ESTATE TAXATION

Transfer Taxation Estate Tax is an excise tax because it is a tax on a privilege.

General Concepts Reasons/Doctrine supporting the imposition of estate tax.

1. Benefits Received Principle: State can collect taxes

because of the services rendered by government in
Transfer Taxation: pertains to the imposition of transfer
the distribution of the estate.
taxes.

Transfer Taxes: Taxes imposed on gratuitous transfers.
Gratuitous Transfers: Transfers without any consideration.
2 Types of Transfer Taxes
Estate tax: Tax imposed on the privilege of transferring a
property upon the death of the transferor.
Donors Tax: Is a type of transfer tax imposed on the privilege
of transferring a property gratuitously during the lifetime of
the transferor.
Difference: Estate tax will be imposed if the transfer will take
effect upon the death of the transferor while donor’s tax is
imposed if the transfer will take effect during the lifetime of
the transferor.
2. Ability to Pay Principle: The receipt of inheritance,
which is in the nature of unearned wealth, places
assets in the hands of the heirs, thereby creating an
ability to pay the tax and thus to contribute to
governmental income.
3. State Partnership Principle: State is a passive and
silent partner in the accumulation of the properties
by the estate.
4. Redistribution of Wealth Principle: The receipt of
inheritance is a contributing factor to the inequalities
in wealth and income. The imposition of taxes
reduces the property received by the successor, thus
helping bring about a more equitable economic
environment.

5. Back Tax Theory: Taxes should have been imposed by

Can we consider Capital Gains Tax as a transfer tax? the government for the services it had rendered.
Taxes that were not imposed upon the accumulation
Answer: No. Because transfer taxes are taxes imposed on of the property.
gratuitous transfers.

Capital gains tax is imposed on the sale of a real property

classified as a capital asset. Since it involves sale, barter or
other types of dispositions with consideration, then capital
gains tax is not considered as a transfer tax. Transfer taxes
are only imposed on gratuitous transfers.

Revenue Regulation 12-2018

This revenue regulation provides the details to the general

framework of the TRAIN LAW dealing with transfer taxes.
 Concept of Gross Estate All income accruing prior to the death of the decedent shall be
reported under the name of the decedent because he was still
Governed by Section 85 of the NIRC
alive during that time when the income accrued.
SEC. 85. Gross Estate. - the value of the gross estate of the
decedent shall be determined by including the value at the
time of his death of all property, real or personal, tangible or Extra-judicial Settlement of Estate
intangible, wherever situated: Provided, however, that in the
*If the settlement of the estate is extra-judicial in nature, the
case of a nonresident decedent who at the time of his death
income earned prior to the death shall still be reported under
was not a citizen of the Philippines, only that part of the entire
the name of the decedent.
gross estate which is situated in the Philippines shall be
included in his taxable estate. If the income accrued after the death of the decedent, the
income shall be reported by the heirs.
(A) Decedent’s Interest
(B) Transfer in Contemplation of Death If the heirs pooled their inheritance together and decided to
(C) Revocable Transfer contribute more to improve the properties and agreed to
(D) Property Passing Under General Power of divide the profits amongst themselves, an unregistered
Appointment partnership is created. The income accruing to the property of
(E) Proceeds of Life Insurance the decedent after his death shall be reported by the
(F) Prior Interests unregistered partnership.
(G) Transfer for Insufficient Consideration
(H) Capital of Surviving Spouse
Gross Estate:

COMPOSITION OF THE GROSS ESTATE:
The properties to be included in the gross estate shall not be
limited to those actually owned by the decedent at the time
of his death but shall also include those that are
constructively owned by him.
Gross Estate: all rights, properties, or interests existing at the
time of death.
If property accrued BEFORE the death of the decedent and
existing at the time of death= PART OF GROSS ESTATE.
If property accrued AFTER death= NOT PART OF GROSS
ESTATE. (DATE OF DEATH VALUATION RULE)
Date of Death Valuation Rule: Only those properties and
deductions existing at the time of death shall be considered in
the valuation of the estate.
BAR QUESTION:

