U.P.
LAW BOC abon3298
TAXATION LAW
RECENT JURISPRUDENCE
2019
CASE FACTS
STEAG State Steag State Power filed an
Power, Inc v. CIR administrative claim for
refund of its unutilized input
GR No. 205282 | VAT on capital goods. Due
Jan. 14, 2019 | to the inaction of the CIR,
Leonen Steag filed a petition for
review before the CTA. CTA
denied the petition. On
appeal, the CTA affirmed the
dismissal of the cases.
Relying on CIR v. Aichi
Forging, the CTA denied the
appeal for having been filed
late. Steag insists that its
claims are timely, arguing
that although the claims
were filed beyond the
120+30 day periods under
Sec. 112 of the NIRC, they
were nonetheless filed
within the 2 year period
under Sec. 229, in
accordance with RR 7-95.
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TAXATION LAW
HELD DOCTRINE
Claims for refund or tax The 120+30 day periods
credit of excess input under Sec. 112 of NIRC
tax are governed not by are mandatory and
Sec. 229 but by Sec. jurisdictional. Non-
112. Sec. 112 plainly compliance is fatal to
states that a taxpayer the taxpayer’s judicial
may appeal the CIR’s claim.
denial or inaction only
within 30 days from
denial or from the
expiration of the 120
day period. Steag’s
reliance on RR 7-95 is
misplaced as this had
already been
superseded and
revoked by RR 16-
2005, which was the
prevailing rule at the
time Steag filed its
judicial claim. RR 16-
2005 merely reiterates
Sec. 112 of the NIRC.
Moreover, under Sec.
112, only the
administrative claim for
refund of input VAT
must be filed within the
2 year prescriptive
period, the judicial claim
need not be. Since
Steag filed its judicial
claim beyond the 30 day
period to appeal, the
CTA lost its jurisdiction
over the petition.
U.P. LAW BOC abon3298
2018
CASE FACTS
International The taxpayer was assessed
Container by the City Treasurer for 2
Terminal businesses taxes. It paid the
Services, Inc. v. additional assessment but
City of Manila subsequently protested the
same before the City
G.R. No. 185622 | Treasurer, assailing the
October 17, 2018 | validity of the assessment
J. Leonen and collection of additional
business tax. With respect to
taxes covering payments
after the 3rd quarter of 1999,
the CTA denied the claim for
refund for the taxpayer’s
failure to submit the relevant
protest letter to prove its
compliance with procedural
requirements.
Commissioner of Avon filed its several tax
Internal Revenue returns for the year 1999.
v. Avon Products However, it was still served
Manufacturing, a Preliminary Assessment
Inc. Notice containing items of
deficiency taxes which was
allegedly already paid. Avon
filed a protest. Without ruling
on this protest, a Final
Assessment Notice (FAN)
was served. Avon
resubmitted its protest. BIR
officers allegedly expressed
that the FAN would be
cancelled provided Avon
pays part of it, which it did.
However, the BIR still
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TAXATION LAW
HELD DOCTRINE
Sections 195 and 196 of To be entitled to a
the LGC govern the refund under Sec. 196
remedies of a taxpayer of the LGC, the
for taxes collected by taxpayer must comply
LGUs, except for real with the following
property taxes. If the procedural
taxpayer receives an requirements: first, file a
assessment, the written claim for refund
remedy is Sec. 195, or credit with the local
which requires the filing treasurer; and second,
of a written protest with file a judicial case for
the local treasurer. If no refund within 2 years
assessment notice is from the payment of the
issued and the taxpayer tax, fee, or charge, or
claims an erroneous or from the date when the
illegal collection of tax, taxpayer is entitled to a
then Sec. 196 applies. refund or credit.
To be entitled to refund
under Sec. 196, the
taxpayer must: (a) file a
written claim for refund
or credit with the local
treasurer; and (b) file a
judicial case within 2
years from the payment
of the tax. Since no
notice of assessment
was issued for taxes
collected after the first 3
quarters of 1999, the
filing of a protest letter is
not a precondition for its
claim for refund under
Sec. 196.
The BIR has the The due process
administrative requirement before
adjudicatory power over administrative bodies
the rights and liabilities are not as strict
of taxpayers. However, compared to
this power must be judicial tribunals in that
exercised reasonably it suffices that a party is
and under the given a reasonable
prescribed procedure. opportunity to be
Administrative due heard. Nevertheless,
process requires: 1.) the such "reasonable
right to notice of the opportunity" should not
institution of be confined to the mere
proceedings, 2.) submission of position
reasonable opportunity papers and/or affidavits
to appear and defend its and the parties must be
rights and introduce given the
U.P. LAW BOC abon3298 TAXATION LAW

recommended the evidence, 3.) a tribunal opportunity to examine

enforcement of the constituted as to give the witnesses against
assessments. Avon sought him impartiality and one them.
to have the assessments that has competent
void for violation of jurisdiction, and 4.) the
administrative due process decision of that tribunal
but CTA ruled that there was must be supported by
no such violation as it was substantial evidence.
afforded an opportunity to
explain and present its
evidence.

