorandum Order (RMO) of the
Commissioner of Internal Revenue, filed with the Regional Trial Court an action questioning the
validity of the RMO. If you were the judge, will you dismiss the case? 5% SUGGESTED ANSWER:
Yes. A RMO is in reality a ruling or an opinion issued by the Commissioner in implementing the
provisions of the Tax Code dealing with the taxability of pawnshops. *****The power to review rulings
issued by the Commissioner is lodged with the Court of Tax Appeals (CTA) and not with the
Regional Trial Court. A ruling falls within the purview of “other matters arising under the Tax
Code, ’’ appealable only to the CTA (CIR v. Leal, 392 SCRA 9 [2002]). (BAR 2006)
373 Does the Court of Appeals have the power to review compromise agreements forged by the
Commissioner of Internal Revenue and a taxpayer? Explain. (2010 Bar Question) SUGGESTED
ANSWER: No, for either of two reasons: i) in instances in which the CIR is vested with authority to
compromise, such authority should be exercised in accordance with the CIR discretion and
courts have no power, as a general rule, to compel him to exercise such discretion one way or another;
ii) If the CIR abuses his discretion by not following the parameters set by law, the CTA, not the
CA, may correct such abuse if the matter is appealed to it. In case of arbitrary or capricious exercise
by the CIR of the power to compromise, the compromise can be attacked and reversed through
judicial process. It must be noted however, that a compromise is considered as other matters arising
under the NIRC which vests the CTA with jurisdiction and since the decision of the CTA is appealable
to the Supreme Court, the Court of Appeals is devoid of any power to review a compromise
settlement forged by the CIR.
Sancte Mattheus, ora pro nobis! ! 369 of !395
374In the investigation of the withholding tax returns of AZ Medina Security Agency (AZ Medina) for
the taxable years 1997 and 1998, a discrepancy between the taxes withheld from its employees and the
amounts actually remitted to the government was found. Accordingly, before the period of
prescription commenced to run, the BIR issued an assessment and a demand letter calling for
the immediate payment of the deficiency withholding taxes in the total amount of P250,000.00.
Counsel for AZ Medina protested the assessment for being null and void on the ground that no pre-
assessment notice had been issued. However, the protest was denied. Counsel then filed a petition
for prohibition with the Court of Tax Appeals to restrain the collection of the tax. Will the special
civil action for prohibition brought before the CTA under Sec. 11 of RA No. 1125 prosper? Discuss
your answer. (3%) SUGGESTED ANSWER: *****The special civil action for prohibition will not
prosper, because the CTA has no jurisdiction to entertain the same. The power to issue writ of
injunction provided for under Section 11 of RA 1125 is only ancillary to its appellate jurisdiction.
The CTA is not vested with original jurisdiction to issue writs of prohibition or injunction
independently of and apart from an appealed case. The remedy is to appeal the decision of the
BIR. (Collector v. Yuseco, 3 SCRA 313 [1981]). (BAR 2002)
375 *The Collector of Customs of the Port of Cebu issued warrants of seizure and detention against
the importation of machineries and equipment by LLD Import and Export Co. (LLD) for alleged non-
payment of tax and customs duties in violation of customs laws. LLD was notified of the seizure,
but, before it could be heard, the Collector of Customs issued a notice of sale of the articles. In
order to restrain the Collector from carrying out the order to sell, LLD filed with the Court of Tax
Appeals a petition for review with application for the issuance of a writ of prohibition. It also
filed with the CTA an appeal for refund of overpaid taxes on its other importations of raw materials
which has been pending with the Collector of Customs. The Bureau of Customs moved to dismiss
the case for lack of jurisdiction of the Court of Tax Appeals.
a. Does the Court of Tax Appeals have jurisdiction over the petition for review and writ of
prohibition? Explain: No, because there is no decision as yet by the Commissioner of Customs
which can be appealed to the CTA. Neither the remedy of prohibition would lie because the CTA
has not acquired any appellate jurisdiction over the seizure case. The writ of prohibition being
merely ancillary to the appellate jurisdiction, the CTA has no jurisdiction over it until it has
acquired jurisdiction on the petition for review. ****Since there is no appealable decision, the CTA has
no jurisdiction over the petition for review and writ of prohibition. (Commissioner of Customs v.
Alikpala, 36 SCRA 208 [1970]).
b. Will an appeal to the CTA for tax refund be possible? Explain. (2002) A: No, because the
Commissioner of Customs has not yet rendered a decision on the claim for refund. ****The
jurisdiction of the Commissioner and the CTA are not concurrent in so far as claims for refund
are concerned. The only exception is when the Collector has not acted on the protested payment
for a long time, the continued inaction of the Collector or Commissioner should not be allowed to
prejudice the taxpayer. (Nestle Phils., Inc. v. Court of Appeals, GR No. 134114, July 6, 2001).
Sancte Mattheus, ora pro nobis! ! 370 of !395
or other penalties;376
2. The CTA has jurisdiction only over decisions of the Commissioner of
Customs in cases involving seizures, detention or release of property
affected. (Sec. 7, RA. No. 1125). If there is no decision yet by the Commissioner
—say, only the Collector made one—CTA has nothing to review.377
376 Under Section 2523 of the Tariff and Customs Code, the duty of verifying the correct weight of
a cargo shipment is imposed upon the vessel’s master, owner or employee. If a discrepancy
between the actual gross weight and declared gross weight of manifested cargo exceeds 20% and
“the Collector shall be of the opinion that such discrepancy was due to the carelessness or
incompetency of the master or pilot in command, owner or employee of the vessel, a fine of not
more than 15% of the value of the article may be imposed upon the importing vessel.” ABC
Corporation’s vessel was found, after appropriate administrative proceedings, to have violated
the said provision far exceeding the 20% statutory limitation. The Collector of Customs imposed a
fine of P22.600.00 (representing 15% of the value of the discrepancy) which was affirmed by the
Commissioner of Customs. On appeal by ABC Corporation, the Court of Tax Appeals found the
fine of P22.600.00 harsh and unreasonable for a first offense and reduced the same to P5.000.00.