Phrase “existing at the time of death”:
If the property no longer exists at the time of death: it will
no longer form part of the gross estate.
If the property accrued after death: the said property will not
form part of the gross estate.
A property or right or an interest will only form part of the
gross estate if such property, right, or interest exists at the
time of death.
Mr.X owns a property and he bought this property in 1974 with
a value of P10 Million. In 1994, Mr. X died. By operation of law
heirs inherited the property. In 2004, the heirs decided to
settle the estate. The value of the property increased to P40
Million in the year 1994.
Question 1: Will the property form part of the gross estate of
the decedent?
Answer: Yes. Because the property was existing at the time of
death of the decedent

Question 2: How will you value it?

Judicial Settlement of Estate Answer: The property will be valued based on the Fair Market
Value of the Property at the time of death by reason of the
*An estate can be considered as a separate taxpayer if the
date of death valuation rule.
settlement of the estate is judicial in nature such that in cases
when the estate settlement is judicial in nature, then all
income accruing after death shall be declared by the estate as
a separate taxpayer.
 Kinds of Decedent Rules with Respect to Specific Personal Properties

1. Resident Decedent: those who are either a resident 1. Shares of stocks- the location will depend on the
or a citizen of the Philippines. issuer corporation.

Treatment of Individual Taxpayers: Issuer Corporation is DOMESTIC corporation: the shares of

stock are considered as situated within the Philippines.
i. Resident Citizen: Treated as Resident
Decedent Issuer corporation is FOREIGN corporation NOT operating in
the Philippines: the shares of stock are considered as located
ii. Non-resident Citizen: Treated as Resident outside the Philippines.
Decedent being a citizen of the Philippines at
Issuer corporation is a FOREIGN CORPORATION operating in
the time of death
the Philippines: check the percentage of operations. If atleast
iii. Resident Alien: Treated as Resident
85% of the operations is located in the Philippines, the shares
Decedent being a resident of the Philippines.
of stock are considered as located within the Philippines.
iv. Non-resident Alien: Treated as a non-
resident decedent.
2. Franchises- where the franchise is exercised
3. Royalties- where the royalties are exercised
4. Partnerships- where the partnership is performing
2. Non-Resident Decedent: one who is neither a
its business
resident nor a citizen of the Philippines.

Importance of classifying the type of decedent: A resident Reciprocity Rule:

decedent shall be subject to estate tax for his properties
Applies only to properties owned by a non-resident decedent.
wherever situated.
Requirements for applicability:
On the other hand, only the properties located in the
Philippines of a non-resident decedent shall be subject to 1. There is an intangible Personal Property
tax. 2. The IPP is located in the Philippines
3. The IPP is owned by a non-resident decedent
Remember: if we talk about income taxes there is only one
4. The laws of the domiciliary country grant a tax
taxpayer who shall be taxed for his worldwide income, and
exemption to Filipinos not residing in such
that taxpayer is a resident citizen.
domiciliary country.
On the other hand, if we talk about estate tax, all tax payers
Example: Mr.A is a Malaysian and is not residing in the
except a non-resident alien shall be taxed for properties
Philippines. She however bought shares of stock of P & G
located within and outside the Philippines. Only a non-resident
Philippines which is a domestic corporation.
alien shall be subject to tax for properties located in the
Philippines. What is the classification of Mr.A as a decedent?

Caveat: You have to remember the location of the property. Answer: Non-resident decedent.

SITUS OF PROPERTY What is the property owned by the non-resident decedent?

If real property: where the property is located. Answer: Intangible Personal Property

If property is personal property: the movable property follows Is the IPP located in the Philippines?
the domicile of the owner.
Answer: Issuer corporation is a domestic corporation. Thus,
IPP is located in the Philippines.