Team Energy Team Energy is a VAT- The refund for the 1st For a judicial claim for
Corp. v. registered entity engaged in Quarter is proper, VAT refund to prosper,
Commissioner of power generation and placing the highest the claim must not only
Internal Revenue electricity sale to accord on the factual be filed within the
NAPOCOR. It filed a claim finding of the CTA En mandatory 120+30-day
GR No. 197663 | for refund of unutilized input Banc. For a judicial periods. The taxpayer
March 14, 2018 | VAT for all the quarters in claim for VAT refund to must also prove the
J. Leonen 2003. CTA En Banc prosper, the claim must factual basis of its claim
disallowed the claim for the not only be filed within and comply with the
2nd-4th quarters on the the mandatory 120+30- invoicing requirements
ground of lack of jurisdiction. day periods. The of the NIRC, as
CTA En Banc allowed the taxpayer must also amended, and other
claim for the 1st quarter but prove the factual basis appropriate revenue
reduced it on the ground that of its claim and comply regulations.
some failed to meet the with the invoicing
substantiation requirements. requirements of the
The issue is whether or not NIRC, as amended, and
the claims should prosper. other appropriate
revenue regulations.
Input VAT payments on
local purchases of
goods or services must
be substantiated with
VAT invoices or official
receipts, respectively.

Commissioner of JP Morgan-Philippines Court ruled that the Tax incentives to which

Internal Revenue entered into a Master services provided an Ecozone Enterprise
v. J.P. Morgan Service Provider Agreement between the respondent is entitled do not
Chase Bank, (Agreement) with and PeopleSupport are necessarily include all
N.A.-Philippine PeopleSupport not part of the latter’s kinds of income
Customer Care (Philippines), Inc. registered activities with received during the
Center (PeopleSupport), a PEZA, and as such period of entitlement.
Philippine Economic Zone should be subject to Only income actually
G.R. No. 210528 | Authority (PEZA)-registered regular income tax and gained or received by
November 28, Economic Zone IT (Export) creditable withholding the Ecozone Enterprise
2018 Enterprise, which enjoys an taxes. related to the conduct of
income tax holiday period Providing information its registered business
from May to July 2007. technology-enabled activity are covered by
Under the Agreement, services is different fiscal incentives.
PeopleSupport would from providing
provide and lease physical information technology Hence, to qualify for the
transmission facilities to J.P. facilities, infrastructure, income tax holiday
Morgan-Philippines for a or equipment. Service incentive, respondent

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U.P. LAW BOC abon3298 TAXATION LAW

fee. J.P Morgan withheld entails "useful labor or must satisfactorily show
taxes from it’s payment to work rendered or to be that its transaction with
PeopleSupport and is now rendered by one person PeopleSupport is a
seeking a refund claiming to another. Information registered activity or
that it should not have technology facilities or embraced within the
withheld taxes from infrastructures are the latter's registered
PeopleSupport as the latter medium used to support activities with the PEZA.
enjoys income tax holiday. the business processes
CIR contends that the and functions of
agreement between JP companies.
Morgan and PeopleSupport PeopleSupport's
wherein the former leases registered activity of
physical facilities to the latter rendering "business
is not one of the registered process outsourcing
activities of PeopleSupport, services" refer to
and as such, should be provision of information
subject to creditable technology-enabled
withholding taxes. Note that services that support
PeopleSupport is registered certain business
with PEZA to "engage in the processes of its clients.
establishment of a contact
center which will provide The Agreement
outsourced customer care between respondent
services and [business and PeopleSupport
process outsourcing] pertains to the provision
services." Respondent of physical plant space,
insists that it contracted out voice and data
to PeopleSupport the infrastructure, all
function of "maintaining and workstation
managing the infrastructure infrastructure, and
and transmission facilities" platform and support for
provided by inbound telemarketing
[PeopleSupport]." It further activities.
contends that "information PeopleSupport's
technology infrastructure leasing services to
and support services" is a respondent are within
business process, which it the scope of the activity
outsourced to of a facilities
PeopleSupport. provider/enterprise. Tax
incentives that may be
granted to an
information
technology service
enterprise are
different from tax
incentives granted to
an information
technology facilities
provider/enterprise.

