TAXATION LAW ANSWERS

1. Mr. Cortez having stayed in the Philippines for more than 180 days is considered a
non-resident alien engaged in trade or business in the Philippines. As such he should
be subject to taxation in the same manner as an individual citizen or resident alien on
his taxable income received from all sources within the Philippines. [National Internal
Revenue Code, RA No. 8424, Section 25 (A) (1), (1997)]

2. No. The P1,680,000.00 increase in the value of the residential house and lot is not
considered as income reportable as income of Mr. Cruz because such increase has not
yet been received by Mr. Cruz, either physically or constructively. Besides, capital gains
ofindividuals on dispositions of real property are subject to a final tax, the presumed
capital gains tax. Consequently, increases in valuation are not reported in the income
tax return. Increases in the valuation of real property are not subject to income tax,
hence, not reportable in the income tax return. [Domondon, IncomenTax, 2013, p. 129]

Note: the appropriate return to be filed is the capital gains tax return, once the
real property considered as asset is disposed, whether the seller made a profit or not.
[id].

3. The total amount of P2,120,000.00 which consists of the amount of P2,000,000.00

gross income from his law practice plus the total amount of p120,000.00 paid as a
retainer fee to his daughter. This should be so because there was no visible service
rendered by Cristina to the recruitment agency, hence, it is clear that the said payment
is a mere subterfuge on the part of the lawyer to evade taxes. [Domondon, Income, p
130]

4. The employer should pay the tax. It is a final tax subject to withholding. As such, the
obligation devolves upon the withholding agent, in this case the employer, to collect the
tax.

5. a) if the taxpayer is an individual who is not a compensation earner, and is a

citizen or a resident alien, or domestic corporation or a resident foreign corporation, the
employer’s contribution to the employee’s Christmas fund is deductible as expense
under no. 2.7 RAMO No. 1-87 subject to the condition that the contribution does not
exceed ½ month’s basic salary of all the employees. It is part of the necessary and
ordinary expenses.

b) Contribution to the construction of a chapel of a university that declares

dividends to its stockholders is not deductible because part of the net income of the
university inures to the benefit of its private stockholders. [NIRC, Section 24(H)(1)]

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 c) Premiums paid by the employer for the life insurance of its employees are not
deductible if the beneficiary is the corporation. [NIRC, Section 36 (A)(4)]

d) Contributions to a newspaper fund for needy families are not deductible for the
same reasons as that advanced in letter b above, with respect to the donation to the
university.

e) Interests on business taxes are deductible as they are considered

indebtedness and not as taxes. [Commissioner v Prieto, GR No. L-13912,(1960);
Commissioner v. Palanca, Jr. GR No. L-16626, (1966)]

6. No more. Once the election to avail of the Optional Standard Deductions is signified
in the return, it shall be irrevocable for the taxable year for which the return is made.
This means that a taxpayer who initially filed a return availing OSD is precluded from
amending said return in order to shift to the itemized deductions. [RR No. 16-2008, Sec
7(1)]

7. Section 228 of the Tax Code provides that a taxpayer shall be informed in writing of
the law and the facts on which the assessment is made. Otherwise, the assessment is
void. [CIR v. United Salvage, GR No. 197515, July 2, 2014]

8. No. the provisions of the NIRC being a special law take precedence over the Civil
Code, a general law. Furthermore, the provisions of the Tax Code were crafted to
ensure expeditious collection of tax money to ensure the continuous delivery of
government services. [Domondon, Tax Remedies, 2013, p. 396]

9. I would wait for any action on the part of the BIR to collect the tax. Within thirty (30)
days from my knowledge or any action on the part of any lower level BIR personnel to
collect, I would file an appeal to the BIR Commissioner for quashal of the order to
collect raising the defense of prescription since there is no showing on the problem that
the assessment was premised upon a false or fraudulent return, or upon failure to file a
tax return. If the Commissioner denies the same, I would then file the appropriate
petition for review with the Court of Tax Appeals division moving for the issuance of an
order suspending the collection of the tax. Should the CTA division’s decision be
unfavorable, I would file a motion for reconsideration or new trial with the same division
and if denied, I shall proceed to the CTA en banc. If such remedy is unavailing then I
would proceed to the Supreme Court through a petition for review on certiorari.
[Domondon, Tax Remedies, p. 400]

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10. Mr. Abcede is not correct. For income tax purposes, the examination and inspection
of Mr. Abcede’s tax records shall be made only once in a taxable year, except in case of
fraud as determined by the Commissioner. [NIRC, section 235(1)]

11. Motion granted. By virtue of the doctrine of exhaustion of administrative remedies,

the decision of the Regional Director is subject to review by the Commissioner of
Internal Revenue. The law is clear that only the decisions of the Commissioner are
subject to CTA review. The doctrine of delegation of powers likewise holds that since
the Commissioner is a mere delegate, he could not in turn delegate his power to decide
to another delegate. There is thus, no decision of the Commissioner which could be
appealed to the Court of Tax Appeals. [Domondon, Tax Remedies, p.452]

12. Yes. The warrant of garnishment could be issued despite the pendency of its protest
with the BIR or appeal to the Court of Tax Appeals. There is no showing the CTA issued
an order suspending the collection of the tax in whatever manner including garnishing
the taxpayer’s bank accounts. Furthermore, garnishment of the bank account is not a
violation of the Bank Deposit Secrecy Law because there is no inquiry into the bank
deposit. [Domondon, Tax Remedies, p.469]

13. No. The Court of Tax Appeals has jurisdiction only over decisions of the
Commissioner of Internal Revenue involving disputed assessments. There is no
decision yet that could be appealed to the Court of Tax Appeals. [Domondon, Tax
Remedies, p.476]

14. No. This would allow the taxpayer to circumvent the procedure for assessment.
Once an assessment has become final and executory for failure to seasonably protest
the same after thirty (30) days from receipt, it could not anymore be reopened. What the
law prohibits, in this case, reopening a final assessment could not be done indirectly
through the media of applying for a refund. [id.]

15. No. Once the taxpayer, such as ABC Corp., has exercised 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, such option is irrevocable for the taxable
period and no application for cash refund or issuance of tax credit certificate shall be
allowed. [Paseo Realty & Development Corp. v. CA, G.R. No. 119286, (2004)]

16. Yes. A corporation as a withholding agent is a taxpayer who could apply for a refund
because it is subject to penalties, fines and surcharges if it fails to make the appropriate
withholding. [CIR v. Smart, G.R. Nos. 179045-46, August 25, 2010]

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17. Motion denied. A compromise penalty presupposes the agreement by the taxpayer
and approved by the Commissioner of Internal Revenue. In the case a bar, the taxpayer
did not only contest the deficiency assessment but the compromise penalty as well. This
is an indication that the taxpayer did not give his assent to the compromise.
[Domondon, Tax Remedies, p. 476]

18. The following are the exceptions to the requirements of a pre-assessment note:

a) When the findings for any deficiency tax is the result of mathematical error in
the computation of the tax as appearing on the face of the return; or
b) When a discrepancy 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
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 the excisable articles has not yet 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. (Tax Code,
Sec.228)

19. Yes, provided that the criminal case has not yet been filed in court, and even if not
yet filed in court, does not involve criminal tax fraud confirmed as such by the
Commissioner or his duly authorized representatives. [Domondon, Tax Remedies, p.
657]

20. The Court of Tax Appeals has no power to review motu propio tax cases.it can
resolve cases only if a civil action for collection of sum of money is filed before it in
exercise of it exclusive original jurisdiction, or a petition for review is filed in the exercise
of its exclusive appellate jurisdiction. An information may be filed with the CTA directly
where the principal amount of taxes and fees, exclusive of charges and penalties, is P1
million pesos or more. [Domondon, Tax Remedies, p. 692]

21. The NIRC provides that no court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax, fee or charge imposed by the
code. An exception to this rule obtains only when in the opinion of the Court of Tax
Appeals, the collection thereof may jeopardize the interest of the government and/ or
the taxpayer. [Angeles City v. Angeles Electric Corp., G.R. No. 166134, June 29, 2010]

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Note: The situation, however, is different in the case of the collection of local taxes as
there is no express provision in the LGC prohibiting courts from issuing an injunction to
restrain local governments from collecting taxes. [id]

22. The requirements of a VAT refund are as follows:

a.) The taxpayer is engaged in sales which are zero-rated or effectively zero-
rated;
b.) The taxpayer is VAT registered;
c.) The claim must be filed within two (2) years after the close of the taxable
quarter when such sales were made;
d.) The input taxes are due or paid;
e.) The input taxes are not transitional input taxes;
f.) The input taxes have not been applied against output taxes during and in the
succeeding quarters;
g.) The input taxes are attributable to zero-rated or effectively zero-rated sales;
h.) In certain types of zero-rated sales, the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with BSP rules
and regulations. [NIRC, Sections 106(A)(2)(a)(1) and (2); 106 (B); and 108
(B)(1)and (2)]
i.) Where there are both zero-rated or effectively zero-rated sales and taxable or
exempt sales, and the input taxes cannot be directly and entirely attributable
to any of these sales, the input taxes shall be proportionately allocated on the
basis of sales volume. [Intel Technology Philippines v CIR, G.R. NO. 166732,
April 27, 2007]

23. Technical importation is the subsequent sale, transfer or exchange of imported

goods by VAT exempt persons to non-exempt persons or entities. The non-exempt
buyers, transferees, or recipients shall be deemed the importers of the taxable goods
and shall be liable for the tax on such importation. [NIRC, Section 107 (b)]

24. No. Prior payment of taxes is not required for a taxpayer to avail of the 8%
transitional input tax credit. All that is required is for the taxpayer to file a beginning
inventory with the BIR, [Fort Bonifacio Dev’t Corp. v. Cir., G.R. No. 173425, (2012)]

25. The following are liable to pay VAT:

a.) Any person who, in the course of trade or business, sells, barters, exchanges or
leases goods or properties, or renders services, except a person, whether or not
VAT registered, whose annual gross sales or receipts does not exceed
P1,919,500.00;

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 b.) Any person who imports goods, whether in the course of trade or business or
not. [NIRC, Sec 105, Tax Code; RR No. 16-2005, Section 4.105-1]

Note: if the annual gross sales or receipts does not exceed P1,919,500.00 he
shall be liable instead for the 3% percentage tax on small business enterprises
[NIRC, Section 116]

26. The doctrine of equitable recoupment means that when the refund of a tax
supposedly due to a taxpayer has already been barred by prescription, and said
taxpayer is assessed with a deficiency tax, the two taxes may be set-off against each
other. This doctrine is not applicable in the Philippine jurisdiction. (UST v. Collector)

27. As a general rule, there shall be no retroactive application of any revocation or

reversal of Revenue Regulations, Rulings, Circulars, and other administrative
issuances, if such revocation, modification, or reversal will be prejudicial to the taxpayer.

However, the revoked, modified, or reversed ruling shall have a retroactive application
in the following instances:

a) The taxpayer deliberately misstates or omits material facts from his return or any
document required by him by the BIR;
b) The facts subsequently gathered by the BIR are materially different from the facts
on which the ruling was based; or
c) The taxpayer acted in bad faith. (Sec 246, NIRC)

28. Yes, it is exempt from a) paying taxes directly due from or imposable upon it as the
purchaser of the subject petroleum products; and b) the cost of the taxes billed or
passed on it by the seller, producer, manufacturer or importer of the said products either
as part of the purchase price or by mutual agreement or other arrangement. Thus the
corporation has legal standing to file the subject tax refund claim, notwithstanding the
fact that it is not the statutory taxpayer as contemplated by law. (CIR v PAL, 2014)

29. No, under par. 1, sec 4 of the NIRC, the CIR shall have the original and exclusive
jurisdiction to interpret the provisions of the NIRC and other tax laws, subject to review
by the Secretary of Finance. Consequently, if the company or union desires clarification
of these issues, they should request for a tax ruling from the BIR. (Honda Cars v Honda
Cars Union, 2014)

30. No. Tax evasion is deemed complete when the taxpayer has knowingly and willfully
filed fraudulent return with intent to evade and defeat part or all of the tax. An
assessment of tax deficiency is not required in the criminal prosecution for tax evasion.

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However, it is necessary to prove the fact that a tax is due before anyone can be
prosecuted for tax evasion. (CIR v CA, 2014)

31. No. The burden to prove compliance with the validity of the proceedings leading up
to tax delinquency sale is incumbent upon the buyer or the winning bidder. This is
premised on the rule that a sale of land for tax delinquency is in derogation of property
and due process rights of the registered owner. The court cannot allow a mere
presumption of regularity to take precedence over the right of the property owner to due
process accorded no less than by the constitution. (Corporate Strategies Development
Corporation v Agojo, 2014)

32. Yes, the requisite for double taxation is that the two taxes must be:

a) Imposed on the same subject matter;

b) For the same purpose;
c) By the same taxing authority;
d) Within the same jurisdiction;
e) During the same taxing period; and
f) The taxes must be of the same kind or character.
In this case, both taxes are imposed on the privilege of doing business, hence
were imposed on the same subject matter and for the same purpose. The taxes
were also imposed by the same city and within the same jurisdiction and taxable
year. (Nursery Care Corporation, et al. v. Treasurer of Manila, GR No. 180651,
July 30, 2014)

33. Pursuant to RA 10165 or The Foster Care Act of 2012, a “foster-child” is now
included in the term “dependent” provided that:

a) All conditions in Sec 35 (B) of the NIRC are complied with, and
b) The additional exemption of P25,000.00 shall be allowed only is the period of
foster care is at least continuous period of one (1) taxable year.

34. No. A finding of under-declaration of purchase does not by itself result in the
imposition of income tax or VAT. The three elements of imposition of income tax are:

a) There must be gain or profit;

b) The gain or profit is realized or received, actually or constructively; and
c) It is not exempted by law or treaty from income tax.

Income tax can only be imposed only when there is income received or realized
by the taxpayer, and not when there is undeclared purchase.

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 Further, a taxpayer is free to deduct from its gross income a lesser amount, or
not claim any deduction at all. What is prohibited is to claim a deduction beyond
the amount authorized therein. Hence, even granting that there is an undeclared
purchase, the same is not prohibited by law.

For the VAT, what is important is that the taxpayer is paid or ought to be paid in
an amount of money or its equivalent, in consideration of such sale, and not
when said taxpayer purchases or disburses an amount of money to purchase
goods or properties. Simply put, the VAT is imposed when one sells, and not
when one purchases. (Commissioner of Internal Revenue v Agrinurture, Inc.,
CTA EB No. 1054, January 13, 2015)

35. Under sec. 76 of the NIRC, in case the corporation is entitled to a tax credit or
refund of the excess estimated quarterly income taxes paid, the excess amount shown
on its final adjustment return may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable years.
Once the option to carry-over and apply and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding taxable years has
been made, such option shall be considered irrevocable for the taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed
therefor.

36. Yes, as provided under Sec 7 of RR 6-2008, in the case of shares of stock not listed
and traded in the local stock exchanges. The book value of the shares of stock as
shown in the financial statements duly certified by an independent certified public
accountant nearest to the date of sale shall be the fair market value. The said provision
does not alter Sec 100 of the NIRC but merely sets the parameters for determining the
“fair market value” of a sale of stocks. (Philam v CIR, 2014)

37. No. Sec. 100 of the NIRC categorically states that the amount by which the fair
market value of the property exceeded the value of the consideration shall be deemed a
gift. Thus, even if there is no actual donation, the difference in price shall be considered
a donation by fiction of law. [note: if the property transferred for less than adequate and
full consideration is subject to the 6%Capital gains tax, there is no donor’s tax.]

38. The CIR will have 120 days from filing of the administrative claim to decide thereon.
If the CIR decides the claim on the 120th day, or does not decode on that day, the
taxpayer still has 30 days to file its judicial claim with the CTA; otherwise, the judicial
claim would be dismissed for being filed out of time. The inaction of the CIR on the
claim during the 120-day period is, by express provision of law, “deemed a denial” of
such claim, and the failure of the taxpayer to file its judicial claim within 30 days from the

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expiration of the 120-day period shall render the “deemed a denial” decision of the CIR
final and unappealable. The right to appeal to the CTA from a decision or “deemed a
denial” decision of the Commissioner is merely a statutory privilege, not a constitutional
right. The exercise of such statutory privilege requires strict compliance with the
conditions attached by the statute for its exercise.