The Commissioner of Customs questions the scope of authority of the Court of Tax Appeals in
the determination of the fine imposable under Section 2523 of the Tariff and Customs Code.
Whose judgment should prevail under the circumstances of the case? Explain fully. ANSWER:
*****The judgment of the Court of Tax Appeals should prevail. The CTA has exclusive appellate
jurisdiction over decisions of the Commissioner of Customs in cases involving the imposition of
fines, forfeitures or other penalties. (BAR 1992)
377 On the basis of a warrant of seizure and detention issued by the Collector of Customs for
the purpose of enforcing the Tariff and Customs Laws, assorted brands of cigarettes said to have been
illegally imported into the Philippines were seized from a store where they were openly offered for
sale. Dissatisfied with the decision rendered after hearing by the Collector of Customs on the
confiscation of the articles, the importer filed a petition for review with the Court of Tax
Appeals. The Collector moved to dismiss the petition for lack of jurisdiction. Rule on the motion.
(2%) SUGGESTED ANSWER: Motion granted. *****The Court of Tax Appeals has jurisdiction
only over decisions of the Commissioner of Customs in cases involving seizures, detention or
release of property affected. (Sec. 7, RA. No. 1125). There is no decision yet of the Commissioner
which is subject to review by the Court of Tax Appeals. (BAR 2000) ALTERNATIVE ANSWER:
Motion granted. The Court of Tax Appeals has no jurisdiction because there is no decision rendered by
the Commissioner of Customs on the seizure and forfeiture case. The taxpayer should have
appealed the decision rendered by the Collector within fifteen (15) days from receipt of the
decision to the Commissioner of Customs. The Commissioner’s adverse decision would then be
the subject of an appeal to the Court of Tax Appeals.
[] Under the same facts, could the importer file an action in the Regional Trial Court for
replevin on the ground that the articles are being wrongfully detained by the Collector of Customs
since the importation was not illegal and therefore exempt from seizure? Explain. (3%) SUGGESTED
ANSWER: No. *****The legislators intended to divest the Regional Trial Courts of the jurisdiction
to replevin a property which is a subject of seizure and forfeiture proceedings for violation of the
Tariff and Customs Code, otherwise, actions for forfeiture of property for violation of the
Customs laws could easily be undermined by the simple device of replevin. (De Ia Fuente v. De
Veyra, et aL, 120 SCRA 455) There should be no unnecessary hindrance on the government’s drive
to prevent smuggling and other frauds upon the Customs. Furthermore, the Regional Trial Court do
not have jurisdiction in order to render effective and efficient the collection of import and
export duties due the State, which enables the government to carry out the functions it has been
instituted to perform. (Jiao, et aL, Court of Appeals, et aL, and companion case, 249 SCRA 35, 43) (BAR 2000)
Sancte Mattheus, ora pro nobis! ! 371 of !395
378May the courts enjoin the collection of revenue taxes? Explain your answer. (2%) SUGGESTED
ANSWER: *****As a general rule, the courts have no authority to enjoin the collection of revenue
taxes. (Sec. 218, NIRC). However, the Court of Tax Appeals is empowered to enjoin the collection
of taxes through administrative remedies when collection could jeopardize the interest of the
government or taxpayer. (Section 11, RA 1125) (BAR 2001). [TOM: this is not complete; just follow the
3 conditions, supra]
379RR disputed a deficiency tax assessment and upon receipt of an adverse decision by the
Commissioner of Internal Revenue, filed an appeal with the Court of Tax Appeals. While the appeal is
pending, the BIR served a warrant of levy on the real properties of RR to enforce the collection of
the disputed tax. Granting arguendo that the BIR can legally levy on the properties, what could RR do
to stop the process? Explain briefly. (5%) SUGGESTED ANSWER: *****RR should file a motion
for injunction with the Court of Tax Appeals to stop the administrative collection process. An
appeal to the CTA shall not suspend the enforcement of the tax liability, unless a motion to that
effect shall have been presented in court and granted by it on the basis that such collection will
jeopardize the interest of the taxpayer or the Government (Pirovano v. CIR, 14 SCRA 832 [1965]).