Metropolitan MWSS received Final SC held that MWSS is A government

Waterworks and Notices of Real Property Tax not liable for RPT, instrumentality
Sewerage (RPT) Delinquency from the except if the beneficial exercising corporate
System v. Local Local Government of use of its properties has powers is not liable for
Government of Quezon City on its real been extended to a the payment of real
Quezon City properties. The LGU issued taxable person. Under property taxes on its

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U.P. LAW BOC abon3298
warrants of levy on the
G.R. No. 194388 | properties and sent a notice
November 07, of sale of delinquent real
2018 | J. Leonen properties. MWSS argued
that its real properties in
Quezon City were
exclusively devoted to public
use, and thus, were exempt
from real property tax. It also
maintained it is a adopted
government instrumentality
exempt from real property
taxation. The sole issue is
whether or not an LGU may
assess RPT on MWSS.
Philippine These consolidated cases
Airlines, Inc. v. stem from a refund claim by
Commissioner of Philippine Airlines, Inc.
Internal Revenue (PAL) for final taxes withheld
on its interest income from
G.R. Nos. its peso and dollar deposits
206079-80 | with Chinabank, JPMorgan,
January 17, 2018 | PBCom, and Standard
Leonen, J. Chartered. PAL asserts that
it is entitled to a refund of the
withheld taxes because it is
exempted from paying the
tax on interest income under
its franchise, Presidential
Decree No. 1590. 6 other tax, including
However, the Commissioner
refused to grant the claim,
arguing that PAL failed to
prove the remittance of the
withheld taxes to the BIR.
Thus, the issue involves
whether or not PAL is
required to prove the
remittance to the BIR of the
final withholding tax on its
interest from currency bank
deposits to be entitled to tax
refund.
Page 5 of 18
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TAXATION LAW
EO 596, petitioner is properties unless it is
categorized with other alleged and proven that
government agencies the beneficial use of its
that were found to be properties been
exempt from the extended to a taxable
payment of RPT. person.
Congress also passed
the GOCC Governance Sec. 234 of the Local
Act of 2011, which Government Code is
the same only applicable to
categorization and GOCCs.
explicitly lists MWSS as
exempt from the
payment of RPT. The
Executive and
Legislative Branches,
therefore, have already
categorized MWSS not
as a GOCC but as a
Government
Instrumentality with
Corporate Powers/
Government Corporate
Entity.
SC held that PAL is Taxes withheld by the
entitled to its claim for withholding agent are
refund for taxes deemed to be the full
withheld by the banks. and final payment of the
PAL is uncontestedly income tax due from the
exempt from paying the income earner or
income tax on interest payee. As such,
earned. Under its remittance need not be
franchise, PD No. 1590, proven. To claim a
petitioner may either refund, SC held that
pay a franchise tax or PAL needs only to
the basic corporate prove that taxes were
income tax, and is withheld.
exempt from paying any
The ff principles apply
taxes on interest earned (i) the payor-withholding
from deposits. agent is responsible for
the withholding and
PAL is likewise entitled remitting of the income
to a refund because it is taxes; (ii) the payee-
not responsible for the refund claimant has no
remittance of tax to the control over the
BIR. The taxes on remittance of the taxes
interest income from withheld from its
bank deposits are in the income; (iii) the
nature of a withholding Certificates of Final Tax
tax. Thus, the party Withheld at Source
liable for remitting the issued by the
amounts withheld is the withholding agents of
withholding agent of the the government are
BIR. Clearly, the prima facie proof of
U.P. LAW BOC abon3298 TAXATION LAW

withholding agent is the actual payment by

payor liable for the tax, payee-refund claimant
and any deficiency in its to the government itself
amount shall be and are declared under
collected from it. Should perjury.
the BIR find that the
taxes were not properly
remitted, its action is
against the withholding
agent, and not against
the taxpayer..

2017
CASE FACTS HELD DOCTRINE

Commissioner of BIR granted SMC’s request
Internal Revenue for registration and authority
v. San Miguel to manufacture San Mig
Corporation Light. Subsequently, upon a
(SMC) letter by SMC, the BIR
confirmed that San Mig Light
G.R. No. 205045 was classified as a new
& 205723 | brand. Subsequently,
January 25, 2017 | however, the BIR issued a
Leonen, J. Notice of Discrepancy
against SMC stating that
San Mig Light was merely a
variant of its existing beer
variants and must be
subjected to the higher
excise tax rate for variants.
The CTA held in favor of
SMC.
The SC held that the A variant is determined
CTA did not err in by the brand (name) of
finding in favor of SMC. the beer product,
The BIR’s Notice of whether it was formed
Discrepancy was by prefixing or suffixing
effectively nullified by a modifier to the root
the subsequent name of the alleged
issuance of BIR parent brand, or
Revenue Memo Order whether it carries the
No. 6-2003 which same logo or design.
included San Mig Light
as a new brand. The SC While estoppel
found that SMC already generally does not
acquired a vested right apply against
on the tax classification government, especially
of San Mig Light as a when the case involves
new brand. To allow the the collection of taxes,
CIR to change its an exception can be
position will result in made when the
deficiency assessments application of the rule
in substantial amounts will cause injustice
against SMC to the against an innocent
latter's prejudice. party.

Also, "San Mig Light"

and "Pale Pilsen" do not
share a root word.
Neither is there an
existing brand called
"San Mig" to conclude
that "Light" is a suffix
rendering "San Mig
Light" as its "variant."