39. No. As long as the taxpayer did in fact incur expenses supported by valid VAT
invoices, it may enjoy the benefit of input VAT credits; where the money came from to
satisfy said advertising billings is another matter but does not alter the VAT effect.

In the same way, the taxpayer cannot be deemed to have received the reimbursable as
a fee for a VAT-taxable activity. However, if the services were rendered to the
reimbursing party/ parent company and not to the taxpayer, the reimbursement would
be subject to VAT. (CIR v Sony Philippines, Inc.)

40. In RCBC v CIR, the Supreme Court has held that in case the CIR failed to act on the
disputed assessment within the 180-day period from date of submission of documents,
a taxpayer can either:

a) file a petition for review with the CTA within 30 days after the expiration of the
180-day period; or

b) await the final decision of the CIR on the disputed assessments and appeal
such final decision to the CTA within 30 days after receipt of a copy of such decision.
(Lascona Land Co., Inc. v CIR)\

41. The tax credit should be equivalent to the actual 20% sales discount granted to
Senior Citizens. The previous ruling of the CTA that the tax credit is based only on the “
cost of the discount” which was interpreted to cover only direct acquisition cost,
excluding administrative and other incremental costs, was struck down by the court.
[note: the March 3, 2008 case of ME Holdings Corp v. CIR and CTA clarified that the
rule will be (i) prior to March 21, 2004 (effectivity of Expanded Senior Citizen’s Act),the
discounts are treated as tax credit; (ii) after March 21, 2004, the same are treated as
deductions. (Mercury Drug v CIR, 2011)

42. A requisite for reconsideration is a reevaluation on the basis of existing records

while a reinvestigation is a reevaluation on the basis of newly discovered or additional
evidence. It is a request for reinvestigation acted upon which suspends the prescriptive
period to collect. (Bank of the Philippine Islands v CIR; RR 18-2013)

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43. No. such suit or proceeding shall be filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may
arise after payment. Provided however, that the Commissioner may, even without a
written claim 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. (CIR v MERALCO, 2014)

44. Yes. Upon presentation of a withholding tax certificate complete in its relevant
details and with a written statement that it was made under the penalties of perjury, the
burden of evidence shifts to the BIR to prove that the certificate is not complete, false or
was not issued regularly. Proof of the actual remittance is not a condition to claim a
refund of unutilized tax credits. (CIR v PNB, GR no. 180290, Sept. 29, 2014)

45. There are three essential conditions for the grant of a claim for refund of creditable
withholding income tax, to wit; (1) the claim is filed with the Commissioner of Internal
Revenue within the 2-year period from the date of payment of the tax; (2) it is shown on
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 paid and the amount of the
tax withheld therefrom. (Commissioner of Internal Revenue v Team Philippines
Operations Corporation, GR No. 179260, April 2, 2014)

46. Yes. No appeal taken to the CTA shall suspend the payment, levy, distraint and/or
sale of any property of the taxpayer for the satisfaction of his tax liability. (Section 11,
RA 1125 as amended by RA 9282) The remedy is to file a Motion to Suspend Collection
of Tax on the ground that the collection of the tax will jeopardize the interest of the
taxpayer and post bond in an amount not more than twice the amount being collected.
This is an exception to the no injunction rule under Section 218 of the NIRC.

47. No. What was imposed under the questioned ordinance are not taxes but instead,
are regulatory fees, specifically to address the environmental depredation of the said
special projects. As such, the case that originated from the RTC is not considered a
local tax case over which the CTA has jurisdiction.(Smart Communications, Inc. v
Municipality of Malvar)

48. Yes it can, as it exercises appellate jurisdiction over the RTC on local tax cases.
(City of Manila v Grecia-Cuerdo, GR No. 175723, February 4, 2014)

49. Only when the BIR Commissioner is not aware of the whereabouts of the taxpayer.
(CIR v BASF Coating + INKS Phils., Inc., GR No. 198677, November 26, 2014)

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50. No. When the legality and validity of the assessment is in question, and not its
reasonableness or correctness, appeals to the LBAA, and subsequently to the CBAA,
pursuant to sections 226 and 229 of the LGC, are not necessary. In the event that he
taxpayer questions the authority and power of the assessor to impose the assessment,
and of the treasurer to collect the real property tax, resort to judicial action may prosper.

51. All sales made in the locality where there is a branch or sales office or warehouse
shall be recorded in said branch or sales office warehouse and the tax shall be payable
to the city or municipality where the same is located. Where there is no branch or sales
office, local tax is paid to the LGU where the principal office is located.

[note: a branch or sales office is a fixed place in a locality which conduct operations of
the business as an extension of the principal office]

52. Allocation rule applies only to manufacturers, assemblers, contractors, producers

and exporters with factories, project offices, plants and plantations in the pursuit of
business.

Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the
city or municipality where the principal office is located, and 70% of all sales recorded in
the principal office shall be taxable by the city or municipality where the factory, project
office, plant or plantation is located.

53. Yes, Under section 133 (o), LGUs have no power to levy taxes of any kind on the
national government, its agencies and instrumentalities and local government units. The
PEZA is an instrumentality of the national government, being an agency attached to the
DTI. It is vested with special functions or jurisdiction by law. (City of Lapu-Lapu v PEZA,
GR No. 184203, November 26, 2014)

54. The ordinance is invalid. Section 140 of the LGC expressly allows for the imposition
by provinces of amusement taxes on the “proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of amusement.”
Accordingly, “other places of amusement” must be interpreted in light of the typifying
characteristic of being venues “where one seeks admission to entertain oneself by
seeing or viewing the show or performances” or being venues primarily use to stage
spectacles or hold public shows, exhibitions, performances, and other events meant to
be viewed by an audience. Considering that resorts, swimming pools, bath houses, hot
springs and tourist spots do not belong to the same category or class as theaters,
cinemas, concert halls, circuses, and boxing stadia, it follows that they cannot be
considered as “among other places of amusement” contemplated by Section 140 of the

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LGC and which may properly be subject to amusement taxes. (Pelizloy Realty
Corporation v Benguet, GR No. 183137, April 10, 2013)

55. The Lifeblood Doctrine means that taxes are the lifeblood of the government and
their prompt and certain availability is an imperious need. Taxation depends upon the
government’s ability to serve the people for whose benefit taxes are collected.

The Necessity Theory means that the power of taxation proceeds upon the
theory that the existence of government is a necessity. It cannot continue without
means to pay its expenses.

In Benefits-Protection theory, the basis is the reciprocal protection and support

between the State and its inhabitants. The state collects taxes from the subjects of
taxation in order that it may be able to perform the functions of government. The
citizens, on the other hand, pays taxes in order that they may be secured in the
enjoyment of the benefits of organized society.

The Doctrine of Symbiotic Relationship means that taxes are what we pay for
civilized society. Without taxes, the government would be paralyzed. Hence, every
person who is able, must contribute his share in the burden of running the government.
The government, for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people.

56. The principles of a sound tax system are as follows:

Fiscal Adequacy means that the sources of revenue must be adequate to meet
adequate government expenditures.

Equality or Theoretical Justice or the ability to pay principle. This means that the
tax burden must be proportionate to the taxpayer’s ability to pay.

Administrative Feasibility. This means that the law must be convenient, just,
uniform and effective in their administration.

57. As a general rule, taxes and claims for refund cannot be the subject of set-off for the
reason that the government and the taxpayer are not creditors of each other. (Republic
v Mamburao Lumber, 1962). The exceptions are:

a.) Set-off is available if both obligations are liquidated and demandable and an
appropriation was already made by the legislature to pay off the debt. [(Domingo v
Garlitos, 1963); N.B. set-off was made by the taxpayer.]

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 b.) The fact of such deficiency assessment is intimately related to and
inextricably intertwined with the right to claim for a tax refund for the same year. To
award such refund despite the existence of that deficiency assessment is an absurdity
and a polarity in conceptual effects. The taxpayer cannot be entitled to a tax refund and
at the same time be liable for a tax deficiency for the same year. (CIR v CTA, July 21,
1994; N.B. set-off was claimed by the State)

58. There is no constitutional prohibition against double taxation. It is something not

favored, but it is permissible, provided some other constitutional provisions are not
violated. (Villanueva v City of Iloilo, 1968)

In order to constitute double taxation in a prohibited sense, the same property must be:
taxed twice when it should be but once; both taxes must be imposed in the (1) in the
same property of the same subject matter, (2) for the same purpose, (3) by the state,
government or taxing authority, (4) within the same jurisdiction or taxing district, (5)
during the same taxing period, and they must be the same kind or character of tax.

In its broad sense, double taxation is taxation other than direct duplicate. Double
taxation in its narrow sense is undoubtedly unconstitutional. The taxpayer may seek
relief under the uniformity rule or the equal protection guarantee. (De Leon)

59. The tax exemption under Article VI, Section 28 (3) covers property taxes for “all
lands, buildings, and improvements actually, directly, and exclusively used for religious,
charitable, or educational purposes” only and not other taxes. (Lladoc v Commissioner,
1965). This exemption applies even to proprietary educational institutions.

Meanwhile, the exemption under Article XIV, Section 4 (3) of the Constitution covers all
taxes on “all revenues and assets of non-stock, non-profit educational institutions” which
are “used actually, directly and exclusively for educational purposes”. The taxes
covered include income, property, donor’s tax, customs duties, and other taxes. Hence,
all properties used actually, directly and exclusively for educational purposes benefit
from the property tax exemption in Art VI, but only non-stock, non-profit educational
institutions benefit from the broader exemption under Art. XIV.

60. As a general rule, tax laws are prospective in operation. The prohibition on ex post
facto laws only applies to criminal or penal matters; the collection of tax interest in tax
cases is not penal in nature. (Central Azucarera v CTA, 1967)

The exception is when retroactive application is expressly provided or is clearly the

legislative intent, except if the tax law is so harsh and oppressive in its retroactive
application that it transgresses the Constitution. (Republic v Fernandez, 1956)

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61. Tax amnesty is the immunity from all criminal and civil obligations arising from non-
payment of taxes. It is a general pardon given to all taxpayers. It applies to past periods,
hence, of retroactive application. (People v Castaneda, 1988). While tax exemption is
immunity from all civil liability only (Greenfield v Meer, 1946). It is generally prospective
in application. (Dimaampao)

62. Yes, non-resident foreign corporations are only liable for income tax from sources
derived in the Philippines. In this case, despite X being an offline carrier, the act of
selling tickets by its general sales agent in the Philippines is an activity that produces
income, hence, is subject to income tax. [CIR v British Overseas Airways Corporation
(1987); recently upheld despite amendments in the NIRC in South African Airways v
CIR (2010)]

63. Yes, if the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but not if regulation is the primary purpose. The fact
that incidentally, revenue is also obtained does not make the imposition a tax. Since the
ordinance is not a local tax, the CTA does not have jurisdiction to take cognizance of
the case. (Smart Communications, Inc. v. Municipality of Malvar, 2014)

64. Ordinary assets are properties held by the taxpayer such as

a. stock in trade;
b. other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year;
c. property held by the taxpayer, primarily for sale to the customers;
d. property used in the trade or business, of a character which is
subject to depreciation; or
e. real property used in the trade or business of the taxpayer

Capital assets are assets held by the taxpayer other than those enumerated above.
[NIRC, Sec 39(A)(1)]

65. No. the governing principles are the following: First, resident aliens are taxed only
for income sourced within the Philippines. Second, dividends are considered income
sourced within the Philippines even if it is from a foreign corporation, unless only less
than 50% of the gross income for the past three-year period ending with the close of its
taxable year preceding the declaration of such dividends or such part of such period as
the corporation has been in existence, was derived from sources within the Philippines.
Lastly, the rule is that sale of personal property shall have its source of income at the
place we=here the passage of title was made. [NIRC, Sec 42(A)]

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In this case, we first look at the gross income of AAA. Since the sales of AAA were all
made FOB shipping point in Oregon, this means that passage of title was made in
Oregon, i.e. the shipping point. Therefore, its gross income is 100% sourced without the
Philippines, and dividends from such corporation should be treated as income without
the Philippines. Since A is a resident alien, and the subject dividends are considered to
be without the Philippines, then he should not be taxed on such dividends.

Note: simplified explanation on dividends of foreign corporation:

Look at the past three years. If its gross income from within the Philippines is less
than 50%, then the source of the dividend income is without the Philippines. If 50% or
more: (average percentage of gross income x dividends = dividends within the Phils.)

66. Yes. The general rule of the sale of personal property shall have its source of
income at the place of passage of title. However, one of the exception to this rule is in
NIRC, Sec. 42(E)(2),which states that shares of sales of stock in domestic corporations
shall be treated as income sourced within the Philippines. Therefore, the sale, despite
having the passage of title in UK, shall be considered as income sourced within the
Philippines.

67. Neither. The house is not subject to FBT or income tax since it falls under one of the
exceptions, which is if the benefit is for the convenience of the employer. (Collector v.
Henderson, 1961)

68. No. in order to exempt from income tax, X must be “both organized and operated
exclusively” for charitable purposes. Since X is receiving revenue from its paying clients,
it cannot be considered as operating exclusively for charitable purposes. However, it is
subject to a preferential rate at 10% under sec. 27 because X is proprietary, non-profit
hospital, provided that its gross income from unrelated trade or business does not
exceed 50%. (CIR v. St. Luke’s Medical Center, Inc., 2012)

69. No, X is not subject to income tax. X benefits from the exemption imposed by the
1987 Constitution on non-stock and non-profit educational institutions whose revenue
and assets are used actually, directly and exclusively for educational purposes. Such
exemption covers all taxes on their revenue and assets. [Const., Art XIV, Sec 4(3)]

70. No. laws and issuances must ensure that the reliefs granted under tax treaties are
accorded to the parties entitled thereto. The BIR must not impose additional
requirements that would negate the availment of the reliefs provided for under
international agreements. More so, when the RP-Germany Tax Treaty does not provide

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any pre-requisite for the availment of the benefits under said agreement. (Deutsche
Bank v CIR, 2013)

71. Yes, the BIR is correct. First, Corporation S cannot avail of the preferential tax rate
because it never commenced operation and therefor never operated within the
Ecozone. Second, the properties involved in the case are capital assets because they
are not among the exclusions under the NIRC, Sec 39(A)(1). None of the properties
were used in petitioner’s trade or ordinary course of business because petitioner never
commenced operations. They were not part of the inventory. None of them were stocks
in trade. (SMI-ED Phil v. CIR, GR NO. 175410, November 12, 2014)

72. The holding period (wherein only 50% of gain or loss if the property has been held
for more than 12 months) only applies to individuals, not corporations. In addition, the
holding period does not apply to shares of stock subject to CGT and real property
considered as a capital asset subject to CGT (Capital Gains Tax). (Sec 39(B), NIRC)

73. The 40% OSD for individuals can only be applied to his gross sales/receipts while
for a corporation, it can be applied on its gross income. [NIRC, sec 34(L)]

74. In order for an individual or a corporation to make a deduction in full, the following
requisites must be complied with:

1. Donee is government and for its priority purposes (education, health, youth,
sports development, human settlements, science and culture), or a foreign government
pursuant to a treaty, or an accredited domestic NGO by the Philippine Council for NGO
certification.

2. Donor must give the RDO a notice of donation for every donation worth
P50,000.00 or more and a certificate of donation from the done stating that not more
than 30% of the donation shall be used by such accredited non-stock and non-profit
corporation or NGO for administrative purposes.