The CTA is empowered to suspend the collection of internal revenue taxes and customs duties in
cases pending appeal only when: (1) in the opinion of the court the collection by the BIR will
jeopardize the interest of the Government and/or the taxpayer; and (2) the taxpayer is willing to
deposit the amount being collected or to file a surety bond for not more than double the amount of
the tax to be fixed by the court (Section 11, R.A. NO. 1125). (BAR 2004)
380May the Court of Tax Appeals issue an injunction to enjoin the collection of taxes by the Bureau of
Internal Revenue? Explain. ANSWER: Yes. *****When a decision of the Commissioner on a tax
protest is appealed to the CTA pursuant to Sec. 11 of RA No. 1125 (law creating the CTA) in relation
to Sec. 229 of the NIRC, such appeal does not suspend the payment, levy, distraint and/or sale
of any of the taxpayer’s property for the satisfaction of his tax liability. However, when in the
opinion of the CTA the collection of the tax may jeopardize the interest of the Government and/or
the taxpayer, the Court at any stage of the proceedings may suspend or restrain the collection of
the tax 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. (BAR 1996)
Sancte Mattheus, ora pro nobis! ! 372 of !395
CTA en banc
[] SEC. 2. Cases within the jurisdiction of the Court en banc. – The Court en
banc shall exercise exclusive appellate jurisdiction to review by appeal the
following:
(a) Decisions or resolutions on motions for reconsideration or new trial of the
Court in Divisions in the exercise of its exclusive appellate jurisdiction over:
(1) Cases arising from administrative agencies – Bureau of Internal
Revenue, Bureau of Customs, Department of Finance, Department of Trade and
Industry, Department of Agriculture;
(2) Local tax cases decided by the Regional Trial Courts in the exercise
of their original jurisdiction; and
(3) Tax collection cases decided by the Regional Trial Courts in the
exercise of their original jurisdiction involving final and executory assessments
for taxes, fees, charges and penalties, where the principal amount of taxes and
penalties claimed is less than one million pesos;
(b) Decisions, resolutions or orders of the Regional Trial Courts in local tax
cases decided or resolved by them in the exercise of their appellate jurisdiction;
(c) Decisions, resolutions or orders of the Regional Trial Courts in tax collection
cases decided or resolved by them in the exercise of their appellate jurisdiction;
Sancte Mattheus, ora pro nobis! ! 373 of !395
CTA in divisions
[] SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in
Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in 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 Code or other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in 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 Code or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code or other applicable law provides a
specific period for action: Provided, that in case of disputed assessments, the
inaction of the Commissioner of Internal Revenue within the one hundred eighty
day-period under Section 228 of the National Internal revenue Code shall be
deemed a denial for purposes of allowing the taxpayer to appeal his case to the
Court and does not necessarily constitute a formal decision of the Commissioner
of Internal Revenue on the tax case; Provided, further, that should the taxpayer
opt to await the final decision of the Commissioner of Internal Revenue on the
disputed assessments beyond the one hundred eighty day-period abovementioned,
the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8
of these Rules; and Provided, still further, that in the case of claims for refund of
Sancte Mattheus, ora pro nobis! ! 374 of !395
taxes erroneously or illegally collected, the taxpayer must file a petition for review
with the Court prior to the expiration of the two-year period under Section 229
of the National Internal Revenue Code;
(3) Decisions, resolutions or orders of the Regional Trial Courts in local
tax cases decided or resolved by them in the exercise of their original jurisdiction;
(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 of other penalties in relation thereto, or other
matters arising under the Customs Law or other laws administered by the Bureau
of Customs;
(5) Decisions of the Secretary of Finance on customs cases elevated to
him automatically for review from decisions of the Commissioner of Customs
adverse to the Government under Section 2315 of the Tariff and Customs Code;
and
(6) Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural 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;
(b) Exclusive jurisdiction over cases involving criminal offenses, to wit:
(1) 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 of the Bureau of Customs,
where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is one million pesos or more; and
(2) Appellate jurisdiction over appeals from the judgments, resolutions or
orders of the Regional Trial Courts381 in their original jurisdiction in 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 Bureau of Customs, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than one million pesos or where
there is no specified amount claimed;
(c) Exclusive jurisdiction over tax collections cases, to wit:
(1) Original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties, where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is one million pesos or
more; and
381 Judgments, resolutions or orders of the Regional Trial Court in the Exercise of its original
jurisdiction involving criminal offenses arising from violations of the NIRC are appealable to the CTA,
which shall hear the cases en banc. (1%) SUGGESTED ANSWER: FALSE. [Sec. 3(b)(2), Rule 4,
2005 Revised Rules of the Court of Tax Appeals.] b. Exclusive appellate jurisdiction in criminal cases
Sancte Mattheus, ora pro nobis! ! 375 of !395
Taxpayer’s Remedies
382 Compare the taxpayer’s remedies under the National Internal Revenue Code and the Tariff and
Customs Code. ANSWER:
The taxpayer's remedies under the National Internal Revenue Code may be categorized into
remedies before payment and remedies after payment. The remedy before payment consists of
administrative remedy which is the filing of protest within 30 days from receipt of assessment,
and judicial remedy which is the appeal of the adverse decision of the Commissioner on the
protest with the Court of Tax Appeals, thereafter to the Court of Appeals [TOM: no more CA
because it’s on the same level as CTA] and finally with the Supreme Court. The remedy after payment is
availed of by paying the assessed tax within 30 days from receipt of assessment and the filing of
a claim for refund or tax credit of these taxes on grounds that they are erroneously paid within
two years from date of payment. If there is a denial of the claim, appeal to the CTA shall be made
within thirty days from denial but within two years from date of payment. If the Commissioner fails
to act on the claim for refund or tax credit and the two-year period is about to expire, the taxpayer should consider
the continuous inaction of the Commissioner as a denial and elevate the case to the CTA before
the expiration of the two-year period.
*****Under the Tariff and Customs Code, taxpayer’s remedies arise only after payment of
duties. The administrative remedies consist of filing a claim for refund which may take the form of
abatement or drawback. The taxpayer can also file a protest within 15 days from payment if he
disagrees with the ruling or decision of the Collector of Customs regarding the legality or correctness of the assessment
of customs duties. If the decision of the Collector is adverse to the taxpayer, he can notify the
Collector within 15 days from receipt of said decision of his desire to have his case reviewed by the
Commissioner. The decision of the Collector on the taxpayer’s protest, if adverse to the Government,
is automatically elevated to the Commissioner for review; and if such decision is affirmed by the
Commissioner, the same shall be automatically elevated to and finally reviewed by the Secretary
of Finance. Resort to judicial relief can be had by the taxpayer by appealing the decision of the
Commissioner or of the Secretary of Finance (for cases subject to automatic review) within 30 days
from the promulgation of the adverse decision to the CTA. (BAR 1996)
Sancte Mattheus, ora pro nobis! ! 376 of !395
Period within which to Commissioner is given 180 No time period is allowed within
decide days from receipt of which the Collector must decide the
complete supporting case
documents.