CIR v. Transitions Optical received The doctrine of estoppel Estoppel applies

Transitions Letter of Authority to applies in this case. BIR against a taxpayer who
Optical examine Transition Optical's was at fault when it did not only raise at the
Philippines, Inc. books of accounts for accepted respondent's earliest opportunity its
internal revenue tax Waivers despite their representative's lack of

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U.P. LAW BOC abon3298 TAXATION LAW

purposes for 2004. On non-compliance with authority to execute two

October 9, 2007, the parties the requirements. (2) waivers of defense
allegedly executed a First Nonetheless, of prescription, but was
Waiver. In this supposed respondent's acts also also accorded, through
First Waiver, the prescriptive show its implied these waivers, more
period for the assessment to admission of the validity time to comply with the
June 20, 2008. This was of the waivers. First, audit requirements of
followed by another respondent never the Bureau of Internal
supposed Second Waiver raised the invalidity of Revenue. Nonetheless,
dated June 2, 2008. This the Waivers at the a tax assessment
time, the prescriptive period earliest opportunity, served beyond the
was supposedly extended to either in its Protest to extended period is void.
November 30, 2008. CIR the PAN, Protest to the
issued PAN dated FAN, or Supplemental
November 11, 2008. Protest to the FAN.
Transitions Optical raised Second, respondent
the defense of prescription does not dispute
by claiming the waivers it petitioner's assertion
executed were not valid. that respondent
repeatedly failed to
comply with petitioner's
notices. The Waivers
were necessary to give
respondent time to fully
comply with the Bureau
of Internal Revenue
notices for audit
examination and to
respond to its Informal
Conference request to
discuss the
discrepancies. Thus,
having benefitted from
the Waivers executed at
its instance, respondent
is estopped from
claiming that they were
invalid and that
prescription had set in.
But, even as
respondent is estopped
from questioning the
validity of the Waivers,
the assessment is
nonetheless void
because it was served
beyond the supposedly
extended period.The
First Division of the
Court of Tax Appeals
found that "the date
indicated in the
envelope/mail matter
containing the FAN and
the FLD is December 4,
2008, which is

Page 7 of 18
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U.P. LAW BOC abon3298
CE Luzon CE Luzon filed an
Geothermal administrative claim for
Power Co., Inc. refund of its unutilized
v. CIR creditable input tax. Without
waiting for the CIR to act on
GR No. 197526 & its claim or for the expiration
199676-77 | July of 120 days, CE Luzon filed
26, 2017 | Leonen before the CTA a judicial
claim for refund. CTA ruled
that CE Luzon failed to
observe the 120-day period
under Sec. 112 of NIRC,
hence, it was barred from
claiming a refund of its input
VAT. The judicial claims
were prematurely filed. CE
Luzon argues that the
prescriptive periods in Sec.
112 are merely permissive.
National Power NPC was assessed for
Corp. v. deficiency franchise tax for
Provincial the years 2001 to 2003
Government of based on its sale of
Bataan electricity generated from its
power plants in Bataan.
G.R. No. 180654 | NPC argued that it had
March 6, 2017 | J. ceased to be liable for
Leonen, franchise tax after the
enactment of RA 9136 or the
Electric Power Industry
Reform Act (EPIRA), which
provided that power
generation is not a public
utility operation requiring a
franchise, hence, not
taxable. While the business
of transmission and
distribution of electricity
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TAXATION LAW
considered as the date
of their mailing."
Taxpayers must await The 120-day and 30-
either the decision of day reglementary
the CIR or for the lapse periods under Sec. 112
of the 120 days before of NIRC are mandatory
filing their judicial claims and jurisdictional. Non-
with the CTA. Failure to compliance with these
observe the 120-day periods renders a
period renders the judicial claim for refund
judicial claim of creditable input tax
premature. However, premature. However,
despite non-compliance taxpayers who relied on
with Sec. 112, CE BIR Ruling DA-489-03
Luzon’s judicial claims from its issuance on
are shielded from the Dec. 10, 2003 until its
vice of prematurity reversal on Oct. 6, 2010
because it relied on BIR in the Aichi ruling are
Ruling DA-489-03 shielded from the vice of
which expressly states prematurity.
that a taxpayer need not
wait for the lapse of the
120 day period before it
could seek judicial
relief. Pursuant to the
San Roque ruling,
taxpayers who relied on
such ruling are exempt
from the strict
application of Sec. 112
on the ground that
taxpayers should not be
prejudiced by erroneous
interpretations of the
CIR.
Section 137 of the LGC Without a franchise, a
is categorical in stating local government unit
that franchise tax can cannot impose
only be imposed on franchise tax.
businesses enjoying a
franchise. Under
EPIRA, a national
franchise is no longer
required before
engaging in power
generation. Hence, as
regards NPC's business
of generating electricity,
the franchise taxes
sought to be collected
are devoid of any
statutory basis. As
regards its electric
transmission function,
U.P. LAW BOC abon3298
remains subject to local
franchise tax, NPC has also
ceased to engage in
transmission at the time.
CIR v. Apo BIR assessed Apo for
Cement deficiency taxes for the year
Corporation 1999. Apo protested but it
was denied by the BIR.
While the petition for review
in the CTA was pending,
Apo availed of the tax
amnesty under RA 9480 and
thereafter moved to cancel
the assessment. The CTA
granted. The CIR argues
that one of the requirements
for the availment of the
amnesty in the same law is
the submission of the SALN.
Therefore, the CIR can still
question the correctness of
the SALN Apo submitted. If
proven, incorrect, then Apo
can be disqualified from
availing the amnesty.
2016
CASE FACTS
CIR v. Fitness By Fitness filed its Annual
Design, Inc. Income Tax Return for 1995.
It received a Final
GR No. 215957 | Assessment Notice
November 09, assessing them of tax
2016 | J. Leonen deficiency worth P10.6M
and was used as basis to
issue a Warrant of Distraint
and/or Levy. The
Commissioner stood by his
position that their right to
assess has not yet been
prescribed because the
income tax return filed was
fraudulent and thus they
have 10 years from the
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all transmission assets
of NPC were, by virtue
of EPIRA, already
transferred to another
corporation at the time
of the levy and auction
of its real properties.
Thus, the foreclosure
sale of the properties
must be declared null
and void.
RA 9480, Sec. 4 The amnesty granted
provides that there is a under the law is revoked
presumption of once the taxpayer is
correctness of the proven to have under-
SALN submitted except declared his assets in
where there is his SALN by 30% or
underdeclaration to the more. Amnesty
extent of 30% or more at taxpayers who willfully
the instance of, parties understate their net
other than the BIR or its worth shall not only be
agents. This means that liable for perjury under
the BIR has no standing the Revised Penal
to dispute the Code, but, upon
correctness of Apo’s conviction, also subject
SALN. to immediate tax fraud
investigation in order to
collect all taxes due and
to criminally prosecute
for tax evasion.
HELD DOCTRINE
First, the disputed Final The issuance of a valid
Assessment Notice formal assessment is a
(FAN) is not a valid substantive prerequisite
assessment. It lacks the for collection of taxes.
definite amount of tax
liability for which
respondent is
accountable. There are
also no due dates in the
FAN which negates
petitioner’s demand for
payment. Thus, the
Warrant of Distraint
and/or Levy is void
since an invalid
assessment bears no
valid effect.
U.P. LAW BOC abon3298 TAXATION LAW