Since all the elements concur, we now need to take a look at

the laws of Malaysia. If the government grants an ABSOLUTE
tax exemption to Filipino Citizens not residing in Malaysia, the
PH government will likewise grant the same tax exemption in
favor of the estate of Mr.A.
 The following intangibles are properties considered as In determining the gross estate of A, should the heirs include
located in the Philippines: A’s house in Los Angeles, California, USA?

Answer:

1. Franchise which must be exercised in the Philippines
2. Shares, obligations or bonds issued by corporation or
sociedad anonima organized or constituted in the
Philippines;
A is classified as a resident filipino citizen. Being a resident
citizen, he is classified as a resident decedent. Being a resident
decedent, all his properties wherever situated shall be subject
to estate tax.
Thus, the heirs herein should include A’s house in Los Angeles,
California in the determination of his gross estate.

3. Shares, obligations or bonds issued by a foreign

corporation eighty-five per centum of the business
of, which is located in the Philippines;

4. Shares, obligations or bonds issued by a foreign INCLUSIONS IN THE GROSS ESTATE

corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines; and
(A)Decedent’s Interest:
5. Shares or rights in any partnership, business or
Definition: An interest or a right over a property which is not
industry established in the Philippines. (Section 104,
yet in the possession of the decedent at the time of his death.
NIRC)
However, the right over the property had already accrued
prior to death.

Example:
COMPOSITION OF THE GROSS ESTATE:
The case where the corporation declared dividend income in
The properties to be included in the gross estate shall not be
favor of all stockholders and the decedent is one of the
limited to those actually owned by the decedent at the time
stockholders of such corporation. However, the dividend
of his death but shall also include those that are
income was not yet distributed because the date of
constructively owned by him.
distribution will occur after death.
Pano pag yung property pinangalan lang sakanya?
Suppose: The dividend income was declared December 2020.
The rule is: As long as it is under the name of the decedent, The distribution will be on April 2021. The SH died January
then it shall form part of the gross estate of the decedent. 2021.
Nonetheless, there are likewise situations wherein the
Question: Will the Fair Market Value of the dividend income
decedent no longer has this property under his name but the
form part of the decedent’s estate?
decedent has control over it. In this case, where the property
is no longer under his name but he still has control over the Answer: Yes. Because the right over the dividend income had
property, the FAIR MARKET VALUE of the property shall be already accrued prior to the death of the decedent.
included as part of the gross estate.