3. No part of the net income shall insure to the benefit of any individual. [NIRC,
sec. 34(H) and RR 2-2003]

75. Yes. The taxpayer already had adequate basis to show the loss, as evidenced by
the non-operation of B Corporation. Although it has assets which it can liquidate, such
gain/loss from the assets to be liquidated may properly be included in the year they are
realized. [Fernandez Hermanos v. CIR, 1969]

76. No. the requirements for write off are not complete, as there was no “indebtedness
due, legally demandable” to the taxpayer.
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The agreement between X Corporation and B Corporation is a contract of partnership or
joint venture, since they intended to contribute money, property, or industry to a
common fund, with the intention of dividing the profit among themselves. Hence, X
Corporation’s advances cannot be treated as obligations of B but mere capital
investments in the partnership. Therefore, it cannot be written of as bad debts. [Philex
Mining v. CIR (2008)]

77. The available defenses against the imposition of Improperly Accumulated Earning
Tax (IAET) are as follows:

1. The taxpayer is among those not subject to IAET i.e. (a) banks and other non-
bank financial intermediaries, (b) insurance companies, (c) publicly held
corporations, (d) general professional partnerships, (e) taxable partnerships, (f)
non-taxable joint ventures, (g) enterprises duly registered with PEZA or under
special economic zones [RR No. 2-2001, sec. 4]
2. The accumulation is to meet the reasonable needs of a business and passes the
immediacy test (i.e. to meet the immediate and reasonably anticipated needs of
the business).
a. N.B. the following constitute reasonable needs of business: a) expansion of
business, b) loan agreement wherein the corporation cannot declare
dividends without the approval of the creditor, c) increase of accumulated
earnings of up to 100% of the paid up capital, d) subsidiaries of a foreign
corporation whose undistributed earnings are reserved for investments in the
Philippines, e) earnings required by law to be retained. [RR No. 2-2001,sec 3]
b. The following are prima facie instances of non-reasonable needs of business:
a) investment of substantial earnings and profits of a corporation in unrelated
business or in stock or securities of unrelated business, b) investments in
bonds or other long term securities, and c) accumulation of earnings in
excess of 100% of paid up capital. [RR No. 2-2001, sec 7]

78. It depend if the merger plan was followed. If the distribution is in accordance to the
merger plan, there will be no amount of gain realized. [NIRC, sec (40)(C)(3)(b)] The rule
is that if the corporation party to the merger received cash or property which is to be
distributed in pursuance to the plan of merger and distributes it according to such plan,
then there will be no gain to be realized by the corporation. If the property/cash is not
distributed according to the plan, then a gain will be realized in an amount not
exceeding the cash/fair market value of the property received, which is not distributed.

79. Yes. The rule is that not less than 75% in normal capital or paid up capital of the
corporation must be held by or on behalf of the same persons. In this case, when A
transferred to B, 75% was still held by or on behalf of the same persons.

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80.(a) No. the rule is that not less than 75% in the normal capital or paid up capital of
the corporation must be held by or on behalf of the same persons. In this case, when 1
merged with 2, the ownership of Corporation 1 was changed, with less than 75% of its
shares being held by or on behalf of the same persons. Therefore, the NOLCO
requirement of no substantial change in ownership has not been met. Hence, NOLCO
cannot be used.

(b) Yes. In this case, it was Corporation 1, the one who incurred the NOLCO, was
the one claiming the NOLCO. Therefore, there being no change in substantial
ownership, and with the entity who incurred the NOLCO being the one claiming it, then
the prohibition against “NOLCO trafficking” cannot be applied.

81. MCIT is imposed beginning on the fourth taxable year immediately following the
year in which such corporation commenced its business operations. Any excess of the
MCIT over the normal income tax shall be carried forward and credited against the
normal income tax for three years immediately succeeding taxable years. Relief from
the MCIT shall be granted by the Secretary of Finance for losses on account of
prolonged labor dispute, or because of force majeure, or because of legitimate business
reverses. [NIRC, sec. 27(E)(1)-(3)]

82. A is entitled to the amnesty. The rule is that amnesty, similar to exemptions, shall be
construed strictly against the taxpayer. Therefore, the ones applying for the amnesty
must comply with all the requirements, must prove to be covered by the amnesty, and
prove to be not excepted by the amnesty.

With respect to the BIR RMC, the rule is that the rule-making power of administrative
agencies cannot be extended to amend or expand statutory requirements or to embrace
matters not originally encompassed by the law. Administrative regulations should
always be in accord with the provisions of the statute they seek to carry into effect, and
any resulting inconsistency shall be resolved in favor of the statute. Therefore, RMC, in
adding to the exceptions, must be held unconstitutional. [CS Garment v. CIR, 2014]

83. The claim of X-Phil must be given due course. While the law provides that only the
taxpayer is entitled to file a claim for refund, X-Phil may be properly regarded as the
taxpayer. Under Sec 53(c) of the NIRC, the withholding agent is obliged to deduct and
withhold any tax and is made personally liable for such tax. The law makes the
withholding agent directly and independently liable for the correct amount of the tax that
should be withheld from the dividend remittances. Therefore, as the withholding agent,
X-Phil is a “person liable for tax”, and accordingly, it is a “person subject to tax,” which is
what a “taxpayer” is.

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84. Yes, CIR is correct. The absence of donative intent, if that be the case, does not
exempt the sales of stock transaction from donor’s tax since Sec. 100 of the NIRC
categorically states that the amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no
actual donation, the difference in price is considered a donation by fiction of law.
[Philam Life v. CIR,2014]

85. Yes, the sale of the car was liable to VAT because VAT is imposed on the sale of
properties in the course of trade or business, including transactions incidental thereto. It
does not follow that an isolated transaction cannot be an incidental transaction for
purposes of VAT liability. Prior to the sale, the car was part of the property, plant and
equipment. Therefore, the sale of the car is an incidental transaction made in the course
of the company’s business. [Mindanao Geothermal Partnership v. CIR, 2013]

86. The position of FBDC is correct. There is nothing in the law that prohibits the
inclusion of real properties, together with the improvements thereon, in the beginning
inventory of goods, materials and supplies, based on which inventory the transitional
input tax credit is computed. As a real estate dealer, the inventory of the FBDC
constitutes the real properties held primarily for sale to consumers or held for lease in
the ordinary course of trade or business that are subject to VAT. [Fort Bonifacio
Development Corp. v. CIR, 2013]

87. Company Y is liable for VAT even if the company is not operating for profit.
According to RA 7716 or the Expanded VAT Law, Sec 105 of the NIRC of 1997 was
amended to define the phrase “in the course of trade or business” to mean as “the
regular conduct or pursuit of a commercial or an economic activity.” Furthermore, the
phrase was defined to include any person engaging in such “regardless of whether or
not the person engaged therein is a nonstick, nonprofit organization.” Sec 105 clarifies
that even a non-stock, non-profit organization or government entity, is liable to pay VAT
on the sale of goods or services. VAT is tax on transactions, imposed at every stage of
the distribution process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto. The term “in
the course of trade or business” requires the regular conduct or pursuit of commercial or
economic activity, regardless of whether or not the entity is profit-oriented. It is
immaterial whether the primary purpose of a corporation indicates that it receives
payment for services rendered to its affiliates on a reimbursement-on-cost basis only,
without realizing profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT. [ CIR v. CA and Comaserco,
2000]

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88. NO, BIR is wrong. This case is different from the CIR v. Comaserco case, wherein
the court held that services rendered for no profit will still be subject to VAT. In the
present case, there was no sale, barter, exchange or service rendered in the subsidy
given by X to Y. D just gave assistance to Y in the amount equivalent to the latter’s
advertising expense but never received any goods, properties or service from Y. [CIR v.
Sony Philippines, 2010]

89. Yes, PAGCOR is exempt from VAT. According to Sec 13 of PD 1869, the charter
creating PAGCOR, “no tax of any kind or form, income or otherwise, as well as fees,
charges or levies of whatever nature, whether National or Local, shall be assessed and
collected under this franchise from the Corporation.” No distinction was made between
direct or indirect tax. Hence, PAGCOR is exempt from VAT. [PAGCOR v. BIR, 2011]

90. No. the SC ruled that the consortium is doing business in the Philippines as
evidenced by the contract with NAPOCOR. An essential condition for qualification to
zero-rating is that the recipient of such services is doing business outside the
Philippines. While this requirement is not expressly stated in the second paragraph of
Section 102(b), this is clearly provided in the first paragraph of Section 102(b), where
the listed services must be “for other persons doing business outside the Philippines.”
This phrase does not only refer to the services enumerated under the first paragraph of
Section 102 (b). In short, services other than processing, manufacturing, or repacking of
goods must likewise be performed for persons doing business outside the Philippines.
[NIRC, Sec 108 (B); CIR v. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc., 2007]

91. Yes. For the supply of service to be zero-rated as an exception, the law merely
requires that first, the service be performed in the Philippines; second, the service fall
under any of the categories in Section 102(b) of the Tax Code; and third, it be paid in
acceptable foreign currency accounted for in accordance with BSP rules and
regulations. [CIR v. American Express International, 2005]

92. The instances where tax liability could be compromised are as follows:

a. delinquent accounts;
b. cases under administrative protest after issuance of the Final Assessment
Notice to the taxpayer which are still pending in the Regional Offices,
Revenue District Offices, Legal Service, Large Taxpayer Service (LTS),
Collection Service, Enforcement Service and other offices in the National
Office;
c. civil tax cases being disputed before the courts;
d. collection cases filed in courts;

Page 20 of 63
 e. criminal violations, other than those already filed in courts or those
involving criminal tax fraud. [ RR 30-2002, Sec 2]

93. The exceptions to the instances where tax liability could be compromised are as
follows:

a. withholding tax cases, unless the applicant-taxpayer invokes provisions of the

law that cast doubt on the taxpayer’s obligation to withhold;
b. criminal tax fraud cases conformed as such by the Commissioner of Internal
Revenue or his duly authorized representative;
c. criminal violations already filed in court;
d. delinquent accounts with duly approved schedule of installment payments;
e. cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment and the taxpayer is agreeable to
such decision by signing the required agreement form for the purpose. On the
other hand, other protested cases shall be handled by the Regional Evaluation
Board (REB) or the National Evaluation Board on a case to case basis;
f. cases which become final and executor after final judgment of a court, where
compromise is requested on the ground of doubtful validity of the assessment;
and
g. Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer. [RR 30-2002, Sec 2]

94. The bases of compromise of tax liability are as follows”

a. Compromise based on doubtful validity of delinquent or disputed

assessment.
b. Compromise based on financial incapacity. [NIRC, Sec 204]

95. No. Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of the PAN. He must
be informed of the facts and the law upon which the assessment is made, or else it shall
be void. The law imposes a substantive, not merely a formal requirement. The issuance
of the PAN is part of the “due process re quirement in the issuance of a deficiency tax
assessment”, the absence of which renders nugatory any assessment made by the tax
authorities. [CIR v. Metro Star Suprema, 2010]

96. RR No. 18-2013 amending RR 12-19, Sec 3.1.2 provides for the exceptions to the
requirement of an issuance of a Preliminary Assessment Notice (PAN) before the Final
Assessment Notice as follows:

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 a. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the
taxpayer; or
b. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
c. When the taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or
d. When the excise tax due on excisable articles has not yet been paid; or
e. 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.

97. Yes, the notice was sent within the three-year prescriptive period from the date of
filing the return or the last day of filing the return, whichever is later.

In the case of Collect of Internal Revenue v. Bautista, this court held that an
assessment is made within the prescriptive period if notice to this effect is released,
mailed or sent by the CIR to the taxpayer within said period. Receipt thereof by the
taxpayer within the prescriptive period is not necessary but taxpayer must eventually
actually receive the assessment notice, even beyond the prescriptive period.

98. No. The rule is that any claim for tax refund for recovery of tax erroneously or
illegally collected should first have a written claim for refund or credit filed with the CIR.
This is mandatory requirement. “It is a condition precedent. If the taxpayer fails to
comply with the same, any action on his part in recovering the tax will necessarily fail. If
a judicial action is brought for recovery, it will be dismissed. [NIRC, Sec 229; Vda de
Aguinaldo v. CIR, 1965]

99. It depends if on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. If yes, then he may file even
without a written claim with the CIR. This is an exception to the rule that no action may
be maintained without any written claim for refund. [NIRC, Sec. 229]

100. a.) 2 years from April 15, year 2. The rule is that refund from overpayment of
income tax shall be made within 2 years from the payment of the tax. However, the
overpayment was apparent only upon April 15, the day of filing of the final adjusted
return. Therefore, the prescription only runs from the date of filing of final adjusted
return. [CIR v Philam Life, 1995]

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100. b) if it pays on December 30, the answer would be the same, which is 2 years from
the filing of the final adjusted return.

101. Yes. The general rule is that upon filing of the administrative claim, the taxpayer
must wait 120 days before he files a judicial claim. Otherwise, the judicial claim is
premature. Such judicial claim must be filed within 30 days from the expiration of such
120-day period or the denial of the claim by the Commissioner. The 120-30 day period
within which to file a judicial claim is mandatory and its non-observance is fatal.

But an exception exists for claims for refund that were prematurely filed during the
interim period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to
06 October 2010, when the Aichi Doctrine was adopted. The foregoing BIR Ruling
expressly laid down the rule that taxpayers need not wait for the expiration of the 120-
day period before filing a judicial claim with the CTA. Furthermore, it is a general
interpretative ruling, thus all taxpayers can rely on it from the time of its issuance until its
reversal. [Team Energy v. CIR, 2014]

102. No. The taxpayer can file his administrative claim for refund or issuance of tax
credit certificate anytime within the two-year prescriptive period from the close of the
quarter. 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 on such claim on the 120th day or does
not decide on it on that day, the taxpayer still has 30 days to file his judicial claim with
the CTA. In this case, the administrative claim was filed well within the 2-year period,
and the judicial claim was filed after the expiration of the 120 days but before the 30 day
prescriptive period. Therefore, X’s judicial claim was filed on time.

103. Yes. A false return merely implies deviation from the truth, usually made due to
mistake, carelessness or ignorance. A fraudulent Return on the other hand, implies
intentional or deceitful entry with an intent to evade the taxes due.

104. Yes. The imposition of a 50% penalty on the amount due is proper only in cases of
willful neglect to file a return within the prescribed period or in case a fraudulent return is
willfully made. In Peterson’s case, the proper penalty should only be equivalent to 25%
as he merely failed to file a return. [NIRC, Sec. 248 (B)]

105. The taxpayer has 2 remedies in case the CIR fails to act on a disputed assessment
as follows:

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

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 b. Await the final decision of the Commissioner on the disputed assessment
and appeal such final decision with the CTA within 30 days after the
receipt of the copy of such decision.

These options are mutually exclusive and resort to one bars the application of
the other. And a request for reinvestigation is not allowed for the remedy.
[NIRC, Sec 228; Lascona Land v. CIR, 2012]

106. The following are properties exempt from Real Property tax:

a. Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
b. Charitable institutions, churches, parsonages, or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands,
buildings and improvements actually, directly and exclusively used for
religious, charitable or educational purposes;
c. All machineries and equipment that are actually, directly and exclusively
used by local water districts and government owned or controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
d. All real property owned by duly registered cooperatives as provided for
under RA No. 6938; and
e. Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
judicial, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code. [LGC, Sec. 234]

107. The general rule is income tax cannot be levied by LGUs. The exception is that
income tax may be levied on banks and other financial institutions. [LGC, Sec. 133(a)]

108. Yes, LGUs may exercise the power to levy taxes, fees or charges on any base or
subject not otherwise specifically enumerated in the (1) Local Government Code, (2)
taxed under the NIRC, or (3) other applicable laws. These taxes, fees, or charges, shall
not be enacted without any prior public hearing conducted for the purpose. [LGC, Sec.
186]

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109. Any question on the constitutionality or legality of tax ordinances or revenue
measures may be raised on appeal within thirty (30) days from the effectivity thereof to
the Secretary of Justice who shall render a decision within sixty (60) days from the date
of receipt of the appeal. Such appeal shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied
therein. Additionally, within thirty (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 appropriate proceedings with a court of competent jurisdiction.
[LGC, sec. 187] The constitutionality of this provision has been upheld in Drilon v. Lim
(1994)

110. The general rule is that the LGU cannot impose said tax on property owned by the
Republic or any of its political subdivisions. The exceptions is that the LGU may impose
real property tax over real property owned by the Republic if the beneficial use thereof
has been granted to a taxable person, as when the Government leases the same
property to a private corporation. [MCIAA v. Marcos (1996); MIAA v. City of Pasay
(2009); LGC, sec. 234 (a)]

111. No, he must first pay under protest. Sec 252 of the LGC states that the taxpayer
questioning the assessment should first pay the tax due before his protest can be
entertained. If denied, his recourse would be to go to the LBAA, and then the CBAA.
Under the doctrine of primacy of administrative remedies, an error in the assessment
must be administratively pursued to the exclusion of ordinary courts whose decisions
would be void for lack of jurisdiction.[Camp John Hay v. Central Board of Assessment
Appeals (2013; 2nd Division]

Alternative answer: yes, he may file a case directly with the CTA. Although as a rule,
administrative remedies must first be exhausted before resort to judicial action can
prosper, there is a well-settled exception in cases where the controversy does not
involve questions of fact but only of law. [Ty v. Trampe (1995; en banc]

112. Provinces, cities, and municipalities within the Metropolitan Manila Area may
administer real property taxes. [ LGC, sec. 200]

113. Where a decision of the Collector of Customs in such seizure and protest cases is
adverse to the government, it shall be automatically reviewed by the Commissioner of
Customs which, if affirmed, shall automatically be elevated for final review by the
Secretary of Finance. (Yaokasin v. Commissioner of Customs, 1989, citing CMO No.
20-87 and Sec. 12 of the integrated Reorganization Plan)

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114. The Bureau of Customs has exclusive original jurisdiction over seizure, forfeiture
and protest cases. Seizure or protest cases are within the exclusive jurisdiction in the
first instance of the Collector of Customs, appealable to the Custom’s Commissioner.
[Rallos v. Gako, (2000), citing Mison v. Natividad, 1992]

The RTC has no jurisdiction to restrain the seizure, forfeiture of smuggled goods. [Jao v.
CA, 2002]

115. This requires that the violation must be committed within the territorial waters of the
Republic of the Philippines. However, once it is committed within the Philippines, the
vested may be seized or pursued even on the high seas under the Hot Pursuit Doctrine.