discovery of fraud or
omission to assess. The Commissioner’s
right to assess has
likewise prescribed.
Fraud is a question of
fact that should be
alleged and duly
proven. It is
indispensable for the
Commissioner to
include the basis for its
allegations of fraud in
the assessment notice
so to aid the taxpayer in
filing an effective
protest.

Air Canada v. Air Canada is a foreign SC held that Air Canada
Commissioner of corporation organized under as an offline
Internal Revenue the laws of Canada and it international carrier with
was granted an authority to no landing rights in the
operate as an offline carrier Philippines, is not liable
by the Civil Aeronautics to tax on Gross
Board. Air Canada does not Philippine Billings under
have flights originating from Section 28(A)(3) of the
or coming to the Philippines NIRC because under
[and does not] operate any that provision, the tax
airplane [in] the Philippines. attaches only when the
Air Canada engaged the carriage of persons,
services of Aerotel as its excess baggage, cargo,
general sales agent in the and mail originated from
Philippines to sell passage the Philippines in a
documents in the continuous and
Philippines. Air Canada filed uninterrupted flight,
and paid ITR’s in the PH. regardless of where the
Later, they filed a claim for passage documents
refund. Air Canada is saying were sold.
that the applicable tax rate Petitioner falls within the
against it is 2.5% under the definition of resident
law on tax on Resident foreign corporation
Foreign Corporations under Section 28(A)(1)
(RFCs) for international of the 1997 NIRC. As
carriers. It argues that, as an early as 1987, this court
international carrier doing in CIR v. British
business in the Philippines, Overseas Airways
it is not subject to tax at the Corporation declared
regular rate of 32%. The British Overseas
issue is whether petitioner Airways Corporation, an
Air Canada is subject to the international air carrier
2 1/2% tax on Gross with no landing rights in
Philippine Billings pursuant the Philippines, as a
to Section 28(A)(3). If not, resident foreign
whether an offline corporation engaged in
international carrier selling business in the
passage documents through Philippines through its
a general sales agent can be local sales agent that
An offline international
air carrier selling
passage tickets in the
Philippines, through a
general sales agent, is a
resident foreign
corporation doing
business in the
Philippines. As such, it
is taxable under Section
28(A)(1), and not
Section 28(A)(3) of the
1997 National Internal
Revenue Code, subject
to any applicable tax
treaty to which the
Philippines is a
signatory. Pursuant to
Article 8 of the Republic
of the Philippines-
Canada Tax Treaty, Air
Canada may only be
imposed a maximum
tax of 1 1/2% of its gross
revenues earned from
the sale of its tickets in
the Philippines.

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U.P. LAW BOC abon3298 TAXATION LAW

subject to the regular sold and issued tickets

corporate income tax of 32%
on taxable income pursuant
to Section 28(A)(1).
for the airline company.
Aerotel performs acts or
works or exercises
functions that are
incidental and beneficial
to the purpose of
petitioner's business.
The activities of Aerotel
bring direct receipts or
profits to the petitioner.