Question:
A, a resident Filipino Citizen, died in December 2018. A’s only
assets consists of a house and lot in Alabang, where his heirs
currently reside, as well as a house in Los Angeles, California,
USA. In computing A’s taxable net taxable estate, his heirs
only deducted:
1. P10 Million constituting the value of their house in
Alabang as their family home;
2. P200,000 in funeral expenses because no other
expenses could be substantiated.
(B) Transfer in Contemplation of Death
-May take in the form of a transfer where the thought of
dying is the impelling motive in transferring the property.
How does this work?
It will work in situation where the decedent knows that he
will die.
Then the decedent by reason of such thought of death,
transfers his properties to his heirs without any
consideration. In this situation, the thought of dying is the
impelling motive.
Question: Will these properties transferred to the heirs at the
time that the decedent was dying, be considered as part of
the decedent’s gross estate?
Answer: Yes. Because the property was transferred to evade
the payment of estate tax it appearing that the transferor had
no intention to transfer the said properties for a
consideration.
BAR QUESTION
Mr. X knows that he is going to die. He then sold his properties
to his son and there was an adequate consideration for the
transfer. Mr. X died. The BIR knew about the transfer so the
BIR said that this is a transfer in contemplation of death,
therefore the property should form part of the decedent’s
estate.
Question: Is the inclusion of the property proper?
Answer: The inclusion is not proper. It will not fall within the
concept of transfer in contemplation of death because the
transfer was done with adequate and full consideration.
There is a legitimate transaction. The transfer was made at
arm’s length. Thus, since it was made at arm’s length, the
transfer cannot be classified as a transfer in contemplation of
death.
Other types of transfer in contemplation of death /
classifications of transfer in contemplation of death:
1. Transfer with Reversionary Interest
2. Transfer with Retention of Rights
 properties transferred under these types of transfer in
contemplation in death shall still form part of the gross
estate of the decedent.
“TRANSFER WITH REVERSIONARY INTEREST”
: Transfer where the property is transferred but the same
may be recovered by the transferor.
“TRANSFER WITH RETENTION OF RIGHTS”
: Transfer where the economic benefit over the property is still
being retained by the decedent at the time that he is still alive.
: What are the economic benefits from the property?
May take in the form of income over the fruits of the
property, or possession of the property.
e.g. Property A: registered by the parents under the name of Aa (child #1)
Property B: registered by the parents under the name of Bb (child #2)
But these properties are still owned and possessed by the
parents, even if they are under the names of Aa and Bb.
When the parent dies, will the FMV of the properties
transferred form part of the gross estate of the parents?
Answer: Yes. Because the transfer was made with retention of
interest. The decedent still has control over the property at the
time of his death and since the decedent has control over the
property at the time of his death, then the FMV of the property
will form part of the gross estate.
 If there are problems dealing transfer with
reversionary interest and transfer with retention of
rights, the FMV of the property subject of the transfer
shall still form part of the gross estate
- Because the decedent has still control over the
property at the time of his death, even if the property
is no longer under his name.
(C) Revocable Transfers
: This transfer is a transfer made by the decedent during his
lifetime but there is a revocability clause.
- The revocability clause contains a stipulation where
the decedent shall have the right to revoke, amend,
or to add/alter the provisions of the transfer so at any
time the decent can actually get back the property
from the transferee.
In this type of transfer, the transferor/decedent still has
control over the property at the time of his death. This is the
reason why the property subject of revocable transfer shall still
form part of the gross estate of the decedent who transferred
the same through a revocable transfer.
Bottomline: If the decedent still has CONTROL over the
property at the time of his death, the property will form part
of the gross estate of the decedent.
(D) Property Passing Under a General Power of Appointment
General Power of Appointment
An agreement between the transferor and the transferee
where the transferee shall have the power to designate who
will enjoy the properties of the transferor after his death and
the beneficiaries to be designated by the transferee shall
include himself.
Special Power of Appointment
The transferor designates the transferee to determine the
beneficiaries of the properties to be left by the transferor
based on a list determined by the transferor excluding the
transferee.
Example: Suppose A and B:
A designates B in his will as the person who will determine the
beneficiaries of the properties that he would leave.
A told B that it is up to her as to who will be designated as the
beneficiaries, and told B that she can designate even herself as
a beneficiary.
 General Power of Appointment
 The properties will form part of the estate of B in case
that B dies.
 In general power of appointment, B has control over
these properties.
 The FMV of these properties will form part of the
gross estate of B.
Example: A and B, same story as above
Only that, the will states that B can appoint any of the following
individuals as the beneficiary over the properties of A.
The possible beneficiaries are: C, D, E
In this case, A already specified who the beneficiaries are. And
the list does not include B.
 Special Power of Appointment
 In case B dies, these properties will not form part of
her gross estate.
 She does not control these properties at the time of
her death.
 You need to determine the type of appointment because
only property passing under a GENERAL POWER OF
APPOINTMENT shall be considered as part of the gross
estate
 In cases of special power of appointment, it will not be
considered as part of the gross estate of the person who
will appoint.
 We are not talking about the gross estate of A. It is really
part of his gross estate because these are all his properties.
 What we are talking about here is the GROSS ESTATE OF B
– transferee/one who was designated to appoint. So, for it
to be considered as part of the gross estate of B, the type
of appointment must be GENERAL POWER OF
APPOINTMENT.
(E) Proceeds of Life Insurance
In the concept of Income taxation
Premium Payments made by the employer for the life
insurance policy of the employee – considered as taxable
income on the part of employee if the employee or his family
are the beneficiaries of the life insurance policy. Otherwise,
the premium payments made by the employer for the life
insurance policy of the employee will not be considered as
taxable income on the part of the employee.
Section 32(B) Exclusions from Gross Income. – The following
items shall not be included in gross income and shall be
exempt from taxation.
(1) Life Insurance. – The proceeds lof life insurance policies
paid to the heirs or beneficiaries upon the death of the
insured.
If the heirs received life insurance proceeds from the
insurance policy of the employee, will the proceeds form part
of the gross income of the heirs?
Answer: No. Section 32(B) provides that proceeds of life
insurance shall not form part of the gross income.
If the employer is the beneficiary, are the proceeds taxable
income?
Answer: No. The law does not make any qualification. As long
as the amount received by the recipient is in the nature of
proceeds of life insurance, then the amount of the proceeds
will be excluded from the gross income and therefore exempt
from income tax.
In the concept of Estate Taxation
The determination on whether or not the proceeds of life
insurance will be included as part of the gross estate will
entirely depend on the designation of the beneficiary.
Designation of the Beneficiary is REVOCABLE:
The proceeds of life insurance will be INCLUDED as part of the
gross estate.
Why included? Because the decedent still has control over the
life insurance policy at the time of his death.
Designation of the Beneficiary is IRREVOCABLE: Assuming that Mr.A transferred his car and the car has a FMV
of P1 Million but Mr.A only transferred it for P100,000.
The proceeds of life insurance will be EXCLUDED from the
gross estate. Is the transfer a transfer for insufficient consideration?