116. Under Section 401 of the Tariff and Customs Code, the President, through an EO
is empowered by the Congress to:

a. Change the level and form of import duties;

b. Impose an import quota or ban imports;
c. Levy an additional duty on all imports in the interest of national economy,
general welfare and/or national security.

117. The special duties under the Tariff and Customs Code are as follows:

a. Anti-Dumping. This is imposed to prevent continuous important of dumping of

imported articles into local market of a country at a price less than those
prevailing in its domestic market. The amount of duty is the normal price of
imported goods less than export price.
b. Countervailing Duty. Imposed to offset subsidy directly or indirectly granted by
the government in country of exportation upon the production, manufacture, or
exportation of such imported goods.
c. Marking Duty. Imposed if imported goods or its container is not marked in any
official language in the Philippines, and in a conspicuous place as legibly,
indelibly and permanently in such a manner as to indicate an ultimate purchaser
in the Philippines of the name of the country of origin of article.
d. Discriminating Duty. Imposed to prevent discrimination against commerce of
Philippines from unreasonable charges, exactions, regulations or limitations on
imported Philippine products which is not equally enforced upon the same goods
imported from other foreign countries.
e. Safeguard Duty. Imposed upon a positive final determination by the Tariff
Commissioner that a product being imported in the Philippines has increased in
quantity (absolute or relative to domestic production), which shall be a substantial
cause of serious injury or threat to domestic industry.

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118. Importation begins from the time the carrying vessel or aircraft enters Philippine
territorial jurisdiction with the intent to unload therein, and it ends at the time the goods
are released or withdrawn from customs house upon payment of custom duties and with
legal permit to withdraw. [Viduya v. Berdiago, 1976; Sec. 1202, Tariff and Customs
Code]

119. Both the Import Entry Declaration (IED) and Import Entry and Internal Revenue
Declarations (IERD) must be filed with the Bureau of Customs within 30 days from the
date of discharge of the last package from the vessel or aircraft. Otherwise, the goods
are deemed abandoned in favor of the government. [Chevron Philippines v.
Commissioner of Bureau of Customs, 2008]

120. There is smuggling or illegal importation when the following requisites are present:

a. 1. The merchandise must have been fraudulently or knowingly imported or

knowingly imported contrary to law; 2. The defendant, if he is not the importer
himself, must have received, concealed, bought, sold, or in any manner
facilitated in the transportation, concealment or sale of the merchandise; and
b. The defendant must be shown to have knowledge that the merchandise had
illegally imported.
If the defendant, however, is shown to have had possession of the illegally
imported merchandise, without satisfactory explanation, such possession shall
be deemed sufficient tom authorize conviction. [Felicisimo Rieta v. People, 2004]

121. The process for payment under protest starts with the filing of a written protest with
the Collector or within 15 days after; then the Collector, upon receipt of the protest,
issues an order for hearing within 15 days. The Collector has to decide within 30 days
from termination of hearing.

In case of an adverse decision to the importer or inaction on the part of the

Collector, the importer may appeal to the Commissioner within 15 days from notice of
the decision or after the lapse of 30 days.

If the decision is adverse to the government, it is automatically reviewed by the

Commissioner, and if still adverse or no action, then it is subject to automatic review by
the Secretary of Finance. If the decision of the Secretary of Finance is adverse to the
government, it becomes final and executor. [Tariff and Customs Code, Arts. 2308-2313]

122. The CTA has exclusive appellate jurisdiction only over customs cases elevated to
the Secretary of Finance automatically for review from decisions of the Commissioner of
Customs adverse to the government.

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123. The CTA has only exclusive appellate jurisdiction over cases involving the
assessment and taxation of real property originally decided by provincial or city board of
assessment appeals.

124. No, although taxes are the lifeblood of the state and must be collected promptly,
there is no provision in the LGC prohibiting the issuance of a TRO against the collection
of local taxes. [Angeles v. Angeles City Electric Corp.]

125. Yes, Sec. 252 emphatically directs that the taxpayer/real property owner
questioning the assessment should first pay the tax due before his protest can be
entertained. Secondly, within the period prescribed by law, any owner may file an
appeal with the Local Board Assessment Appeals (LBAA) of the province or city
concerned. Thereafter, within 30 days from receipt, he may elevate, by filing a notice of
appeal, the adverse decision of the LBAA with the Central Board of Assessment
Appeals (CBAA). [Camp John Hay Dev. Corp v. CBAA, 2013]

126. No. Rule 8 Section 1 of the Revised Rules of Court of Tax Appeals (CTA) requiring
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
Decision” is mandatory. [Commissioner of Customs v. Marina Sales, 2010]

127. Freely Importable Commodities are those commodities which are neither
“regulated” nor “prohibited” and the importation of which may be effected without any
prior approval of or clearance from any government agency.

Regulated Commodities are those commodities whereby the importation of which

requires clearances/permits from appropriate government agencies.

Prohibited commodities are those commodities which the importation of such are
not allowed by law. [Central Bank Circular No. 1389, April 13, 1993]

128. A charge or a fee is considered as a tax if the primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of
the real and substantial purposes, then the exaction is properly called a tax. (Planters
Products, Inc. vs. Fertiphil Corporation, 548 SCRA 485)

129. No. The period imposed by the BIR cannot operate to divest the taxpayer of relief.
To allow such denial would violate the requirement of good faith compliance with a tax
treaty. At most, the application for a tax treaty relief from the BIR should merely operate
to confirm the entitlement of the taxpayer to the relief. The BIR must not impose

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additional requirements that would negate the availment of the reliefs provided for under
international agreements. (Duetsche Bank AG Manila Branch vs. CIR, 704 SCRA 216)

130. No. Contractual tax exemptions are those agreed to by the taxing authorities in
contracts such as government bonds or debentures in which the government, acting in
its private capacity, waives its governmental authority. In such cases, the non-
impairment clause of the Constitution can rightly be invoked.

However, tax exemptions granted under a franchise is beyond the purview of the non-
impairment clause since the Constitution is explicit that a franchise shall be subject to
amendment, alteration, or repeal by Congress when the common good requires.
(MERALCO v. Province of Laguna, G.R. No. 131359)

131. No, it is only the Subic SEZ which was granted by Congress with tax exemption
and investment incentives. There is no express extension of the aforesaid benefits to
other SEZs still to be created. It is the Legislature, unless limited by a provision of the
Constitution, that has full power to exempt any person or corporation or class of
property from taxation. Also, exemptions from taxation should be manifest and
unmistakable from the language of the law on which it is based. (John Hay Peoples
Alternative Coalition v. Lim, G.R. No. 119775)

132. A tax amnesty is a general pardon. The State intentionally overlooks its authority to
impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax
law. It partakes of an absolute forgiveness or waiver by the government of its right to
collect what otherwise would be due it. (Republic v. Intermediate Appellate Court, 196
SCRA 335)

133. No. The doctrine of operative fact recognizes the existence of the law or executive
act prior to the determination of its unconstitutionality as an operative fact that produced
consequences that cannot always be erased, ignored or disregarded. In short, it nullifies
the void law or executive act but sustains its effects. (Araullo v. Aquino, G.R. No.
209287)

134. It depends. If the law confers an exemption from both direct or indirect taxes, a
claimant is entitled to a tax refund even if it only bears the economic burden of the
applicable tax. However, if the exemption conferred applies only to direct taxes, only the
statutory taxpayer has standing to file the refund. (CIR v. PAL, G.R. Nos. 212536-37)

Income taxation

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135. Income tax is the tax on all yearly profits arising from property, professions, trades
or offices, or as a tax on a person’s income, emoluments, profits and the like. On the
other hand, withholding tax is a merely method of collecting income tax in advance.
Under the withholding tax system, the payee is the taxpayer, the person on whom the
tax is imposed, while the payor, a separate entity, acts no more than an agent of the
government for the collection of the tax. (LG Electronics Philippines v. CIR, G.R. No.
165451)

136. The source of income rules in the Philippines is provided under Sec. 42 of the
NIRC as follows:

Item Situs
Interest Residence of debtor
Dividends from domestic Income within
corporations
Dividends from foreign Income within, if 50% or more of the gross income of the
corporations foreign company (for the past 3 years) was derived from
sources within the Philippines;

Income without, if less than 50% of the gross income of the

foreign company for the past 3 years was derived from
sources within the Philippines.
Service Place of performance
Rent Location of property
Royalty Place of use of intangible
Sale of real property Location of the property
Sale of personal property Place of sale
Sale of domestic shares Income within
of stock

137. The status of an alien is determined by his intentions with regard to the length and
nature of his stay. He is a resident if he lives in the Philippines and his stay is indefinite.
On the other hand, an alien is a non-resident, or merely a transient, if he comes to the
Philippines for a definite purpose, which may be promptly accomplished. In the latter
case, if his purpose requires an extended stay for its accomplishment, he becomes a
resident, although he ontends to return to his domicile abroad. (Garrison v. CA, G.R.
Nos. L-44501-05)

138. Shares of stock are considered ordinary assets only when they are held by one
who is engaged in the business of selling or trading shares. In the hands of another who
holds the shares of stock by way of investment, the shares to him would be capital
assets. (Chinabanking Corp. v. CA, G.R. No. 125508)

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139. The requisites of a tax-free sale or exchange of property are as follows:

a. One or more persons, not exceeding a total of five, must transfer property to a
corporation;
b. The transfer must be “in exchange of stock or unit of participation in such a
corporation”; and
c. The transferor or transferors must “gain control” of the corporation as a result of
the exchange. [NIRC, Sec. 40 (c ) (2)]

140. Individuals are taxed on capital gains from sale of all real properties located in
the Philippines and classified as capital assets.

For Corporations, NIRC treats the sale of land and buildings, and the sale of
machineries and equipment, differently. Domestic corporations are imposed a 6%
capital gains tax only on the presumed gain realized from the sale of land and/or
buildings. Meanwhile, the NIRC does not impose the 6% capital gains tax on the
gains realized on the sale of machineries and equipment; gain from such sale is
subject to normal corporate income tax. (SMI-ED Philippines v. CIR, G.R. No.
175410)

141. A Filipino employee must meet the following requirements:

a. Position and Function test- the employee must occupy a managerial or

technical position and must actually be exercising functions pertaining to the
position;
b. Compensation Threshold Test- the employee must have received or is due to
receive under a contact of employment, a gross annual taxable compensation
of at least P975,000.00;
c. Exclusivity test- the employee must be exclusively working under the RHQ or
ROHQ as a regular employee; not just a consultant or a contractual
personnel. (RR 11-2010)

142. It is the owner of the property who bears the cost of the Capital Gains Tax, under
the NIRC, CGT due on the sale of real property is a liability for the account of the seller
insofar as it is a tax on the seller’s gain from the sale of the real estate. (Republic v.
Soriano, G.R. No. 211666)

143. Tax credit reduces the tax due including the income tax that is determined after
applying the corresponding tax rates to taxable income. On the other hand, Tax
deduction reduces the income that is subject to tax in order to arrive at a taxable
income. (CIR v. Central Luzon, G.R. No. 159647)

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144. Yes. Although interest payment for delinquent taxes is not deductible as tax, the
taxpayer is not precluded from claiming said interest payment as deduction for
indebtedness. The term “indebtedness” has been defined as an unconditional and
legally enforceable obligation of money. Within this definition, a tax may be considered
an indebtedness. Therefore, it follows that the interest paid for late payment of taxes is
deductible from income. (CIR v. vda. De Prieto, G.R. No. L-13912)

145. No. Although estoppel does not apply to the government, an exception to this is if it
would work injustice against an innocent party. The taxpayer’s status as a transferee in
good faith for value has been established and even stipulated by the CIR. Therefore,
the argument of the non-applicability of estoppel is misplaced. (CIR v. Petron
Corporation, G.R. No. 185568)

146. A hospital maintains its proprietary non-profit status under Section 27(B) of the
NIRC as long as it does not distribute any of its profits to its members and such profits
are reinvested pursuant to its corporate purposes. As a proprietary non-profit hospital
entitled to the preferential tax rate at 10% on its net income from its for-profit activities.
(CIR v. St. Luke’s Medical Center, G.R. No. 195909)

147. In NOLCO, the loss of the business or enterprise shall be carried over as a
deduction from gross income for the next 3 consecutive taxable years immediately
following the year of such loss. [NIRC, Sec. 34(D)(3)]

In MCIT, any excess of the MCIT over the normal income tax shall be
carried forward and credited against the normal income tax for the 3 immediately
succeeding taxable years. [NIRC, Sec. 27 (E) (2)]

148. Yes. Benefits received by an employee by virtue of the CBA and productivity
incentive schemes are exempt from income tax on compensation provided the total
annual monetary value received from both CBA and productivity incentive schemes
combined do not exceed P10,000.00 per employee per taxable year. (RR No. 01-2015,
sec. 1)

149. Housing privileges shall not be subject to fringe benefit tax in the following
instances:

a. When it is granted to rank and file employees; or

b. When it is required by the nature of, or necessary to the trade, business or
profession of the employer; and
c. When it is for the advantage and convenience of the employer (i.e.
housing unit is inside or adjacent to the business premises (max. 50m) or

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 temporary housing for 3 months.) [NIRC, Sec.33(a); RR 03-1988, Sec.
2.33(b)]

150. No. RR 03-2015, Section 3, clarified that the P82,000.00 threshold for 13 th month
pay is not applicable to self-employed individuals and income generated from business.

Pointers in Taxation Law -Answers

I. General Principles

151.) The power to tax is inherent to the State but constitutional provisions limit the
exercise thereof. Taxes are mandatory impositions and not a contract between the state
and the taxpayer (in invitum) because consent, which is an essential element of a
contract, is absent. It has the power to destroy as it puts restraint on personal property
rights.

152.) The two-fold nature of the power of taxation is inherent power and legislative
power. It is inherent because it is an exercise of sovereign powers and not granted by
the Constitution. The primary purpose of taxation is to generate funds for the state to
finance the needs of the citizens and promote the common good. This is carried out by
way of legislation.

153.) Relevant Theories. Necessity Theory – existence of government is a necessity,

therefore it has the right to compel citizens and property to pay taxes; Benefits –
Protection Theory – payment of taxes allow citizens to enjoy benefits in an organized
society; and Life Blood Theory – taxes constitute the lifeblood of the country and taxes
support the operations of the government and the public service extended to the people.