As to automatic review There is no automatic review A decision of the Customs
should the Commissioner Commissioner against the Government
decide against the is subject to an automatic review by
Government the Secretary of Finance.
—————————————————
Miscellaneous Items
Taxpayer’s suit
1. When may a taxpayer’s suit be allowed? ANSWER: A taxpayer's suit may only
be allowed when an act complained of, which may include a legislative enactment,
directly involves the illegal disbursement of public funds derived from
taxation (Pascual vs. Secretary of Public Works, 110 Phil. 331). (BAR 1996)
2. Four stringent requirements for the exercise of the power of judicial review:
(ALEL)
a. there is an ACTUAL case or controversy;383
383In accordance with the opinion of the Secretary of Justice, and believing that it would be good for
the country, the President enters into an agreement with the Americans for an extension for
another five (5) years of their stay at their military bases in the Philippines, in consideration of:
1. A yearly rental of one billion U.S. dollars, payable to the Philippine government in advance;
2. An undertaking on the part of the American government to implement immediately the mini-
Marshall plan for the country involving ten billion U.S. dollars in aids and concessional loans; and
3. An undertaking to help persuade American banks to condone interests and other charges on
the country's outstanding loans.
In return, the President agreed to allow American nuclear vessels to stay for short visits
at Subic, and in case of vital military need, to store nuclear weapons at Subic and at Clark Field. A
vital military need comes, under the agreement, when the sealanes from the Persian Gulf to the Pacific,
are threatened by hostile military forces.
The Nuclear Free Philippine Coalition comes to you for advice on how they could legally
prevent the same agreement entered into by the President with the US government from going
into effect. What would you advise them to do? Give your reasons. (1988 Bar Question)
SUGGESTED ANSWER: If the Agreement is not in the form of a treaty, it is not likely to be
submitted to the Senate for ratification as required in Art. VII, sec. 21. It may not, therefore, be
opposed in that branch of the government. Nor is judicial review feasible at this stage because
there is no justiciable controversy. While art. VIII, sec. 1, par. 2 states that judicial power includes the
duty of court of justice to “determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
government,” it is clear that this provision does not do away with the political question doctrine.
It was inserted in the Constitution to prevent courts from making use of the doctrine to avoid what
otherwise are justiciable controversies, albeit involving the Executive Branch of the government during
the martial law period. On the other hand, at this stage, no justiciable controversy can be framed to
justify judicial review. I would, therefore, advice the Nuclear Free Philippine Coalition to resort to
the media to launch a campaign against the Agreement.
Sancte Mattheus, ora pro nobis! ! 377 of !395
384A person who has a personal and substantial interest in the case, such that he has sustained, or
will sustain, direct injury as a result of its enforcement is considered to have: (2012 BAR EXAMS): a.
understanding to challenge the governmental act; b. standing to challenge the governmental act; c.
opportunity to challenge the governmental act; d. familiarity to challenge the governmental act.
SUGGESTED ANSWER: (B) PEOPLE VS VERA, 65 PHIL. 56
385 Assume that the constitutional question raised in a petition before the Supreme Court is the lis mota
of the case, give at least two other requirements before the Court will exercise its power of judicial
review?(1994 Bar Question)
SUGGESTED ANSWER: According to Macasiano vs. National Housing Authority, 224 SCRA 236, in
addition to the requirement that the constitutional question raised be the lis mota of the case, the
following requisites must be present for the exercise of the power of Judicial review:
a.There must be an actual case or controversy involving a conflict of legal rights susceptible of
Judicial determination; b.The constitutional question must be raised by the proper party; and c.The
constitutional question must be raised at the earliest opportunity.
386When the Marcos administration was toppled by the revolutionary government, the Marcoses left
behind several Old Masters’ paintings and antique silverware said to have been acquired by them as
personal gifts. Negotiations were then made with Ellen Layne of London for their disposition and
sale at public auction. Later, the government entered into a “Consignment Agreement" allowing
Ellen Layne of London to auction off the subject art pieces. Upon learning of the intended sale,
well-known artists, patrons and guardians of the arts of the Philippines filed a petition in
court to enjoin the sale and disposition of the valued items asserting that their cultural
significance must be preserved for the benefit of the Filipino people.
A. Can the court take cognizance of the case? Explain. (1995 Bar Question). SUGGESTED
ANSWER: No, the court cannot take cognizance of the case. As held in Joya vs. Presidential
Commission on Good Government, 225 SCRA 569, since the petitioners were not the legal owners
of paintings and antique silverware, they had no standing to question their disposition. Besides, the
paintings and the antique silverware did not constitute important cultural properties or national
cultural treasures, as they had no exceptional historical and cultural significance to the
Philippines.
B. What are the requisites for a taxpayer’s suit to prosper? (1995 Bar Question): According to
Joya vs. Presidential Commission on Good Government 225 SCRA 568, ******for a taxpayer’s suit to
prosper, four requisites must be considered: (1) the question must be raised by the proper party; (2)
there must be an actual controversy; (3) the question must be raised at the earliest possible
opportunity; and (4) the decision on the constitutional or legal question must be necessary to the
determination of the case. In order that a taxpayer may have standing to challenge the legality of
an official act of the government, the act being questioned must involve a disbursement of public
funds upon the theory that the expenditure of public funds for an unconstitutional act is a
misapplication of such funds, which may be enjoined at the instance of a taxpayer.