Presumably yes. It is presumed to be a transfer for insufficient

consideration because the transfer was made NOT for an
Designation is SILENT:
adequate and full consideration.
Treat it as REVOCABLE.
There is merely a presumption in this case.

The taxpayer may however rebut the presumption by

Under the Amended Insurance Code: showing that there is a: (B A D)

If the designation is REVOCABLE but it was NOT EXERCISED 1. Bona Fide Sale;
during the term of the policy: 2. That the sale was made at arm’s length;
3. And there is no donative intent.
The designation will be converted into an IRREVOCABLE
designation. Therefore, the proceeds of the life insurance If the transferor cannot show the following, the presumption
policy shall be EXCLUDED from the gross estate. stands.

IMPORTANT RULE KANO:

Question:What if the designation was revocable and the right The concept of transfer for insufficient consideration will
to revoke was exercised just once but after one month the NEVER INCLUDE A TRANSFER OF REAL PROPERTY CLASSIFIED
decedent designated another. After several years the AS CAPITAL ASSET.
designation was never changed. Is the designation revocable
or irrevocable?
How much will be considered as a transfer for insufficient
Answer: Designation is revocable. The right to revoke was
consideration?
exercised during the lifetime of the policy.
Answer: The difference between the FMV and the Selling Price.
Question: if the designation is IRREVOCABLE but the ESTATE
or the EXECUTOR OR ADMINISTRATOR is the beneficiary: Thus, the difference will form part of the gross estate of the
decedent if the transfer will take effect at the time of death of
Answer: Even if the designation is irrevocable, the proceeds
the transferor.
will STILL FORM PART of the gross estate because the estate is
the beneficiary.