Lifeblood Theory: taxes are the lifeblood of the nation. The Philippines has been
struggling to improve its tax efficiency collection for the longest time with minimal
success. Consequently, the Philippines has suffered the economic adversities arising
from poor tax collections, forcing the government to continue borrowing to fund the
budget deficits. Western Mindanao Power Corp v.CIR, 2013)

Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. [(National Power Corporation v. City of Cabanatuan, 2003)]

Benefits Protection Theory: The individual receives the equivalent of the tax in the
form of protection and benefit he receives from the government as such. (Churchill and
Tait vs. Rafferrty, 32 Phi. 580, Np. 10572, December 21, 1915)

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Necessity Theory: The power to tax is an attribute of sovereignty. It is a power
emanating from necessity. It is a necessary burden to preserve the State’s sovereignty
and means to give the citizenry an army to resist an aggression, a navy to defend its
shores from invasion, a corps of civil servants to serve, public improvements designed
for the enjoyment of the citizenry and those which comes within the State’s territory, and
facilities and protection which a government is supposed to provide. (Phil. Guaranty
Co., Inc. vs. Commissioner of Int. Rev., 13 SCRA 775, No. L-22074 April 30, 1965)

154.) When the purpose of the imposition of a royalty fee upon an oil company is not for
the purpose of generating revenue but a recognition that the oil industry is imbued with
public interest, then the royalty fee will be considered as a regulatory fee.

*Simply stated an imposition that is for revenue is generally a tax while an imposition
that has another purpose such as regulation is an exercise of police power. (Chevron v.
BCDA and CDC)

155.) All tax measures must originate from the House of Representatives but the
Senate may propose or concur with amendments.

The rule on taxation must be uniform and equitable; Congress shall evolve a
progressive system of taxation (tax rate and tax base are directly proportional as
against proportional system which has a fixed rate regardless of tax base; and
regressive system where the tax rate and the tax base are inversely proportional).

The constitutional provision has been interpreted to simply mean that “direct taxes are
to be preferred [and] as much as possible, indirect taxes should be minimized.
(Tolentino v. Secretary of Finance, 1995)

The Constitution has delegated legislative power to the President to impose tariff rates,
import and export quotas, tonnage and wharfage dues and other duties or imposts
within the framework of the national development program.

Charitable institutions, churches and personages or convents appurtenant thereto,

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

ADE means solely used for the purpose enumerated in the Constitution.

Note also that it is the use of property that determines the exemption not the use of
income coming from such property. (Lung Center of the Philippines v. Quezon City,
2004)
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Any law granting tax exemption must be approved by majority of all members of
Congress.

All money collected for special purpose (special levy or tax contrasted to general tax)
shall be dedicated only for that purpose and any excess shall be transferred to the
general fund of the government.

All local government units may impose tolls (ex. Use of roads), charges (special
assessment for certain activities) and fees (ex. Building permits, business permits) in
line with the principle of local autonomy; except for no-payment of community taxes/poll
taxes, non-payment of other taxes such as real property taxes may subject one to
imprisonment.

While taxes are not subject to set-off compensation and over payment when proven
forces the government to restore to the taxpayer the amount it overpaid (solutio indebiti)

156.) No. The DPWH implements the Building Code through the Building Officials of all
local government units. While there is incidental revenue to the local government units,
the imposition of a Building Permit partakes a regulatory nature. The imposition of
Building Permit fee is an exercise of the police power to ensure compliance with the
standards of the Building Code to protect the public from any danger. (Angeles
University Foundation v. City of Angeles)

157.) In enacting tax measures the legislator must exert every effort to distribute the tax
burden between individuals or classes of population; in general, to redistribute
resources between individuals (to include some subsidy by way of support to particular
classes like the senior citizens, the poor, the retired employees, the disabled); to
provide basis for fiscal policy; to modify patterns of consumption or employment (may
have incentives or factors to make them less attractive).

158.) Taxes are enforced and never voluntary (does not need consent of the taxpayer);
exacted pursuant to law (part of legislative power nut limited by constitutional
provisions: and must originate from the House of Representatives); exaction is always
in the form of money but failure to pay may result to distraint and levy of properties;
taxes are personal and cannot be transferred or transmitted but the burden can be
shifted to (in case of indirect taxes like VAT) purpose is to raise revenue for public /
governmental purpose; proceeds of tax collection cannot be used for private purpose;
levied by authority which has jurisdiction over the following person, property ,
transaction, rights and privileges (which is the extent of coverage /scope of powers).

159.) The Tax Cycle:

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Levy- Congress determines the persons, property or exercises to be taxed, amount to
be raised, rates to be imposed, and manner of implementation.

Assessment and Collection – The executive branch administers and implements all tax
laws; and enforces the levy.

Payment and/or Exercise of Remedies – Compliance results in payment but resistance

will allow the government and tax payer to exercise both administrative and judicial
remedies.

160.) Fiscal when it raises funds or regulatory when it seeks to achieve social or
economic goals.

161.) For direct taxes, same persons absorb the tax (ex. Income tax, PTR, CTC) and
burden to pay cannot be shifted while indirect taxes , tax is paid by the person other the
one upon whom it is imposed, thus the burden can be shifted (ex. VAT). (Expect
questions on VAT exempt transactions and VATable transactions).

162.) Consider persons (natural and juridical) to be taxed; consider residence of the
taxpayer (mobilia sequntur personam); consider threshold period and threshold amount;
determine situs of the tax to avoid double taxation; review reciprocity and comity
principles under tax treaties which may operate for a given tax incident.

163.) No. The Attrition Bill is constitutional. There is a valid classification not violative of
the equal protection clause as the employee of the BIR and the BOC, being involved in
revenue collection, are different from other government employees. The law does not
violate the due process and security of tenure; it is also not a bill of attainder as the
underperformance is indicated by a clear standard expressly provided and dismissal is
subject to civil services substantive and procedural rules. (BOCEA v. Sec. Teves)

164.) As a general rule, tax statutes are construed strictly against the government and
liberally in favor of taxpayers; under the lifeblood theory, it frowns against exemptions
and therefore the taxpayer has the burden of proof to show his claim (strictissimi juris);
tax amnesty is never presumed.

Miramar Fish Company, Inc. v. Commissioner of Internal Revenue., G.R. No.

185432, June 4, 2014: A claim for tax refund or tax credit, like a claim for tax refund
exemption, is construed strictly against the taxpayer. One of the conditions of the
conditions for the judicial claim of refund or credit under the VAT System is compliance
with the 120+30 day mandatory and jurisdictional periods.

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CIR v. San Roque Power Corp and other consolidated cases, G.R. No. 205543,
June 30, 2014:

The general rule is that a void law or administrative act cannot be the source of legal
rights or duties. Article 7 of the Civil Code enunciates this general rule, as well its
exception. The Court said that although Section 4 of the 1997 Tax Code provides that
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, “Section 7 of the same Code does not prohibit the delegation of
the said power. Thus, the “Commissioner may delegate the powers vested in him under
the pertinent provisions of this Code to any or such subordinate officials with the rank
equivalent to a division chief of higher, , subject to such limitations and restrictions as
may be imposed under rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the commissioner.”

The Court further held that provisions of the NIRC particularly Section 112(A) and (C)
must be interpreted according to its clear, plain, and unequivocal language. The
taxpayer file his administrative claim or refund or credit 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 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 still has 30 days to
file his judicial claim with the CTA.

165.) No. The validity of the 20% senior citizen discount and tax deduction scheme
under RA 9257, as an exercise of police power of the State, has already been settled in
Carlos Superdrug Corporation. The discount given to the senior citizens meet all
the requirements under the equal protection clause. Senior citizens are likewise
exempt from 12%VAT imposition. (Manila Memorial Park, Inc and La Funeraria
Paz-Sucat v. DSWD Secretary, 2013)

166.) Purpose is lawful, identify specific person, property or privilege to be taxes,

specify schedule of the tax to be imposed; distinguish if tax is direct or indirect;
appointment of tax to be collected; situs of taxation; and mode of levy/collection.

167.) Personal, capital or poll – fixed amount with regard to class;

Property – subject to assessment based on area, location use and normally

distinguishes between land and improvements which may include equipment;

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Excise – based on exercise of privileges or doing business (Expect questions on
input/output tax and zero rated transactions); and

Customs duties – imposed on commodities exported or imported.

168. Yes. It is well settled that where the language of the law is clear and unequivocal, it
must be given its literal application and applied without interpretation. The general rule
of requiring adherence to the letter in construing statutes applies with particular
strictness to tax laws and provisions of a taxing act are not to be extended by
implication. A careful reading of the RMOs pertaining to the Voluntary Assessment
Program (VAP) shown that the recording of the information on the Official Registry Book
of the BIR is a mandatory requirement before a taxpayer maybe excluded from the
coverage of the VAP. (CIR v. Ariete et al, 2010)

169.) No. A claim for tax exemption, whether full or partial, does not deal with authority
of local assessor to assess real property tax. Such claim question the correctness of the
assessment and compliance with the applicable provisions of Republic Act (RA) No.
7160 or the Local Government Code (LGC) of 1991, particularly as to the requirement
of payment under protest, is mandatory. (Camp John Hay Dev. Corp. v. Central
Board of Assessment Appeals (“CBAA”), 2013)

170.) No. Being an instrumentality of the national government, the PEZA cannot be
taxed by local government units. Although a body corporate vested with some corporate
powers, the PEZA is not a government-owned and controlled corporation taxable for
real property taxes. The PEZA’s predecessor, the EPZA, it was declared non-profit in
character with all its revenues devoted for its development, improvement, and
maintenance. Consistent with this non-profit character, the EPZA was explicitly
declared exempt from real property taxes under its charter. Even the PEZA’s lands and
buildings whose beneficial use has been granted to other persons may not be taxed
with real property taxes. The PEZA may only lease its land and buildings to PEZA-
registered economic zone enterprises and entities. These PEZA registered enterprises
and entities, which operates within economic zones, are not subject to real property
taxes. (CITY OF LAPU-LAPU vs. PHILIPPINE ECONOMIC ZONE AUTHORITY;
PROVINCE OF BATAAN; REPRESENTED BY GOV. ENRIQUE T. GARCIA JR., AND
EMERLINDA S. TALENTO, IN HER CAPACITY AS PROVINCIAL TREASURER OF
BATAAN vs. PHILIPPINE ECONOMIC ZONE AUTHORITY, G.R. No. 184203, G.R.
No. 187583, November 26, 2014)

171.) The cross border doctrine states that no VAT shall be imposed to form part of the
cost of goods destined for consumption outside if the territorial border of the taxing
authority. Accordingly, the sales made by the supplier from a customs territory to a

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purchaser located within an ECOZONE will be considered as exportations.
(Commissioner of Internal Revenue vs. Toshiba Information Equipment (PHILS)
Inc., G.R. No. 150154, August 9, 2005)

172.) The destination principle states that goods and services are taxed only in the
country where they are consumed (Commissioner of Internal Revenue v. American
Express International, G.R. No. 152609, June 29, 2005)

173.) No. CORAL BAY NICKEL CORPORATION v. COMMISIONER OF INETRNAL

REVENUE, G.R. No. 190506: Under the destination principle and cross border doctrine,
sales of goods and services to Coral bay Nickel Corporation, a PEZA-registered
enterprise located in Rio Tuba Export Processing Zone (Ecozone) is subject to 0% VAT.
The proper party to seek the tax refunds or credits should be the sellers of the goods,
not the BIR. Thus, Coral Bay Nickel is not entitled to claim for refund of input VAT it paid
on its purchases of goods and services.

174.) The is double taxation when the two taxes must be impose on the same subject
matter, for the same purpose, by the same taxing authority, within the same jurisdiction,
during the same taxing period; and the taxes must be of the same kind or character.
(NURSERY CARE CORPORATION; SHOEMART, INC; STAR APPLIANCE CENTER,
INC.; H&B, INC.; SUPPLIES STATION INC.; and HARDWARE WORKSHOP INC.;
vs. ANTHONY ACEVEDO, in his capacity as THE TREASURER OF MANILA; and
THE CITY OF MANILA, G.R. NO. 180651, July 30, 2014)

175.) No. Steamed leaf tobacco is subject to specific tax under Section 141(b). it is a
partially prepared tobacco. The removal of the stem or midrib from the leaf of tobacco
makes the resulting stemmed leaf tobacco a prepared or partially prepared tobacco.
Since the Tax Code contained no definition of “partially prepared tobacco”) then the
term should be construed in its general, ordinary, and comprehensive sense x x x.”
Finally, excise tax are essentially taxes on property because they are levied on certain
specific goods or articles manufactured or produced in the Philippines for domestic sale
or consumption or for any other disposition, and on goods imported.

In this case, there is no double taxation in the prohibited sense despite the fact that they
are paying the specific tax on the raw material and on the finished product in which the
raw material was a part, because the specific tax impose by explicit provisions of the
Tax Code on two different articles or products: (1) on the stemmed leaf tobacco; and (2)
on cigar or cigarette. (LA SUERTE CIGAR & CIGARRET FACTORY vs. COURT OF
APPEALS AND COMMISSIONER OF INTERNAL REVENUE, G.R. Nos. 136328-29,
G.R. No. 144942, G.R. No. 148605, G.R. No. 158197, G.R. No. 165499, November
11, 2014)

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176.) Yes. There is in fact double taxation since both sections are being imposed on the
same subject matter (privilege of doing the business within the city), for the same
purpose, by the same taxing authority, within the same taxing jurisdiction, for the same
taxing period, and of the same kind or character (a local business tax imposed on gross
sales receipts). NURSERY CARE CORPORATION; SHOEMART, INC.; STAR
APPLICANCE CENTER, INC.; H&B INC.; SUPPLIES STATION INC.; AND
HARDWARE WORKSHOP, INC vs. ANTHONY ACEVEDO, in his capacity as the
TREASURER OF MANILA; and THE CITY OF MANILA, G.R. No. 180651, July 30,
2014)

177.) Revenue Regulation No. 02-98: The final withholding tax (FWT) is the amount of
income tax that constitutes as a full and final payment of income tax due from the
recipient of the income.

178.) Yes. The Supreme Court held that the number of lenders is determinative of
whether a debt instrument should be considered a deposit substitute and consequently
subject to the 20% final withholding tax. From the point of view of the financial market,
the phrase "at any one time" for purposes of determining the "20 or more lenders" would
mean every transaction executed in the primary or secondary market in connection with
the purchase or sale of securities. Where the financial assets involved are government
securities like bonds, the reckoning of the "20 or more lenders/investors" is made at any
transaction in connection with the purchase or sale of the government bonds, such as:
a) Issuance by the Bureau of Treasury of the bonds to the Government Securities
Eligible Dealers (GSEDs) in the primary market; b) Sale and distribution by GSEDs to
various lenders/investors in the secondary market; c) Subsequent sale or trading by a
bondholder to another lender/investor in the secondary market usually through a broker
or dealer, or d) Sale by a financial intermediary-bondholder of its participation interests
in the bonds to individual or corporate lenders in the second market.

When, through any of the foregoing transactions, funds are simultaneously obtained
from 20 or more lenders/investors, there is deemed to be a public borrowing and the
bonds at that point in time are deemed deposit substitutes consequently, the seller is
required to withhold the 20% final withholding tax on the imputed interest income from
the bonds.

179. DST partakes of Excise: Liability for payment of DST is for account of the
seller Fort Bonifacio Dev. Corp. V. CIR, 2013. DST is an excise tax levied on the
exercise by persons of privileges conferred by law.

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*note that this was asked in the 2014 bar even though excluded in the coverage.

Philacor Credit Corp v. CIR, 2013. DST is due the person (1) making; (2) signing;
(3) issuing; (4) accepting; or (5) transferring the taxable documents.