Sancte Mattheus, ora pro nobis! ! 378 of !395
387 For failure of Oceanic Company, Inc. (OCEANIC), to pay deficiency taxes of P20 Million,
the Commissioner of Internal Revenue issued warrants of distraint on OCEANIC’s personal
properties and levied on its real properties. Meanwhile, the Department of Labor through the
Labor Arbiter rendered a decision ordering OCEANIC to pay unpaid wages and other benefits
to its employees. Four barges belonging to OCEANIC were levied upon by the sheriff and later
sold at public auction. The Commissioner of Internal Revenue filed a motion with the Labor
Arbiter to annul the sale and enjoin the sheriff from disposing the proceeds thereof. The
employees of - OCEANIC opposed the motion contending that Art. 110 of the Labor Code gives first
preference to claims for unpaid wages. Resolve the motion. Explain. ANSWER: *****The motion filed
by the Commissioner should be granted because the claim of the government for unpaid taxes are
generally preferred over the claims of laborers for unpaid wages. The provision of Article 110 of
the Labor Code, which gives laborers’ claims for preference applies only in case of bankruptcy or
liquidation of the employer’s business. In the instant case, Oceanic is not under bankruptcy or
liquidation at the time the warrants of distraint and levy were issued hence, the opposition of the
employees is unwarranted. (CIR vs. NLRC et at G.R No. 74965, November 9, 1994). (BAR 1995)
Sancte Mattheus, ora pro nobis! ! 379 of !395
388The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, issued
a Revenue Regulation using gross Income as the tax base for corporations doing business in the
Philippines. Is the Revenue Regulation valid? ANSWER: *****The regulation establishing gross
income as the tax base for corporations doing business in the Philippines (domestic as well as resident
foreign) is not valid. This is no longer implementation of the law but actually it constitutes
legislation because among the powers that are exclusively within the legislative authority to tax is the
power to determine the amount of the tax. (See 1 Cooley 176-184). Certainly, if the tax is limited
to gross income without deductions of these corporations, this is changing the amount of the tax
as said amount ultimately depends on the taxable base. (BAR 1994)
Sancte Mattheus, ora pro nobis! ! 380 of !395
shall promulgate389 all needful rules and regulations for the effective
LARGE TAXPAYER
1. A taxpayer is anyone who satisfies any of the following criteria:
a. For VAT- Business establishment with VAT paid or payable of at least
P100,000 for any quarter of the preceding taxable year;
b. For Excise Tax- Business establishment with excise tax paid or payable of
at least P1 million for the preceding taxable year;
c. For Corporate Income Tax- Business establishment with annual income tax
paid or payable of at least P1 million for the preceding taxable year; and
d. For Withholding Tax- Business establishment with withholding tax payment
or remittance of at least P1 million for the preceding taxable year.
Provided, however, That the Secretary of Finance, upon
recommendation of the CIR, may modify or add to the above criteria for
determining a large taxpayer after considering such factors as inflation, volume of
business, wage and employment levels, and similar economic factors.
2. The penalties prescribed under Sec. 248 of the NIRC shall be imposed on any
violation of the rules and regulations issued by the Secretary of Finance, upon
recommendation of the CIR, prescribing the place of filing of returns and
payments of taxes by large taxpayers (Sec. 245, NIRC).
—————————————————
391 Q: Is the BIR authorized to collect estate tax deficiencies by the summary remedy of levy
upon and sale of real properties of the decedent without first securing the authority of the court
sitting in probate over the supposed will of the decedent? (1998 Bar) A: *****YES, the BIR is
authorized to collect estate tax deficiency through the summary remedy of levying upon and sale
of real properties of a decedent without the cognition and authority of the court sitting in
probate over the supposed will of the deceased *****because of the collection of estate tax is
executive in character. As such the estate tax is exempted from the application of the statute of
non-claims, and this is justified by the necessity of government funding, immortalized in the maxim
that taxes are the lifeblood of the government (Marcos v. CIR, G.R. No. 120880, June 5, 1997).
Sancte Mattheus, ora pro nobis! ! 383 of !395
392 Which court acts on: disputed assessments? ANSWER: ******The CTA exercises exclusive
appellate jurisdiction over disputed assessments. (BAR 1992)
[] Pursuant to the National Internal Revenue Code and under existing rules and regulations, the
Commissioner of Internal Revenue is clothed with the authority/power to evaluate facts of tax cases
and issue assessments/demands against a taxpayer for deficiency taxes. If a KTC [sic] Judge, on motion
of an informer, renders a decision ordering the Commissioner to assess and collect from the
taxpayer certain deficiency taxes when, in fact, the BIR has already ascertained that no deficiency
taxes are due the taxpayer, what proper course of action would you advise your informer-client to
undertake? ANSWER: *****The issue being disputed assessment, jurisdiction, if at all, lies with
the Court of Tax Appeals and not with the RTC. The court decision, in my view, can be voided. I
would simply advice my client to pursue the matter administratively. If the evidence warrants, I
could have the matter investigated by the Ombudsman. ALTERNATIVE ANSWER: I will advise the
client to go to the BIR to file an information under oath so that it may consider any evidence my client
may have in his possession. (BAR 1992)
[] When a protest against the deficiency income tax assessment was denied by the BIR
Regional Director of Quezon City, the appeal to the Court of Tax Appeals must be filed by a taxpayer:
(2012 BAR) a) If the amount of basic tax assessed is P100,000.00 or more; b) If the amount of
basic tax assessed is P300,000.00 or more; c) If the amount of basic tax assessed is P500,000.00 or
more; d) If the amount of basic tax assessed is P1 Million or more; SUGGESTED ANSWER: All the
choices are correct. All decisions on disputed assessments are appealable to the CTA (in Division)
irrespective of the amount (Section 3, RA 9282).