Republic v. BIR issued a Letter of
GMCC United Authority for the examination
Development of the books of accounts and
Corp. records of GMCC for taxable
years 1998 and 1999. After
G.R. No. 191856 | investigation, BIR found out
December 07, that GMCC had not declared
2016 | J. Leonen the correct amount of
income. BIR issued PAN (on
Dec 8, 2003) and FAN.
GMCC protested, citing that
the period to assess and
collect the tax had already
prescribed. BIR denied the
protest and filed criminal
action against GMCC. The
DOJ dismissed the criminal
complaint. CA affirmed this.
Before the SC, BIR insists
that Sec. 222 of the NIRC
(10-year period) should be
applied and not Sec. 203 (3-
year period).
SC held that the 3-year
prescriptive period
applies in this case.
Petitioner fails to
convince that
respondents filed a
fraudulent tax return.
The respondents may
have erred in reporting
their tax liability when
they recorded the
assailed transactions in
the wrong year, but
such error stemmed
from the wrong
application of the law
and is not an indication
of their intent to evade
payment. If there were
really an intent to evade
payment, respondents
would not have reported
and subsequently paid
the income tax, albeit in
the wrong year.
For the 10-year period
under Sec 222(a) to
apply, it is not enough
that fraud is alleged in
the complaint, it must be
established by clear and
convincing evidence.
Sec. 203 prohibits two
acts after the expiration
of the 3-year period.
First, an assessment for
the collection of the
taxes in the return, and
second, initiating a court
proceeding on the basis
of such return.

The last day prescribed

by law for filing its 1998
tax return was April 15,
1999. The petitioner
had 3 years or until
2002 to make an
assessment. Since the
PAN was made only on
December 8, 2003, the
period to assess the tax
had already prescribed.
The State Prosecutor
was correct in
dismissing the
complaint for tax
evasion since it was
clear that the prescribed
return cannot be used

Page 11 of 18
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U.P. LAW BOC abon3298
ING Bank N.V. v. ING Bank is a foreign
Commissioner of banking corporation
Internal Revenue incorporated in the
Netherlands. In ING,
G.R. No. 167679 | employee bonuses were
July 22, 2015, determined during the year
April 20, 2016 (1996 and 1997) but were
(Resolution) | distributed in the succeeding
Leonen, J. year. No withholding of
income tax was effected but
the bonuses were claimed
as an expense for the year.
In this case, one of its
assertions is that it is not
liable for deficiency
withholding taxes on
bonuses accruing to its
officers and employees
during taxable years 1996
and 1997. It maintains its
position that the liability of
the employer to withhold the
tax does not arise until such
bonus is actually distributed.
Banco de Oro The Bureau of Treasury
(BDO) v. (BTr) issued a notice to all
Republic Government Securities
Eligible Dealers (GSED)
G.R. No. 198756 | announcing that P30 billion
August 16, 2016 | worth of 10-year Zero-
Leonen, J. coupon Bonds (PEACe
Bonds) would be auctioned
off and that “being limited to
19 lenders and while taxable
shall not be subject to the
20% final withholding tax.”
RCBC participated in the
auction on behalf of Caucus
of Development NGO
Networks (CODE-NGO) and
won the bid. On the same
Page 12 of 18
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TAXATION LAW
as basis for the case.
SC held ING bank is The obligation of the
liable for deficiency payor/employer to
withholding tax on deduct and withhold the
accrued bonuses for related withholding tax
taxable years 1996 and arises at the time the
1997. Petitioner ING income was paid or
Bank accrued or accrued or recorded as
recorded the bonuses an expense in the
as deductible expense payor's/employer's
in its books. Therefore, books, whichever
its obligation to withhold comes first
the related withholding
tax due from the
deductions for accrued
bonuses arose at the
time of accrual and not
at the time of actual
payment.
Compensation is
constructively paid
within the meaning of
these regulations when
it is credited to the
account of or set apart
for an employee so that
it may be drawn upon by
him at any time
although not then
actually reduced to
possession. To
constitute payment in
such a case, the
compensation must be
credited or set apart for
the
The SC ruled that the For internal revenue tax
reckoning of the phrase purposes, even debt
"20 or more lenders" instruments issued and
should be at the time sold to 20 or more
when RCBC Capital lenders/investors by
sold the PEACe bonds commercial or industrial
to investors (secondary companies to finance
market). Should the their own needs are
number of investors to considered deposit
whom RCBC Capital substitutes, taxable as
distributed the PEACe such.
bonds be found to be 20
or more, the PEACe The existence of 20 or
Bonds are considered more lenders should be
deposit substitutes reckoned at the time
subject to the 20% final when the successful
withholding tax. GSED (Government
U.P. LAW BOC abon3298
day, RCBC entered into an
underwriting agreement with
CODE-NGO. Banco de Oro,
et al. purchased the
Government Bonds from
RCBC, the underwriter.
Eleven days before the
maturity of the Bonds, the
BIR issued BIR Ruling No.
370-2011 declaring that the
PEACe Bonds, being
deposit substitutes, were
subject to 20% final
withholding tax. Upon a
petition filed directly before
the SC, it held in favor of the
petitioners and ordered the
BTr to release the 20% final
withholding tax it had
withheld on the transactions.
ING Bank v. CIR A prior decision of the CA
held petitioner ING Bank
liable for multiple deficiency
taxes for 1996 and 1997 .
While this case was pending
before the SC, ING Bank
filed a Manifestation and
Motion stating that it availed
itself of the government’s tax
amnesty program under RA
No. 9480. Nevertheless, a
FAN was still issued for the
deficiency taxes for said
years. The FAN also
covered deficiency
withholding tax
compensation which was
not covered by the tax
amnesty, to which ING Bank
protested as said
compensation was not yet
distributed to its employees
at these taxable years.
Page 13 of 18
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RCBC/CODE-NGO and
RCBC Capital, as well
as the final bondholders
who have recourse to
government upon
maturity, are liable to
pay the 20% final
withholding tax.
However, the Court
found that the decision
should only be applied
prospectively as the
herein petitioners
simply relied in good
faith on the opinions of
the BIR stating that the
20-lender rule is to be
determined at the time
of the original issuance
(primary market). To
apply the herein
interpretation
retroactively would be
tantamount to a
violation of due process.
Neither the law nor the
implementing rules
state that a court ruling
that has not attained
finality would preclude
the availment of the
benefits of the Tax
Amnesty Law. Both
R.A. 9480 and DOF
Order No. 29-07 are
quite precise in
declaring that "[t]ax
cases subject of final
and executory judgment
by the courts" are the
ones excepted from the
benefits of the law. In
LG Electronics
Philippines, Inc. v.
Commissioner of
Internal Revenue, the
court ruled that only
cases that involve final
and executory
judgments are excluded
from the tax amnesty
program as explicitly
provided under Section
8 of RA No. 9480. Thus,
TAXATION LAW
Securities Eligible
Dealer)-bidder
distributes the
government securities
to final holders. When
the GSED sells the
government securities
to 20 or more investors,
the government
securities are deemed
to be in the nature of a
deposit substitute,
taxable as such.
Qualified taxpayers with
pending tax cases may
still avail themselves of
the tax amnesty
program under RA No.
9480, otherwise known
as the 2007 Tax
Amnesty Act. Thus, the
provision in BIR
Revenue Memorandum
Circular No. 19-2008
excepting "issues and
cases which were ruled
by any court (even
without finality) in favor
of the BIR prior to
amnesty availment of
the taxpayer" from the
benefits of the law is
illegal, invalid, and null
and void. The duty to
withhold the tax on
compensation arises
upon its accrual.
U.P. LAW BOC abon3298 TAXATION LAW