180.) DST is the nature of an excise tax because it is imposed upon the privilege,
opportunity or facility offered at exchanges for the transaction of the business. DST is a
tax on documents, instruments, loan agreements, and papers evidencing the
acceptance, assignment, or transfer of an obligation, right or property incident thereto.
DST is thus imposed on the exercise of these privileges through the execution of
specific instruments independently of the legal status of the transactions giving rise
thereto. In a merger of two corporations, the transfer of real properties not conveyed to
or vested by means of any specific deed, instrument or writing is not subject to DST
R.A. No 9243, entitled "An Act Rationalizing the Provisions of the Documentary Stamp
Tax of the National Internal Revenue Code of 1997" was enacted and took effect on
April 27, 2004, which exempts the transfer of real property of a corporation, which is a
party to the merger or consolidation, to another corporation, which is also a party to a
merger or consolidation, from the payment of DST. (COMMISSIONER OF INTERNAL
REVENUE vs. PILIPINAS SHELL PETROLEUM CORPORATION, G.R No, 192398,
September 29, 2014)

181.) No. On review with the Supreme Court, it held that an electronic message
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not
transaction contemplated under Section 181 of the Tax Code. They are also not bills of
exchange due to their non-negotiability. Hence, they are not subject to DST.
(HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE
BRANCHES vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 166018 &
167728, JUNE 4, 2014)

182.) Yes. A corporation that has been ordered to pay franchise tax delinquency but
which facilities, including its nationwide franchise, had been transferred to the National
Transmission Corporation (TRANSCO) by operation of law during the time of the
alleged delinquency, cannot be ordered to pay as it is not the proper party subject to the
local franchise tax, the transferee being the one liable. (NATIONAL POWER
CORPORATION vs. PROVINCIAL GOVERNMENT OF BATAAN, SANGGUNIANG
PANLALAWIGAN OF BATAAN, PASTOR B. VICHUACO (IN HIS OFFICIAL
CAPACITY AS PROVINCIAL TREASURER OF BATAAN) and THE REGISTER OF
DEEDS OF THE PROVINCE OF BATAAN, G.R. No.180654, April 21, 2014)

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183.) Requisites – first, administrative claims must be filed with BIR within two years
after the close of taxable quarter when zero-rated or effectively zero rated sales were
made; second, judicial claims must be made within 30days from receipt of BIR decision
on tax refund/credit claim or if no action is receive from the BIR within 120 days.
(Mindanao Geothermal v. CIR, 2013)

Nippon Express Corp. v. CIR 2013; Failure of BIR to act on a claim within 120 days
will allow the taxpayer to seek relief within 30 days from the lapse of said 120 day
period.

CIR v. Visayas Geothermal Power Co., 2013: The failure to observe the 120-day
period to claim refund/credit is considered prematurely filed and CTA cannot take
cognizance of the judicial claim.

Northern Mindanao Power Corporation vs. Commissioner of Internal Revenue,

G.R. No. 185115, February 18, 2015: In case the BIR fails to act on a claim for refund
within the 120-day period prescribed by law, the taxpayer only has 30 days counted
from the expiration of the 120 day period to appeal the unacted claim with the CTA. A
taxpayer’s noncompliance with the mandatory period of 30 days is fatal to its refund
claim on the ground of prescription. Consequently, the CTA acquires no jurisdiction over
the taxpayer’s claim as the petition was belatedly filed.

Silicon Philippines v. CIR, 2 Mar 2016: Upon filing of the administrative claim, the BIR
is given a period of 120 days period within which to (1) grant a refund or issue the tax
credit certificate for creditable input taxes; or (2) make a full or partial denial of the claim
for a tax refund or tax credit. Failure on the part of respondent to act on the application
within the 120-day period shall be deemed a denial. Note that the 120-day period
begins to run from the date of submission of complete documents supporting the
administrative claim. If there’s no evidence showing that the taxpayer was required to
submit – or actually submitted – additional documents after the filing of the
administrative claim, it is presumed that the complete documents accompanied the
claim when it was filed.

Whether the BIR rules in favor of or against the taxpayer – or does not act at all on the
administrative claim -within the period of 120 days from the submission of complete
documents, the taxpayer may resort to a judicial claim before the CTA. The judicial
claim shall be filed within a period of 30 days after the receipt of the respondent’s
decisions or ruling or after the expiration of the 120-day period, whichever is sooner.

184.) Two claims for refund of the vat were filed within the two-year prescriptive periods.
The taxpayer failed to comply with the 120-day period as it filed its judicial claim in

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C.T.A case no.6792 four (4) days after the filing of the administrative claim. The court
held that only C.T.A Case No. 6792 should be dismissed on the ground of lack of
jurisdiction for being prematurely filed.

However, the Court held that since C.T.A Case No. 6837, the judicial claim was filed the
day after the filing of the administrative claim, the same should be sustained based on
equitable estoppel having been filed i.e. from December 10, 2003 to October 6, 2010,
when BIR Ruling No. DA.-489-03 was in place. The supposed jurisdictional defects,
which would have attended the filing of its judicial claim before the expiration of the 120-
day period, was cured. (COMMISSIONER OF INTERNAL REVENUE vs. CE LUZON
GEOTHERMAL POWER COMPANY, INC., G.R. No. 190198, September 17, 2014.)

185.) NO. As an exception to the mandatory and jurisdictional nature of the 120+30 day
period, judicial claims filed between December 10, 2003 or from the issuance of BIR
Ruling No. DA-489-03 up to October 6, 2010 need not wait for the lapse of the 120+30
day period in consonance with the principle of equitable estoppel. Since Taganito filed
its judicial claim with the CTA on February 19, 2004, clearly within the period of
exception of December 10, 2003 to October 6, 2010. Its judicial claim was, therefore,
not prematurely filed and should not have been dismissed by the CTA En Banc.

The SC ruled that the jurisdiction of the CTA over decisions or inaction of the CIR is
only appellate in nature and, thus, necessarily requires the prior filing of an
administrative case before the CIR under Section 112. A petition filed prior the lapse of
the 120-day period prescribed under said Section would be premature for violating
the doctrine on the exhaustion of administrative remedies. There is, however, an
exception to the mandatory and jurisdictional nature of the 120 +30 day period under
BIR Ruling No. DA-489-03, dated December 10,2003, expressly stated that the
"taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek
judicial relief with the CTA by way of Petition of Review." (TAGANITO MINING
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 198076,
November 19, 2014 and G.R. No. 201195, November 26, 2014)

186.) Section 112(D) of the 1997 Tax Code states the time requirements for the filing a
judicial claim for the refund or tax credit of input VAT. The legal provision speaks of two
periods: the period of 120 days, which serves as a waiting period to give time for the
CIR to act on the administrative claim for a refund or credit; and the period of 30 days,
which refers to the period for filing a judicial claim with the CTA. It is the 30-day period
that is at issue in this case. (ROHM APOLLO SEMICONDUCTOR PHILIPPINES vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 168950, January 14, 2015)

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187.) In Silicon Valley, Phils., Inc. V. CIR, 2011, the Supreme Court reiterated that the
requirement of [printing] the BIR permit to print on the face of the sales invoices and
official receipts is a control mechanism adopted by the Bureau of Internal Revenue to
safeguard the interest of the government. Without producing the Authority to Print, the
taxpayer cannot claim any tax refund/tax credit.

188.) A VAT invoice is necessary for every sale, barter or exchange of goods or
properties which a VAT official receipt properly pertains to every lease of goods or
properties, and every sale, barter or exchange of services. In other words, the VAT
invoice is the seller’s best proof of the sale of the goods or services to the buyer while
the VAT receipt is in the buyer’s best evidence of the payment of goods or services
received from the seller. (NIPPON EXPRESS (PHILIPPINES) CORP v.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 185666, February 4, 2015)

189.) The Supreme court reiterated that it is fatal if the taxpayer failed to print the word
“zero-rated” on the VAT invoices or official receipts in claims for a refund or credit of
input VAT on zero-rated sales, even if the claims were made prior to the effectivity of
R.A. 9337. A VAT invoice is the seller’s best proof of the sale of goods or services to the
buyer, while a VAT receipt is the buyer’s best evidence of the payment of goods or
services received from the seller. The requirement of imprinting the word “zero-rated”
proceeds from the rule-making authority granted to the Secretary of Finance by the
NIRC for the efficient enforcement of the same Tax Code and its amendments. A VAT-
registered person whose sales are zero-rated or effectively zero-rated, Section 112(A)
specifically provides for a two-year prescriptive period after the close of the taxable
quarter when the sales were made within which such taxpayer may apply for the
issuance of a tax credit certificate or refund of credible input tax. (CARGILL
PHILIPPINES, INC., vs. COMMISSIONER OF INTERNAL REVENUE, G.R No
203774, March 11,2015)

190.) No. The Court stressed that the failure to indicate the words “zero-rated” on the
invoices and receipts issued by a taxpayer would result in the denial of the claim for
refund or tax credit. (EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., vs
COMMISSIONER OF INTERNAL REVENUE, G.R. No.183531, March 25, 2015)

191.) No. According to the Supreme Court, subsequent, quarterly income tax returns
are not indispensable. What Sec. 76 of the Tax Code requires is to prove the prima
facie entitlement to a claim, including the fact of not having carried over the excess
credits to the subsequent quarters or taxable year. It does not say that to prove such a
fact, succeeding quarterly ITRs are absolutely needed. This simply underscores the rule
that any document, other than quarterly ITRs may be used to establish that indeed the
non-carry over clause has been complied with, provided that such is competent,

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relevant and part pf the records. (Winehrenner & Iñigo Insurance Brokers, Inc. vs.
Commissioner of Internal Revenue, 748 SCRA 591, G.R. No. 2066526 January 28,
2015)

192.) No. A Tax treaty is an agreement that provides for a uniform treatment of a
taxable event between agreeing countries. The Court reiterated that the purpose of a
tax treaty is “it is used to reconcile the national fiscal legislations of the contracting
parties in order to help the taxpayer avoid international juridical double taxation. Double
taxation is the imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical periods”

Thus the Court held that the BIR cannot impose additional requirements that would
negate the availment of relief provided under international agreements. (Deutsche
Bank v. CIR, 2013)

193.) Under the basic international law principle of pacta sunt servanda, the state has
the duty to fulfill its treaty obligations in good faith. This is harmonization of national
legislation with treaty provisions. Section 135 (a) of the National Internal Revenue Code
embodies the country’s compliance with its undertakings under the 1994 Chicago
Convention on International Aviation compliance (Chicago Convention), Article 24(9) of
which has been interpreted to prohibit taxation of aircraft fuel consumed for international
transport, and various bilateral air service agreements not to impose tax on aviation fuel
purchased by international carriers and domestic manufacturers of suppliers on
petroleum products sold to tax exempt international carriers. Evidently, construction of
tax exemption provision in question should give primary consideration to its broad
implications on the country’s commitment under international agreements. In view of the
foegoing, the Court held that respondent, as the statutory tax payer who is directly liable
to pay the excise tax on its petroleum products sold to international carriers, the latter
having been granted exemption from the payment of said tax under Section 135 (a) of
the NIRC. (Commissioner of Internal Revenue v. Pilipinas Shell Petroleum
Corporation, G.R. No. 188497, February 19, 2014.)

II. NATIONAL INTERNAL REVENUE CODE

194.) Income consist of profit or gains as to the amount of money coming to a person or
corporation over a specified of time.

Income: definition, nature, tests when it becomes taxable; inclusions of gross income,
classification as to source (compensation income, fringe benefits, professional income,

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income from business, income from dealings in property; passive income investment
(ex. Final tax of 20% on interest income, royalty income except on royalty on books
which is subject to 10%, yield on monetary benefit from deposit substitutes, prizes or
awards except PSCO and Lotto winnings); 10% final tax on royalties on literary works,
books and musical compositions (LBM); 10% on from winnings from horse races; 10%
on cash and stock dividends for Filipinos, annuities, proceeds from insurance policies,
prizes and awards, pensions, retirement benefit or separation pay; income from
whatever source (ex. Forgiveness of indebtedness, tax refund); capital gains tax except
a question on this review Sec. 24(D) of the NIRC for schedule of rate and for actual
computation of final sale over a property transaction); Tax rates for non-resident
aliens are higher. Check relevant provisions.

195.) Presence of gain or profit, such is realized actually of constructively; and is not
exempt by any law or treaty.

196.) Items earned or gained as gross income less deductions and/ or personal and
additional exemptions, if authorized under the NIRC or any special law; distinguish
between ordinary income and ordinary loss.

197.) Resident citizens with minimum wage earners considered as special class; non-
resident citizens (Overseas contract workers, seafarers); aliens (determine threshold as
to amount and period), domestic corporations (review principles on transfer pricing);
foreign corporations (review profit sharing for branches) including resident and non-
resident foreign corporations, partnerships including general partnerships, co-
ownerships and estates and trusts.

198.) Income tax, estates and donors taxes, value-added tax, other percentage taxes,
excise taxes; documentary stamp taxes; and such other taxes as are of hereafter may
be imposed and collected by the BIR.

199.) Capital gains is a tax on passive income, it is seller, not the buyer, who generally
would shoulder the tax. As a general rule, therefore, any of the parties to a transaction
shall be liable for the full amount of the documentary stamp tax due, unless they agree
among themselves on who shall be liable for the same. (REBULIC OF THE
PHAILIPPINES, REPRESENTED BY THE DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS vs. ARLENE R. SORIANO, G.R No. 211666, February 25, 2015)

200.) No. Goodwill is not an ordinary asset as it is not among the exceptions under the
definition of capital assets in Section 39(A)(1) of the 1997 National Internal Revenue
Code. Thus, it is a capital subject to capital gains tax, not ordinary income tax. (WM. H.
Aderson vs. Juan Posadas, Jr., G.R. No 44100, September 22, 1938)

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201.) Inclusions in compensation income, exclusions and deductions (itemized and
standard deductions. Memorize the amounts on personal exemption for individual tax
payer under Section 35 (A) of the NIRC.); Income derived from business or practice of
profession; treatment of passive income (final tax need not be reported since
deductions is in the form of final tax); tax on capital gains; senior citizens, minimum
wage earners and those who granted exemptions under international agreements
(those employed with Asian Development Bank and IRRI) are exempt from payment.

202.) Covered transactions, payment schedule, allowable deductions (itemized and

optional standard deductions); treatment of passive incomes subject to tax and those
not subject to tax; tax on capital gains; check also on principle of transfer pricing if
domestic corporation does business in another foreign country ; treatment of
accumulated earnings.

Section 27 (B) of the NIRC imposes a 10% preferential tax rate on the income of
(1) proprietary non-profit educational institutions and (2) proprietary non-profit
hospitals. The only qualifications for hospitals are that they must be proprietary
and non-profit. “Proprietary” means private, following the definition of a
“proprietary educational institution” as “any private school maintained and
administered by private individuals or groups’ with a government permit. “Non-
profit means no net-income or asset accrues to or benefits any member of
specific person, with all the net income or asset devoted to the institution’s
purposes and all its activities conducted not for profit.

203.) Only portions actually, directly and exclusively used for charitable purposes are
exempt from real property taxes; while portions leased to private entities are not exempt
from such taxes. (Angeles University Foundation v.City of Angeles, 2012)

204.) As a general principle, charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to the
charitable object which is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution. (CIR v. St. Luke’s Medical
Center, 2012)

205.) General rule- foreign corporations are liable for income derived from Philippine
sources; may enjoy certain incentives if covered by a treaty or special provision of law
(registration under the Board of Investments and the Philippine Economic Zone
Authority); minimum corporate tax due and schedule of payment; treatment of other
incomes; liability for capital gains tax; treatment of accumulated earnings.

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206.) Philippine Branch is a foreign corporation in the Philippines that is allowed by the
SEC to do business in the Philippines in such activities it normally does in its home
country. It is normally taxable in like manner as a local corporation - 12% VAT, 30%
corporate income tax, and such other applicable internal revenue taxes. Also,
repatriation of its operational income in the Philippines is subject to 15% branch profit
remittance tax.

Representative Office is a foreign corporation licensed to do business in the

Philippines to deal directly with the clients of its parent company abroad on information
dissemination, as communication center, product promotion, quality and control for
exports. It is not allowed to earn income in the Philippines, thus not subject to tax.

Regional Operating Headquarters in the Philippines (ROHQ) is a special type of

income producing foreign corporation. The income to be generated is limited to specific
service rendered affiliates, branches, and subsidiaries within the Asia-Pacific Region. It
is subject to a special income tax rate of 10% and 12% VAT in the Philippines.
Repatriation of its operational income in the Philippines is subject to 15% branch profit
remittance tax.

Regional Area Headquarters (RAHQ) is a non-income generating foreign corporation

tasked to act as a supervisory, communications, or coordinating center for its
subsidiaries, affiliates and branches in the Asia-Pacific Region. It is only accost center
and is not allowed to earn income.

Air Canada v. Commissioner of Internal Revenue, G.R. No. 169507, January 11,
2016: an offline international carrier is a resident foreign corporation for income tax
purposes. In this case, the Court applied the doctrine in the CIR v. British Overseas
Airways Corporation that an international air carrier with no landing rights in the
Philippines is a resident foreign corporation if it’s local sales agent sells and issues
tickets in its behalf. An offline international carrier selling passage tickets in the
Philippines, through a local general sales agent, is considered a resident foreign
corporation doing business in the Philippines. As such, it is taxable on income derived
from sources within the Philippines, and not on Gross Billings, subject to any applicable
tax treaty.