Sancte Mattheus, ora pro nobis! ! 384 of !395
393 Can the Commissioner of Internal Revenue inquire into the bank deposits of a taxpayer? If so,
does this power of the Commissioner conflict with R.A. 1405 (Secrecy of Bank Deposits Law). (1998
Bar) A: *****The Commissioner of Internal Revenue is authorized to inquire into the bank deposits
of: a. A decedent to determine his gross estate; b. Any taxpayer who has filed an application for
compromise of his tax liability by means of financial Incapacity to pay his tax liability (Sec. 6(F),
NIRC). See (c), supra. The limited power of the Commissioner does not conflict with R.A. No. 1405
because the provisions of the Tax Code granting this power is an exception to the Secrecy of Bank
Deposits Law as embodied in a later legislation. Furthermore, in case a taxpayer applies for an
application to compromise the payment of his tax liabilities on his claim that his financial position
demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless
and until he waives in writing his privilege under R.A. No. 1405, and such waiver shall
constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer. (BAR 1998)
[] A Co., a Philippine corporation, is a big manufacturer of consumer goods and has several
suppliers of raw materials. The BIR suspects that some of the suppliers are not properly reporting
their income on their sales to A Co. The CIR therefore: Issued an access letter to A Co. to furnish the
BIR information on sales and payments to its suppliers. Issued an access letter to a bank (X Bank)
to furnish the BIR on deposits of some suppliers of A Co. on the alleged ground that the suppliers are
committing tax evasion. A Co., X Bank and the suppliers have not been issued by the BIR letter of
authority to examine. A Co. and X Bank believe that the BIR is on a “fishing expedition" and come
to you for counsel. What is your advice? (10%) SUGGESTED ANSWER: I will advise A Co. and B
Co. [TOM: this should be X bank] that the BIR is justified only in getting information from the
former but not from the latter. The BIR is authorized to obtain information from other persons
other than those whose internal revenue tax liability is subject to audit or investigation. However, this
power shall not be construed as granting the Commissioner the authority to inquire into bank deposits.
(Section 5, NIRC). (BAR 1999)
394X dies in year 2000 leaving a bank deposit of P2, 000,000.00 under joint account with his
associates in a law office. Learning of X’s death from the newspapers, the Commissioner of Internal
Revenue wrote to every bank in the country asking them to disclose to him the amount of deposits
that might be outstanding in his name or jointly with others at the date of his death. May the bank
holding the deposit refuse to comply on the ground of the Secrecy of Bank Deposit Law? Explain.
SUGGESTED ANSWER: No. *****The Commissioner of Internal Revenue has the authority to
inquire into bank deposit accounts of a decedent to determine his gross estate notwithstanding
the provisions of the Bank Secrecy Law. Hence, the banks holding the deposits in question may not
refuse to disclose the amount of deposits on the ground of secrecy of bank deposits. (Section 6(F)
of the 1997 Tax Code). The fact that the deposit is a joint account will not preclude the
Commissioner from inquiring thereon because the law mandates that if a bank has knowledge of
the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall
not allow any withdrawal from the said deposit account, unless the Commissioner has certified
that the taxes imposed thereon have been paid. (Section 97 of the 1997 Tax Code). Hence, to be
able to give the required certification, the inclusion of the deposit is imperative, which may be
made possible only through the inquiry made by the Commissioner. (BAR 2003)
Sancte Mattheus, ora pro nobis! ! 385 of !395
395A taxpayer is suspected not to have declared his correct gross income in his return filed for
1997. The examiner requested the Commissioner to authorize him to inquire into the bank
deposits of the taxpayer so that he could proceed with the net worth method of investigation to
establish fraud. May the examiner be allowed to look into the taxpayer’s bank deposits? In what cases
may the Commissioner or his duly authorized representative be allowed to Inquire or look into the
bank deposits of a taxpayer? (5%) SUGGESTED ANSWER: No, as this would be violative of
Republic Act No. 1405, the Bank Deposits Secrecy Law. *****The Commissioner of Internal Revenue
or his duly authorized representative may be allowed to inquire or look into the bank deposits of a
taxpayer in the following cases: For the purpose of determining the gross estate of a decedent
[TOM: in the problem, the dude is not yet dead]; Where the taxpayer has filed an application for
compromise of his tax liability by reason of financial incapacity to pay such tax liability. [Sec. 6
(F), NIRC of 1997]; Where the taxpayer has signed a waiver authorizing the Commissioner or his
duly authorized representatives to inquire into the bank deposits. (BAR 2000)
Sancte Mattheus, ora pro nobis! ! 386 of !395
1. STATUTORY BASIS [] NIRC, Section 4396 confers upon the CIR both:
a. The power to interpret tax laws in the exercise of her quasi-legislative
function; and
b. The power to decide tax cases in the exercise of her quasi-judicial
function.