petitioner ING Bank is

not disqualified from
availing itself of the tax
amnesty under the law
during the pendency of
its appeal before this
court.
The tax on
compensation income is
withheld at source
under the creditable
withholding tax system
wherein the tax withheld
is intended to equal or at
least approximate the
tax due of the payee on
the said income. It was
designed to enable (a)
the individual taxpayer
to meet his or her
income tax liability on
compensation earned;
and (b) the government
to collect at source the
appropriate taxes on
compensation. Taxes
withheld are creditable
in nature. Thus, the
employee is still
required to file an
income tax return to
report the income
and/or pay the
difference between the
tax withheld and the tax
due on the income. For
over withholding, the
employee is refunded.
Therefore, absolute or
exact accuracy in the
determination of the
amount of the
compensation income is
not a prerequisite for the
employer’s withholding
obligation to arise.
For a taxpayer using the
accrual method, the
determinative question
is, when do the facts
present themselves in
such a manner that the
taxpayer must
recognize income or
expense? The accrual
of income and expense

Page 14 of 18
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U.P. LAW BOC abon3298 TAXATION LAW

is permitted when the

all-events test has been
met. This test requires:
(1) fixing of a right to
income or liability to
pay; and (2) the
availability of the
reasonable accurate
determination of such
income or liability.
If the taxpayer is on
cash basis, the expense
is deductible in the year
it was paid, regardless
of the year it was
incurred. If he is on the
accrual method, he can
deduct the expense
upon accrual thereof.
An item that is
reasonably ascertained
as to amount and
acknowledged to be
due has "accrued";
actual payment is not
essential to constitute
"expense."
Stated otherwise, an
expense is accrued and
deducted for tax
purposes when (1) the
obligation to pay is
already fixed; (2) the
amount can be
determined with
reasonable accuracy;
and (3) it is already
knowable or the
taxpayer can
reasonably be expected
to have known at the
closing of its books for
the taxable year.
Petitioner ING Bank
accrued or recorded the
bonuses as deductible
expense in its books.
Therefore, its obligation
to withhold the related
withholding tax due
from the deductions for
accrued bonuses arose
at the time of accrual
and not at the time of
actual payment.