Accenture Inc. vs. CIR, 2012:Tax for services rendered by a resident corporation
outside Philippine territory: The Court held that the recipient of the service should be
doing business outside the Philippines to qualify for zero rating is the only logical
interpretation of Section 102(b) (2) of the 1997 Tax Code, as we explained in
Burmeister: “This can only be the logical interpretation of Section 102 (b) (2) to apply to
a tax-payer recipient of the “other services” are both doing business in the Philippines,

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the payment of foreign currency is irrelevant. Otherwise, those subject to regular VAT
under Sec 102 9 (a) dependent on the generosity of the taxpayer. The provider of
services can choose to pay the VAT or avoid it by stipulating payment in foreign
currency inwardly remitted by the payer-recipient. Such interpretation removes Section
102 (a) as a tax measure in the tax code, an interpretation this Court cannot sanction. A
tax is mandatory exaction, not a voluntary contribution. Further, when the provider and
recipient of services are both doing business in the Philippines, their transaction falls
squarely under Section 102 (a) governing domestic sale or exchange of services.
Indeed, this is purely local sale or exchange of services subject to the regular VAT,
unless of course the transaction falls under the other provisions of Section 102 (b).

207.) Non-resident foreign corporations are liable only for income derived from
Philippine sources, rate and schedule of payment, tax liability on certain incomes like
interest on foreign loans, intra corporate dividends; may enjoy certain exemption under
tax treaty or provisions of special laws; treatment of accumulated earnings.

208.) No. The term dividends means any distribution made by a corporation to its
stockholders out of its earnings or profits payable to its stockholders, whether in one or
in other property. In light of the foregoing, the Court holds therefore that the redemption
price representing the amount of P97,732,313.00 received by GTRC could not be
treated as accumulated dividends in arrears that could be subjected to 15% FWT.
Verily, respondent’s AFS covering the year 2003 to 2009 how that it did not have
unrestricted retained earnings, and in fact, operated in a position of respondent had no
power to issue dividends. (Commissioner of Internal Revenue v. Goodyear
Philippines Inc., G.R. No. 216130, August 3, 2016)

III. ESTATE TAX AND DONOR’S TAXES UNDER THE NIRC

209.) Only the net values of the estate are liable to tax. A schedule of brackets of
amount of net value and the corresponding rate scheduled per bracket are imposed.

210.) Residents and citizens covering all properties, real or personal, tangible or
intangible, wherever situated, and non-residents alien covering only properties in the
Philippines provided, that, with respect to intangible personal property, its inclusion in
the gross estate is subject to the rule on reciprocity.

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211.) Decedent’s interest at the time of his death, transfer in contemplation of death,
property transfer subject to revocation, passing a general under a general power of
appointment, proceeds of life insurance; and property transfers for insufficient
consideration.

212.) The following maybe deducted from the estate:

1. Expenses, losses, indebtedness and taxes (funeral expenses, judicial expenses,

claims against the estate, claims against insolvent persons, unpaid mortgages, taxes
and casualty losses); and

2. Property previously taxed (transfers for public use, family home, standard deduction,
medical expenses and amounts receive by heirs under R.A. 4917 on Retirement
Benefits of Private Employee). Please review the concept of vanishing deduction and
the corresponding holding period and the tax rate based on the value of the property
under Section 86(A) (2) of the NIRC.

213.) Read on definition, transaction covered and schedule of payment based on

brackets as to the value of the donation (Sec. 16 of the NIRC); for the “stranger”, a flat
rate of 30% is imposed; the following are not “strangers” – brother, sister, (whether by
whole or half-blood), spouse, ancestor and lineal descendant; and relative by
consanguinity by collateral line within the fourth civil degree of relationship.

214.) Dowries or gifts made on account of marriage, gifts made or for use of the national
government or entity created by any of its agencies which is not conducted for profit, or
to any political subdivision of said government; and gifts in favor of an educational
and/or charitable, religious, cultural or social welfare corporation, institution, accredited
non-governmental organization, trust or philanthropic organization or research institution
or organization.

IV. TAX REMEDIES UNDER THE NIRC

215.) Letter of authority for tax audit, notice of informal conference (terminated if
taxpayer presents satisfactory proof); release of preliminary assessment in case
of unsatisfactory explanation and if taxpayer disagrees, he has 15 days to request
for reconsideration; service of formal letter of demand/ notice of assessment if
basis for reconsideration is not meritorious; taxpayer may a protest within the 30-
day period of the formal demand and must submit supporting documents within
60 days (if not, the protest is deemed waived); if the Commissioner does not
decide the matter within 180 days or decides with finality that the taxpayer is
liable for the assessment; taxpayer has 30 days from the lapse of the 180 day

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period for the Commissioner to decide or notice of final decision of the
Commissioner of Internal Revenue (even beyond 180 days) to file an appeal with
the Court of Tax Appeals (Lacsona Land v. Commissioner of Internal Revenue,
2012); case is heard initially by the division of the CTA and an appeal can further
be made with the CTA en banc ( within 15 days under Section 4 (A) RULE 8 in
relation to Rule 43 of the Rules of Civil Procedure) and final arbiter is the
Supreme Court. Through the enactment of Republic Act No. 9282, the jurisdiction of
the CTA has been expanded to include not only civil tax cases but also cases that are
criminal in nature, as well as local tax cases, property taxes and final collection
taxes.

216.) No. In PAGCOR v. Commissioner of Internal Revenue, 27 Jan 2016, the

Supreme Court outlined the remedies available to a protesting taxpayer, to wit:

(1) A whole partial denial by the CIR’s authorized representative may be

appealed to the CIR or CTA

(2) A whole or partial denial by the CIR may be appealed to the CTA

(3) The CIR or CIR’s authorized representative’s failure to act may be appealed
to the CTA.

Note: There is no mention of an appeal to the CIR form failure to act by the CIR’s
authorized representative.

217.) Pursuant to the provisions of Republic Act No. 1125 and other laws prior to R.A.
9282, the Court of Tax Appeals retains exclusive appellate jurisdiction to review appeal,
the following:

1. Decisions of the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or others charges,
penalties imposed in relation thereto, or other matters arising under National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue.

2.) 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, forfeiture of other penalties imposed in relation thereto; or other matters
arising under the Customs Law or other law or part of law administered by the Bureau of
Customs [Re. Act.No. 1125, (1954), Sec. 7)];

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 3. In an automatic review cases where such decisions of the Commission of
Customs favorable to the tax payer is elevated to the Secretary of Finance (Sec. 2315,
TCC); and

4. Decisions of the Secretary of Trade and Industry, in the cases of non-

agricultural products, commodity or article, or the Secretary of Agriculture, in the case of
agricultural products, commodity or article, in connection with the imposition of Anti-
Dumping Duty, Countervailing and Safeguard Duty [Republic Act Nos. 8751 and 8752,
(1999) Sec. 301 (a) and (p), and Republic Act 8800].

Under Republic Act Number 9282, the CTA’s original appellate jurisdiction was
expanded to include the flowing:

1. Criminal cases involving violations of the National Internal Revenue Code and
Tariff and Customs Code;

2. Decision of the Regional Trial Courts (RTC) in local tax cases;

3. Decisions of the Central Board of Assessment Appeals (CBAA) in cases

involving the assessment and the taxation of real property; and

4.) Collection of Internal Revenue taxes and customs duties the assessment of
which have already become final.

218.) A being dedicated exclusively to the resolution of tax problems, the Court of Tax
Appeals (“CTA”) has developed expertise on the subject. In the absence of grave abuse
of discretion or palpable error, the CTA‘s findings are accorded the highest respect and
are generally conclusive upon the Supreme Court. (Commissioner of Internal
Revenue v.GJM Philippines, Inc. G.R. No. 202695, February 29, 2016)

219.) The Court ruled in favor of the CIR. It recognized the fact that the CTA is a court
of special jurisdiction, which power to review by appeal decision involving tax disputes
rendered whether by the Commissioner of Internal Revenue and Commissioner of
Customs. Conversely, it has no jurisdiction to determine the validity of ruling issued by
the CIR of the COC in the exercise of their quasi-legislative powers to interpret tax laws.
In this case, Petron’s tax liability was premised on the COC’s issuance of CMC No. 164-
2-2012, which gave effect to the CIR’s June 29, 2013 letter interpreting Section 148(e)
of the NIRC as to include alkylate among the articles subject to customs duties, hence,
Petron’s petition before the CTA ultimately challenging the legality and constitutionality
of the CIR’s interpretation of a tax provision. The CTA has no jurisdiction to take
cognizance of the petition as its resolution would necessarily involve a declaration of the

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validity of constitutionality of the CIR’s interpretation of Section 148(e) of the NIRC,
which is subject to the exclusive review by the Secretary of Finance and ultimately by
the regular courts. (Commissioner of Internal Revenue vs. Court of Tax Appeals
and Petron Corporation, G.R. 207843, July 15, 2015)

220.) The Court denied BIR’s petition as it ruled that SC, CA, and CTA en banc cannot
annul judgment of their divisions. Annulment of Judgment (Rule 47) involves exercise of
original jurisdiction and implies power by a superior court against the final judgment,
decision or ruling of an inferior court based on grounds of extrinsic fraud and lack of
jurisdiction. The Divisions are not separate and distinct courts but are division of one
and the same court. There is no hierarchy of courts within the SC, CA, and CTA, for
each remain as one court notwithstanding that they also work in divisions.

221.) No. BUREAU OF INTERNAL REVENUE, as represented by the

COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, SPOUSES
ANTONIO VILLAIN MANLY, and RUBY ONG MANLY , G.R. No. 197590, November
24, 2014: The court ruled that tax evasion is deemed complete when violator has
knowingly and willfully filed a fraudulent return with intent to evade and defeat the part
or all of the tax. Corollarily, an assessment of the tax return is not required in a criminal
prosecution for tax evasion. However, in Commissioner of Internal Revenue v. Court of
Appeals, the Court clarified that that although a deficiency assessment is not necessary,
the fact that a tax is due must first be proved before one can be prosecuted to tax
evasion. (Commissioner of Internal Revenue v. Kepco Ilijan Corporation, G.R. No.
199422, June 21, 2016)

SAMAR-I ELECTRIC COOPERATIVE vs. COMMISIONER OF INTERNAL REVENUE,

G.R. 193100, December 20, 2014: The Court held that the notice requirement undrr
section 228 of the NIRC is substantially complied with whenever the taxpayer had been
fully informed in writing of the factual and legal basis of the deficiency tax assessment,
which enable the latter to file an effective protest.

222.) The Expenditure Method is a method used by the government to reconstruct the
income of a taxpayer by deducting the aggregate yearly expenditures from the declared
yearly income. The theory of this method is that when the amount of the money that a
taxpayer spends during a given year exceeds his reported or declared income and the
source of such money is unexplained, it may be inferred that such expenditures
represent unreported or undeclared income. (BUREAU OF INTENAL REVENUE, as
represented by the COMMISSIONER OF INTERNAL REVENUE vs. COURT OF
APPEALS, SPOUSES ATINIO VALLAN MANLY, and RUBY ONG MNALY, G.R.
197590, November 24, 2014)

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223.) The assessment of the tax is deemed made and the three-year period for
collection of the assessed tax begin 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 demand for the taxpayer to pay the assessed DST in the CTA is not
deemed compliance the Tax Code. (CHINABANKING CORPORATION vs.
COMMISSIONER OF INTRNAL REVENUE, G.R. NO. 172509, February 4, 2015)

224.) No. A request for reinvestigation alone will not suspend the statute of limitations.
Two things must concur: there must be request for reinvestigation and the CIR must
have granted it. (CHINABANKING CORPORATION vs. COMMISSIONER OF INTRNAL
REVENUE, G.R. NO. 172509, February 4, 2015)

225.) No. The general rule is that the waiver of the statute of limitations that does not
comply with the requisites for its validity specified under RMO No. 20-90 and RDAO 01-
05 is generally invalid and ineffective to extend the prescriptive period to assess taxes.
However, due to peculiar circumstances and as an exception to the general rule, the
supposedly invalid waivers may be considered valid for the following reasons:

First, the parties are in pari delicto or in equal fault. The two parties to a controversy are
equally guilty and they shall have no action against each other.

Second, Parties must come to court with clean hands. Parties who do not come to
Court with clean hands cannot be allowed to benefit from their own wrongdoing.
Taxpayer should not be allowed to benefit from the flaws in its own waivers and
successfully insist on their invalidity in order to evade its responsibility to pay taxes.

Third, taxpayer is estopped from questioning the validity of its Waivers, Verily, the
application of estoppel in this case would promote the administration of the law, prevent
injustice and avert the accomplishment of a wrong. Finally, the Court cannot tolerate a
highly suspicious situation. In this case, the taxpayer, on one hand, after voluntarily
executing the Waivers insisted on their invalidity by raising the very same defects it
caused. On the other hand, the BIR miserably failed to exact from the taxpayer strict
compliance with the rules. (COMMISSIONER OF INTERNAL REVENUE v. NEXT
MOBILE, INC., G.R. No.212825, DECEMBER 7, 2015)

226.) The Court held that in order to prove the fact of mailing, it is essential to present
the registry receipt issued the Bureau of Posts or the Registry return card, which would
have been signed by the taxpayer or its authorized representative. And if said
documents could not be located, the CIR should have, at the very least, submitted to

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the Court a certification issued by the Bureau of Posts and any other pertinent
document executed with its intervention. The Court does not put much credence to the
self-serving documentations made by made by the BIR personnel, especially if they are
unsupported by substantial evidence establishing the fact of mailing.

While it is true that an assessment is made when the notice is sent within the prescribed
period, the release, mailing, or sending of the same must still be clearly and
satisfactorily proved. Mere notations made without the taxpayer's intervention, notice or
control, and without adequate supporting evidence cannot suffice. Otherwise, the
defenseless taxpayer would be unreasonably placed at the mercy of the revenue
offices. The BIR's failure to prove GJM's receipt of the assessment leads to no other
conclusion but the no assessment was issued. Consequently, the government's right to
issue an assessment for the said period has already prescribed. (COMMISSIONER OF
INTERNAL REVENUE v. GJM PHILIPPINES MANUFACTURING, 29, Feb 2016)

227.) The Court held that the certificate of creditable tax withheld at source is the
competent proof of establish the fact that taxes are withheld. It is not necessary for the
person who executed and prepared the certificate of creditable tax withheld source to
be presented and to testify personally to prove the authenticity of the certificates.
(COMMISSIONER OF REVENUE vs. PHILIPPINE NATIONAL BANK, G.R. No.
180290 September 29, 2014)

228.) No. Indirect taxes, like VAT and excise tax, are different from withholding taxes.
To distinguish, in indirect taxes, the incidence of taxation falls on one person but the
burden thereof can be shifted or passed on to another person, such as when the tax is
imposed upon goods before reaching the consumer who ultimately pays for it. On the
other hand, in case of withholding taxes, the incidence and burden of taxation fall on the
same entity, the statutory taxpayer. The burden of taxation is not shifted to the
withholding agent who merely collects, by withholding, the tax due from income
payments to entities arising from certain transactions and remits the same to the
government.

229.) A taxpayer may protest any assessment administratively; taxes may be paid
under protest.

General Rule: Refund may be requested by the taxpayer within two years from
payment.

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Commissioner of Internal Revenue v. Team (Philippines) Operations Corporation
(formerly Mirant Phils., Operation Corporation), G.R. No. 179260 (2014): There are
three essential conditions for the grant of a claim for refund of creditable withholding
income tax, to wit:

(1) The claim is filed with the Commissioner of Internal Revenue within the two-year
period from the date of payment of the tax;

(2) It is shown on 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 paid and the amount of the tax withheld
therefrom.

230.) Distraint of personal property, levy of real property; civil action and criminal action.