2. Remedy or review against the decision of the Commissioner under Sec. 4
a. Under the first paragraph, the power to interpret the provisions of the
NIRC – review by the Secretary of Finance. Review of the decision of the
Secretary of Finance is Appealable to CTA as implied from Sec. 7(a)(1) of RA
1125 (Philam Life v. Secretary of Finance, G.R. No. 210987, 24 November 2014).397 Note
that CTA has certiorari decision under Art. VIII, Sec. 1 of the 1987
396SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - *****The
power to interpret the provisions of this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws
or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
[] The Commissioner of Internal Revenue issued a BIR ruling to the effect that the
transaction is liable to income tax and value added tax. Upon receipt of the ruling, a taxpayer does
not agree thereto. What is his proper remedy? (2012 BAR) a) File a petition for review with the Court
of Tax Appeals within thirty (30) days from receipt thereof; b) File a motion for reconsideration with
the Commissioner of Internal Revenue; c) File an appeal to the Secretary of Finance within thirty (30)
days from receipt thereof; d) File an appeal to the Secretary of Justice within thirty (30) days from
receipt thereof. SUGGESTED ANSWER: c) File an appeal to the Secretary of Finance within
thirty (30) days from receipt thereof Section 4, NIRC. [*****TOM—since it involves
interpretation of a tax law]
397Rationale for the implied interpretation - Indeed, to leave undetermined the mode of appeal from
the Secretary of Finance would be an injustice to taxpayers prejudiced by his adverse rulings. To
remedy this situation, We imply from the purpose of RA 1125 and its amendatory laws that the CTA is
the proper forum with which to institute the appeal. This is not, and should not, in any way, be
taken as a derogation of the power of the Office of President but merely as recognition that
matters calling for technical knowledge should be handled by the agency or quasi-judicial body with
specialization over the controversy. As the specialized quasi-judicial agency [TOM: this must be
referring to the old CTA because it refers to it as a quasi-judicial agency] mandated to adjudicate tax,
customs, and assessment cases, there can be no other court of appellate jurisdiction that can decide the
issues raised in the CA petition, which involves the tax treatment of the shares of stocks sold. Quoted
by LPS.
Sancte Mattheus, ora pro nobis! ! 388 of !395
Constitution.398
b. Under the second paragraph, the power to decide tax cases (power to
decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising from the
code and other laws administered by the BIR) – appeal is within the jurisdiction of
CTA.
C. NON-RETROACTIVITY OF RULINGS.
*See similar topic under General Principles (Module 1).
from violations of the NIRC as well as the payment of any internal revenue tax
when: (2000, 2009 Bar)******
a. A reasonable doubt400 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 (Doubtful Validity);
b. The financial position of the taxpayer demonstrates a clear inability401
to pay the assessed tax provided that the minimum compromise entered into is
400 *****There is reasonable doubt on the validity of the assessment when: (2004 Bar) [JAF4BWA]
i. The delinquent account or disputed assessment is one resulting from a Jeopardy assessment.
ii. The Assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is
reason to believe that it is lacking in legal and/or factual basis.
iii. The taxpayer Failed to file an administrative protest on account of the alleged failure to receive
notice of assessment and there is reason to believe that the assessment is lacking in legal and/or factual
basis.
iv. The taxpayer Failed to file a request for reinvestigation/reconsideration within 30 days from receipt
of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or
factual basis.
v. The taxpayer Failed to elevate to the CTA an adverse decision of the CIR, or his authorized
representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the
assessment is lacking in legal and/or factual basis.
vi. The assessment were issued on or after January 1, 1988, where the demand notice allegedly failed to
comply with the Formalities prescribed under Section 228 of the Tax Code of 1997.
vii. Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to believe
that the same can be disputed by sufficient and competent evidence.
viii. Assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s
execution of Waiver of the Statute of Limitations the validity or authenticity of which is being
questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic
(Sec. 3.1, RR 30-2002).
ix. The assessment is based on an issue where a court of competent jurisdiction made an Adverse
decision against the bureau, but for which the Supreme Court has not decided upon with finality (R.R.
8-2004).
401T/F. When the financial position of the taxpayer demonstrates a clear inability to pay the tax, the
Commissioner of Internal Revenue may validly compromise the tax liability. SUGGESTED ANSWER:
True. Financial incapacity is a ground allowed by law in order that the Commissioner of Internal
Revenue may compromise a tax liability (Section 204, NIRC), (BAR 2009)
Sancte Mattheus, ora pro nobis! ! 390 of !395
402Q: After the tax assessment had become final and unappealable, the CIR initiated the filing of
a civil action to collect the tax due from NX. After several years, a decision was rendered by the court
ordering NX to pay the tax due plus penalties and surcharges. The judgment became final and
executory, but attempts to execute the judgment award were futile. Subsequently, NX offered the
CIR a compromise settlement of 50% of the judgment award, representing that this amount is all
he could really afford. Does the CIR have the power to accept the compromise offer? Is it legal and
ethical? (2004 Bar) A: *****YES, the CIR has the power to accept the offer of compromise if the
financial position of the taxpayer clearly demonstrates a clear inability to pay the tax (Sec. 204,
NIRC). As represented by NX in his offer, only 50% of the judgment award is all he could really
afford. This is an offer for compromise based on financial incapacity which the CIR shall not accept
unless accompanied by a waiver of the secrecy of bank deposits (Sec. 6 [F], NIRC). *****The
waiver will enable the CIR to ascertain the financial position of the taxpayer, although the
inquiry need not be limited only to the bank deposits of the taxpayer but also as to his financial
position as reflected in his financial statements or other records upon which his property holdings can
be ascertained. If indeed, the financial position of NX as determined by the CIR demonstrates a clear
inability to pay the tax, the acceptance of the offer is legal and ethical for the ground upon which
the compromise was anchored is within the context of the law and the rate of compromise is well
within and far exceeds the minimum prescribed by law which is only 10% of the basic tax
assessed.