Page 15 of 18
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U.P. LAW BOC abon3298
2015
CASE FACTS
CE Casecnan v. On Sept. 26, 2007, CE
CIR Casecnan filed before the
BIR an administrative claim
GR No. 203928 | for refund or issuance of tax
July 22, 2015 | credit certificate for
Leonen unutilized input VAT. On
March 14, 2008, it filed a
petition for review w/ CTA
due to the inaction of the
CIR on its administrative
claim. CTA denied the
judicial claim for having
been filed beyond the 30 day
period in Sec. 112 of the
NIRC.
BDO v. Republic The Bureau of Treasury
issued zero-coupon treasury
GR No. 198756 | certificates (T-notes) to
Jan. 13, 2015 | RCBC/CODE-NGO which
Leonen were sold to investors as the
PEACe bonds. The net
proceeds would be used to
endow a permanent fund to
finance projects of NGOs. A
zero-coupon bond is bought
at a price substantially lower
than its face value, with the
face value repaid at the time
of maturity. It does not make
periodic interest payments,
however, the discount to
face value constitutes the
return to the bondholder.
CIR issued BIR Ruling No.
Page 16 of 18
abon3298
TAXATION LAW
HELD DOCTRINE
The prescriptive periods The 30 day period to
regarding claims for appeal in Sec. 112 of
refund or credit of input NIRC is mandatory and
VAT are explicitly set jurisdictional. The
forth in Sec. 112 of the window of exemption in
NIRC. Compliance with San Roque is limited to
the 120 day and 30 day premature filing of the
periods are mandatory judicial remedy and
and jurisdictional. In this does not cure lack of
case, the administrative jurisdiction due to late
claim was filed on Sept. filing.
26, 2007. CASE Thus,
the 120 day period for
the BIR to act on the
claim lapsed on Jan. 24,
2008. CE Casecnan
had until Feb. 23, 2008
to file a petition before
the CTA, but it filed its
appeal only on March
14, 2008. The only
exception to the rule is
VAT refund cases that
were prematurely filed
between Dec. 10, 2003
and Oct. 6, 2010,
pursuant to the San
Roque ruling. This
exception pertains only
to premature claims and
does not extend to
belatedly filed claims.
Sec. 22(Y) of the NIRC To qualify as a deposit
defines a deposit substitute subject to
substitute as an 20% FWT, the funds
alternative form of must be obtained from
obtaining funds from the 20 or more lenders at
public other than any one time. ‘At any
deposits, through the one time’ refers to every
issuance of debt transaction executed
instruments for the whether in the primary
borrower’s own or secondary market.
account. The law further
defines the term ‘public’
to mean borrowing from
20 or more individual or
corporate lenders at any
one time. The number
of lenders is
determinative of
whether a debt
U.P. LAW BOC abon3298
370-2011 declaring that the
PEACe bonds being deposit
substitutes are subject to
20% final withholding tax,
regardless of the number of
purchasers/lenders at the
time of origination/issuance.
Thus, the Secretary of
Finance directed the Bureau
of Treasury to withhold 20%
final tax from the face value
of the bonds upon their
payment at maturity. BIR
later issued BIR Ruling No.
DA 378-2011 clarifying that
the tax should be imposed
on all subsequent holders of
the bonds. Petitioners seek
to annul the BIR Rulings and
prohibit the Bureau of
Treasury from withholding
the tax.
Page 17 of 18
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TAXATION LAW
instrument is
considered a deposit
substitute subject to
FWT. The phrase ‘at
any one time’ refers to
every transaction
executed whether in the
primary or secondary
market. Debt
instruments that are not
deposit substitutes,
while not subject to
FWT, are subject to
regular income tax. BIR
Ruling 370-2011 is void
because it completely
disregarded the 20 or
more lender rule
provided in the NIRC.
Administrative
issuances must not
override the law but
must remain consistent
with the law they intend
to carry out. Only
Congress can repeal or
amend the law.
The sale of the PEACe
bonds involved the
issuance of the bonds
by the Bureau of
Treasury to RCBC/
CODE-NGO, and the
sale by RCBC/CODE-
NGO of the PEACe
bonds to undisclosed
investors. In reality, the
entire borrowing
received by the Bureau
of Treasury in exchange
for the PEACe bonds
was sourced directly
from the undisclosed
number of investors. At
this point, however, we
do not know how many
investors the bonds
were sold to by RCBC.
Should there have been
a simultaneous sale to
20 or more investors,
the PEACe bonds are
deemed deposit
substitutes subject to
20% FWT on the
U.P. LAW BOC abon3298 TAXATION LAW

discount. The obligation

to withhold would
likewise be required of
any investor who sells
the bonds
simultaneously to 20 or
more investors. Should
the PEACe bonds be
found to be a deposit
substitute, the proper
procedure was for the
Bureau of Treasury to
pay the face value to the
bondholders and for
BIR to collect the FWT
from RCBC or any
investor, as the
withholding agents.

Page 18 of 18
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