231.) The court held that the following requisites must be complied with to sustain the
claim for refund:

1) That the claim for refund was filed within the two year reglamentary period
pursuant to Sec. 229 of the NIRC;

2) When it is shown on the ITR that the income payment received is being
declared part of the tax payer's gross income; and

3) When the fact of withholding is established by a copy of the withholding tax

statement, duly issued by the payor to the payee, showing the amount paid and income
tax withheld from that account. .REPUBLIC OF THE PHILIPPINES, REPRESENTED
BY THE COMMISSIONER OF INTERNAL REVENUE vs. TEAM (PHILS.) ENERGY
CORPORATION (FORMERLY MIRANT PHILS ENERGY CORPORATION), G.R. No.
188016, January 14, 2015)

232.) No. The Supreme Court ruled that in an action for the refund of taxes allegedly
erroneously paid, the Court of Tax Appeals may determine whether there are taxes that
should have been paid is not assessment. It is incidental to determining whether there
should be a refund. (SMI-ED PHILIPPINES TECHNOLOGY, INC. vs. COMMISSIONER
OF INTERNAL REVENUE, G.R. No. 175410, November 12, 2014)

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THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY vs.
SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 210987, November 26, 2014: The Court ruled that, the CTA can now rule not only
on the propriety of an assessment or tax treatment of a certain transaction, but also on
the validity of the revenue regulation or revenue memorandum circular on which the
said assessment is based.

CITY OF LAPU-LAPU vs. PHILIPPINE ECONOMIC ZONE AUTHORITY; PROVINCE

OF BATAAN, REPRESENTED BY GOVERNOR ENRIQUE T. GARCIA, JR., AND
EMERLINDA S. TALENTO, IN HER CAPACITY AS PROVINCIAL TREASURER OF
BATAAN vs. PHILIPPINE ECONOMIC ZONE AUTHORITY, G.R. No. 184203, G.R.
No. 187583, November 26, 2014: The Court held that in case of an illegal assessment
where the assessment was issued without authority, exhaustion of administrative
remedies is not necessary and the taxpayer may directly resort to judicial action. The
taxpayer shall file a complaint for injunction before the Regional Trial Court to enjoin the
local government unit from collecting real property taxes. The party unsatisfied with the
decision of the Regional Trial Court shall file an appeal, not a petition for certiorari,
before the Court of Tax Appeals, the complaint being a local tax case decided by the
Regional Trial Court. The appeal shall be filed within fifteen (15) days from notice of the
trial court's decision.

NIPPON EXPRESS (PHILIPPINES) CORP vs. COMMISSIONER OF INTERNAL

REVENUE, G.R. No. 185666, February 04, 2015: The Court held the BIR 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. In
case of failure on the part of the BIR to act on the application within the 120-day period
prescribed by law, the taxpayer has only has 30 days after the expiration of the 120-day
period to appeal the unacted claim with the CTA.

233.) Taxpayer submits that the requirement to exhaust the 120-day period under
Section 112(c) of the National Internal Revenue Code prior to filing the judicial claim
with the Court of Tax Appeals (CTA) is a doctrine of "exhaustion of administrative
remedies”. “The non-observance of the same merely results in lack of cause of action
which may be waived for failure to timely invoke the same. (Commissioner of Internal
Revenue vs. Team Sual Corporation (Formerly Mirant Sual Corporation), G.R. No.
194105, February 5, 2014)

Commissioner of Internal Revenue v. Team (Philippines) Operations Corporation

(formerly Mirant Phils., Operation Corporation), G.R. No. 179260, April 2, 2014.
The findings and conclusions of the Court of Tax Appeal (CTA) are accorded the
highest respect and will not be lightly set aside. In the absence of any clear and

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convincing proof to the contrary, the Court must presume that the CTA rendered a
decision which is valid in every respect.

The City of Manila, etc. et al. v. Hon. Caridad H. Grecia-Cuerdo etc., et al, G.R. No.
175723. February 4, 2014: Petitioners availed of the wrong remedy when they filed the
special civil action for certiorari under Rule 65 of the Rules of Court with the Court in
assailing the resolutions of the Court of Appeals (CA) which dismissed their petition filed
with the said court and their motion for reconsideration of such dismissal. Hence, in the
instant case, petitioner should have filed a petition for review on certiorari under Rule
45, which is a continuation of the appellate process over the original case.

Clark Investors and Locators Association, Inc. vs. Secretary of Finance and
Commissioner of Internal Revenue, G.R. No. 200670, July 6, 2015: A petition for
certiorari (Rule 65) cannot be invoked against the Secretary of Finance and
Commissioner of Internal Revenue as they do not fall within the ambit of a tribunal,
board, or officer exercising judicial or quasi-judicial functions in issuing Revenue
Regulations. On the contrary, what they exercise in issuing these Revenue Regulations
is their quasi-legislative or rule-making power, thus, outside the scope of a petition for
certiorari.

V. LOCAL TAXATION

234). Under Section 5 of Article X of the Constitution, local government units are
allowed to collect tolls, fees, charges (TFC)

235.) Yes. Submarine or underwater cables are akin to electric transmission line which
the Court declare din Manila Electric Company v. City Assessor and Treasurer of
Lucena city (G.R. No. 166202, August 5, 2015), as “no longer exempted from real
property tax” and may qualify as “machinery” subject to real property tax. Both electric
lines and communication cables, in the strictest sense, are not directly adhered to the
soil but pass through posts, relay on landing stations, but both maybe classified under
the term “machinery” as real property under Article 415(5) of the New civil Code for the
simple reason that such pieces of equipment serve the owner’s business or tends to
meet the needs of his industry or works that are on real estate. (Capitol Wireless, Inc.,
v. The Provincial Treasurer of Batangas, et al., G.R. No. 180110, May 30, 2016)

236.) No. The following principle of ejusdem generis, a golf course cannot be
considered a place of an amusement subject to amusement tax. In so ruling, the Court
cited its pronouncement in Pelizloy Realty Corporation v. The Province of Benguet

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wherein it held that amusement taxes cannot be imposed on admission fees to resorts,
swimming pools, bath houses, hot springs and tourist spots as they do not belong to the
same category or class as they do not belong to the same category or class as theaters,
cinemas, concert halls, circuses and boxing stadia. ?(ALTA VISTA golf of country vs,
the CITY OF CEBU, et al., G.R. 180235, January 20, 2016)

Mactan Cebu International Airport Authority (MCIAA) v. City of Lapu-Lapu and

Elena T. Pacaldo, G.R. 181756, June 15, 2015: Mactan-Cebu International Airport
Authority (MCIAA) is a government instrumentality and not government and control
corporation (GOCC). Thus, its properties actually, solely and exclusively used for public
purposes, consisting of airport terminal building, airfield, runway, taxiway, and the lots in
which they are situated are not subject to real property tax under Section 133(o) and
234(a) of the LGC. Moreover, when a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an exemption to a
national government instrumentality from local taxation, such exemption is construed
liberally in favor of the national government instrumentality.

Additional Cases:

Camp John Hay Development Corporation v. Central Board of Assessment

Appeals, G.R> No. 169234, October 2, 2013. Section 252 and Section 222 of the
Local Government Code sets out the administrative remedies available to a taxpayer or
real property owner who does not agree with the assessment of the real property tax
sought to be collected. Two conditions must be met: the taxpayer/real property owner
questioning the assessment should first lay the tax due before his protest can be
entertained. Secondly, within the period prescribed by law, any owner or person having
legal interest in the property not satisfies with the action of the provincial, city or
municipal assessor in the assessment of his property may file an appeal with the Local
Board of Assessment Appeals (LBAA) of the province or city concerned. Thereafter,
within 30 days form receipt, he may elevate, by filing a notice of appeal, the adverse
decision of the LBAA with the Central Board of Assessment Appeals.

Camp Joh Hay Development Corporation v. Central Board of Assessment

Appeals, G.R. No. 169234, October 2, 2013. A claim for exemption from payment from
real property taxes does not actually question the assessor’s authority to assess and
collect taxes, but pertains to the reasonableness of the assessment by the local
assessor.

Smart Communications, Inc. v. Municipality of Malvar, Batangas, G.R. No. 20442,

February 18, 2014. Section 5, Article of the 1987 Constitution provides that “[e]ach local
government unit shall have the power to create its own sources of revenues and to levy

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taxes, taxes, fess, and charge subject to its guidelines and limitations as the congress
may provide, consistent with the basic policy of local autonomy. The LGC defines
“charges” as referring to pecuniary liability, as rents or fess against persons or property,
while the term “fee” means “a charge fixed by law or ordinance for the regulation or
inspection of a business or activity. The effect is merely incidental. Thus, the fees
imposed in Ordinance No. 18 are not taxes. Considering that the fees in Ordinance No.
18 are not the in the nature of local taxes, and petitioner is questioning the
constitutionality of the same, the CTA correctly dismissed the petition by for lack of
jurisdiction.

City of Manila, Hon. Alfredo S. Lim, as Mayor of the City of Manila, et al. v. Hon.
Angel Valera Colet, as Presiding Judge, Regional Trial Court of Manila (Br. 43), et
al. G.R. No. 120051, December 10, 2014: The power to tax of the local government
unit is a delegated power and must be exercise within the guidelines and limitations that
Congress may provide, taxing power of local government units.

VI. Tariff and Customs Code of 1978, as amended

A. IMPORT DUTIES

237.) Importation begins when the carrying vessel or aircraft enters the jurisdiction of
the Philippines with the intention to unlade therein. Importation is deemed terminated
upon payment of the duties, taxes, and other charges dues upon the articles, or secured
to be paid, at a port of entry and the legal permit for withdrawal shall have been granted,
or in case said articles are free of duties, taxes and other charges, until they have
legally left the jurisdiction of Customs.

238.) Tariff duties are levied on imported goods either as a revenue generating measure
or a protective scheme to artificially or temporarily inflate prices to protect a country’s
domestic output and its industries from their foreign counterparts. With the exception of
certain articles which can be imported duty-free, upon compliance with certain
prescribed conditions or formalities, goods are levied ordinary import duties under the
Most Favored Nation (MFN) treatment, ranging from Free/Zero to 30% except in cases
of sensitive agricultural products which are accorded a certain degree of protection via
higher tariff rates reaching to as high as 65%. On the other hand, under the Common
Effective Preferential Tariff (CEPT) Scheme, goods are levied ordinary import duties
ranging from 0% to 5%, except also in case of sensitive agricultural products which are
subject to as high as 40% tariff duties.

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239.) These are levied in addition to the ordinary import duties, taxes and charges
imposed by law on the imported product under the following circumstances:

240). a. Anti-Dumping Duty: The anti-dumping duty is as a special duty imposed in the
event that a specific kind or class of foreign article, is being imported into, sold or is
likely to be sold in the Philippines, at an export price less than its normal value in
the ordinary course of trade for a like product, commodity or article destined for
consumption in the exporting country which is causing or threatening to cause material
injury to a domestic industry, or materially retarding the establishment of a domestic
industry producing similar product.

b. Countervailing Duty: The countervailing duty is a special duty charge whenever any
product, commodity or article of commerce is granted directly or indirectly by the
government in the country of origin or exportation, any kind or form of specific
subsidy upon the production, manufacture or exportation of such product, commodity
or article has caused or threatens to cause material injury to a domestic industry or has
a materially retarded the growth or prevents the establishment of a domestic industry.

c. Making Duty. The marking of articles (or its containers) is a prerequisite for every
article or container imported into the Philippines in accordance with Section 303 of the
TCCP. In case of failure to mark an article or its container at the time of importation,
there shall be levied upon such article a marking duty of 5% ad valorem.

d. Discriminatory Duty: The discriminatory duty is imposed by the President by

proclamation upon articles of a foreign country which discriminate against Philippine
commerce or against goods coming from the Philippines as stipulated under
Section 304 of the TCCP. The amount of additional duty to be levied shall not exceed
100% ad valorem based on the dutiable

e. General Safeguard Measure: The general safeguard measure is applied by the

Secretary of Trade and Industry, in the case pf non-agricultural products, or the
Secretary of Agriculture, in the case of agricultural products, upon positive final
determination of the Tariff Commission that a product is being imported into the country
in increased quantities, whether absolute or relative to domestic production, as to
cause or threaten to cause serious injury to the domestic industry. In the case of
non-agricultural products, however, the Secretary of Trade and Industry shall first
establish that the application of such safeguard measures will be in the sources of
public interest.

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The general safeguard measure shall be limited to the extent of redressing or
preventing the injury and to facilitate adjustments by the domestic industry from the
adverse effects directly attributed to the increased imports.

f. Special Safeguard Duty: An additional special safeguard duty is imposed on an

agricultural product whenever the cumulative import volume in a given year exceeds its
trigger volume and when the actual c.i.f. (Cost, Insurance and Freight) import price falls
below its trigger price. The safeguard duty is imposed by the Commissioner of Customs
through the Secretary of Finance upon requests by the Secretary of Agriculture.

B. EXPORTS DUTIES

241.) Logs are the only remaining products subject to the duty under Section 514 of the
TCCP, as amended. The export duty imposed on logs is 20% of the gross Free on
Board (FOB) value at the time of shipment based on the prevailing rate of exchange.
However, only planted trees are subject to the export duty, since all naturally grown
trees are banned from being exported under Ministry of Environment and Natural
Resources Memorandum Order No. 8 (issued June 20, 1986)

C. REMEDIES

1. The Commissioner of Customs has jurisdiction in cases involving liability for custom
duties, fees or other money charges; seizure detention or release of property affected;
fines, forfeitures or other penalties imposed in relation thereto; or other matters arising
under the Customs Law or other law or part of law administered by the Bureau of
Customs [Republic Act No. 1125, (1954), Sec. 7]

2. Decisions of the Commission of Customs favorable to the taxpayer are elevated to

the Secretary of Finance (Sec. 2315, TCCC); and

3. The Secretary of Trade and Industry has jurisdiction in the case of non-agricultural
product, commodity or article, while the Secretary of Agriculture, in the case of
Agricultural product, commodity or article, in connection with the imposition of the Anti-
Dumping Duty, Countervailing and Safeguard Duty [Republic Act Nos. 8751 and 8752,
(1999) Sec. 301 (a) and (p), and Republic Act 8800].

4. Decisions/ Resolutions of the DTI and DA Secretaries may be elevated to the Tariff
Commission.

5. Decisions of the Tariff Commission are appealable to the CTA.

6. CTA decisions are appealable to the Supreme Court.

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242.) Notwithstanding any contrary provision of law, the CIR is authorized to inquire into
bank deposits and other related information held by financial institutions of the following
people:

a. A decedent to determine his gross estate;

b. Any taxpayer who has filed an application for compromise of his tax liability by
reason of financial incapacity provided that the person waives in writing his privilege
under the Foreign Currency Deposit Act and other laws; and

c. A specific taxpayer subject of a request for the supply of tax information from a
foreign authority pursuant to an international agreement to which the Philippines is a
signatory. Provided in this case that the requesting authority has provided the required
information to determine the foreseeable relevance of the information to the request
(NIRC, Sec. 6(f)).

243.) The doctrine of willful blindness provides that the taxpayer’s deliberate refusal or
avoidance to verify the contents of his return and other documents and inquire into the
authenticity thereof constitutes “willful blindness” on his part. By virtue of such doctrine,
the taxpayer can no longer refute the presumption of deliberate failure to pay their
correct taxes by simply invoking reliance on their accountants or representatives.
(People v. Gloria Kintanar, GR No. 196340)

In People v. Santos, however, the element of “willful” was not present in view of
the accused’s trust, respect and confidence reposed on her manager in handling her
financial and tax responsibilities since she was 12 years old and because of her
willingness to participate and settle the case. (CTA Crim. Case NO. 012-2013, affirmed
by the SC in a resolution in April, 2013.)

244.) No. Section 228 of the Tax Code provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made. Otherwise, the
assessment is void. (CIR v. United Salvage and Towage, Inc., GR No. 197515)

245.) If a regular return has been filed, the prescriptive period for assessment is within
three (3) years from actual filing or the last date filed, whichever comes later. For
Collection is within five (5) years from date of assessment by Summary Proceedings
(eg. Distraint or levy);or judicial proceedings.

If no return or a false or fraudulent returns were filed, assessment is within then

(10) years from the discovery of fraud, falsity or omission. For collection must be within
five (5) years from date of assessment by summary proceedings or judicial proceedings.
For collection without prior assessment must be within ten (10) years from the date of
discovery of the omission, fraud or falsity by judicial proceedings only. (NIRC, Sec. 222)

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