403Q: May the CIR compromise the payment of withholding tax where the financial position of the
taxpayer demonstrates a clear inability to pay the assessed tax? (1998 Bar) A: No, a taxpayer who is
constituted as withholding agent who has deducted and withheld at source the tax on the income
payment made by him holds the taxes in trust for the government (Sec. 58 [D], NIRC) and is obligated
to remit them to the BIR. *****The subsequent inability of the withholding agent to pay/remit
the taxes withheld is not a ground for compromise because the withholding tax is not a tax
upon the withholding agent but it is only a procedure for the collection of a tax.
Sancte Mattheus, ora pro nobis! ! 391 of !395
b. If the taxpayer has a pending claim for tax refund or tax credit with
the BIR, Department of Finance One- Stop-Shop Tax Credit and Duty Drawback
Center (Tax Revenue Group or Investment Incentive Group) and/or the courts,
or
c. If the taxpayer has an existing finalized agreement or prospect of
future agreement with any party that resulted or could result to an increase
in the equity of the taxpayer at the time of the offer for compromise or at a
definite future time, or
d. If the taxpayer failed to execute a waiver of his privilege of the
secrecy of bank deposits under Republic Act No. 1405406 or under other
406*The limited power of the Commissioner does not conflict with R.A. No. 1405 because the
provisions of the Tax Code granting this power is an exception to the Secrecy of Bank Deposits Law
as embodied in a later legislation. Furthermore, in case a taxpayer applies for an application to
compromise the payment of his tax liabilities on his claim that his financial position demonstrates a
clear inability to pay the tax assessed, his application shall not be considered unless and until he waives
in writing his privilege under R.A. No. 1405, and such waiver shall constitute the authority of the
Commissioner to inquire into the bank deposits of the taxpayer
Sancte Mattheus, ora pro nobis! ! 393 of !395
407 a. May the bank deposits – peso and foreign currency — of the an individual taxpayer be
disclosed by a commercial bank to the Commissioner of Internal Revenue, in connection with a tax
investigation being conducted by revenue officials, without violating the relevant bank secrecy
laws? Explain your answer. (2012 BAR) Suggested Answer: No. As a general rule, bank deposits of an
individual taxpayer may not be disclosed by a commercial bank to the Commissioner. As exceptions,
the Commissioner is authorized to inquire into the bank deposits of: 1. A decedent to determine his
gross estate; 2. Any taxpayer who has filed an application for compromise of his tax liability by reason
of financial incapacity to pay his tax liability. In case a taxpayer files an application to compromise the
payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay
the tax assessed, his application shall not be considered unless and until he waives in writing his
privilege under RA 1405 (Bank Secrecy Law) or under other general or special laws, and such
waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the
tax payer (Sec. 6, NIRC).
b. In 2011, the Commissioner of the U.S. Internal Revenue Service (IRS) requested in writing
the Commissioner of Internal Revenue to get the information from a bank in the Philippines,
regarding the deposits of a U.S. Citizen residing in the Philippines, who is under examination by
the officials of the US IRS, pursuant to the US-Philippine Tax Treaty and other existing laws.
Should the BIR Commissioner agree to obtain such information from the bank and provide the same
to the IRS? Explain your answer. (2012 BAR): YES. The Commissioner should agree to the request
pursuant to the principle of international comity. The Commissioner of Internal Revenue has
the authority to inquire into bank deposits accounts and related information held by financial
institutions of a specific taxpayer subject of a request for the supply of tax information from a
foreign tax authority pursuant to an international convention or agreement to which the
Philippines is a signatory or party of (Sec. 3, RA 10021).
c. Is the bank secrecy law in the Philippines violated when the BIR issues a Warrant of
Garnishment directed against a domestic bank, requiring it not to allow any withdrawal from any
existing bank deposit of the delinquent taxpayer mentioned in the Warrant and to freeze the same
until the tax delinquency of said taxpayer is settled with the BIR? Explain your answer. (2012
BAR) *****NO. Garnishment is an administrative remedy allowed by law to enforce a tax liability.
Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon
the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of
garnishment, the bank shall turnover to the Commissioner so much of the bank accounts as
may be sufficient to satisfy the claim of the Government (Sec. 208, NIRC).
Sancte Mattheus, ora pro nobis! ! 394 of !395
shall be composed of the CIR and the four (4) Deputy Commissioners.
e. ******The CIR may also abate or cancel a tax liability when: (1) the tax
or any portion thereof appears to have been unjustly or excessively assessed;
or (2) the administrative and collection costs involved do not justify
collection of the amount due (Sec. 204, NIRC).
REFERENCES
Sancte Mattheus, ora pro nobis! ! 395 of !395
1. UST Notes:408 GN; Bar Q&As; lectures and notes of Atty. Lumbera & J.
Dimaampao
2. Tax law books of J. Dimaampao, Atty. Ingles, J. Vitug & Acosta.
3. Contributions from: Kyle (esp. LGC & CMTA), Lau (esp. Tax Remedies), Decs
and Denis.
408These notes were culled mainly from notes (GN), lectures, outlines, case summaries, etc. provided to
students at the UST Faculty of Civil Law, plus researches and updates by those who write them in and
contribute to their present form. Errors are to be attributed to the main author and he is asking you to
send him whatever you think needs to be corrected at tomlawnotes@gmail.com. Aside from that, all
he requests from you is prayers for him, his family and friends. Yes, seriously, if you are happy with
these notes, please send him prayers, generous prayers, if possible. His favorite prayer is the Holy Mass,
and oh, Rosaries :)