If the transfer will take effect during the lifetime of the

transferor:
(F) Prior Interest
The difference between the FMV and the consideration will
The same as (A) DECEDENT’S INTEREST
form part of the GROSS GIFTS subject to DONOR’s TAX.
(G) Transfer for Insufficient Considereation

In order for it to be classified as a transfer for insufficient

How to value these properties?
consideration:
1. Real Property = valued based on the FMV or Current
1. The transfer must not be a BONA FIDE SALE
Fair Market Value at the time of death
2. There must be NO ADEQUATE and FULL
CONSIDERATION in money or money’s worth. Current Market Value = The higher value between the value
prescribed by the BIR (zonal value) and the value prescribed by
When will this transpire?
the city or provincial assessor (assessed value).
There will be a transfer for insufficient consideration when:

The Fair Market Value of the property at the time of transfer

2. Personal Property = valued based on CMV
is HIGHER than the SELLING PRICE.

Example: This valuation shall NOT apply to shares of stock.

In cases of shares of stock:
 If LISTED: the valuation shall be based on the
arithmetic mean between the highest and the lowest
quotation nearest the date of death.
 If UNLISTED: valued depending on the type of share.
If the unlisted shares are in the nature of PREFERRED
SHARES = Valuation shall be based on the PAR VALUE.
If the unlisted shares are in the nature of COMMON
SHARES = valuation shall be based on the BOOK
VALUE.
Summary:
EXCLUSIONS IN THE GROSS ESTATE
In items 1, 2 and 3, the 2nd transfer must be pursuant to the
will of a prior decedent.
1.Merger of usufruct in the owner of the naked title
The owner of the naked title and the usufruct will be merged
into one individual. But the merger is based on the will of a
prior decedent.
Illustration:
Assume that Mr. A executed a will. In this particular will, he
mentioned that the usufruct shall belong to Mr.B and the
naked title shall belong to Mr.C. In the same will, Mr.A
manifested that in case when the usufructuary dies, the
usufruct shall belong to the owner of the naked title. Mr.A
died. When Mr.A died, will the property ought to be
transferred to B and C be subject to estate tax?
Answer: Yes. Since the property is considered as existing at the
time of death of the decedent. Thus, it will form part of the
gross estate. Consequently, it will be subject to estate tax.
As regards the 2nd transfer:
Who is the usufructuary in this case?
Mr.B.
Who is the owner of the naked title?
Mr.C
Question: What if Mr.B dies? Where will the usufruct be
transferred?
Answer: It will be transferred to Mr.C and not to the heirs of
Mr.B
Why?
Answer: Because this is in accordance with the will of Mr.A.
Will the transfer from Mr. B to Mr. C be subject to estate tax?
Answer: No. Because the 2nd transfer is just part and parcel of
the 1st transfer.
Take note:
If there is no provision in the will of Mr.A bequeathing the
usufruct over the property to Mr.C, the property will now be
transferred to the heirs of B.
In that case: the transfer will be subject to estate tax because
the transfer is pursuant to succession.
However, in the earlier case, since the first transfer was
already subject to tax, the 2nd transfer would no longer be
subject to tax because it is merely part of the 1st transfer.
2.The transmission or delivery of the inheritance or legacy by
the fiduciary heir or legatee to the fideicommissary
Illustration:
Mr. A executed a will indicating therein that Mr.B shall inherit
his propert for the benefit of Mr.C. The degree of relationship
between Mr.B and Mr.C is just one degree.
What will you call Mr.C? Fiduciary Heir.
What will you call Mr.B? FideiCommissary
Now. Mr.A died.
Question: Will the property be subject to tax after Mr.A’s
death?

Answer: Yes.

Now. Mr.B died.

EXCLUSIVE PROPERTY OF SURVIVING SPOUSE
Question: Where will the property be transferred?
:Excluded from the gross estate.
Answer: The property will be transferred to Mr.C in accordance
with the will of Mr.A. RECAP OF PROPERTY REGIME OF SPOUSES

Will transfer from Mr.B to Mr.C be subject to estate tax? 1. Community Property:

Answer: No. Because it is just part and parcel of the 1st transfer. All properties acquired prior to marriage will be
The 2nd transfer is merely being made in accordance with the considered as the property of both spouses.
will of Mr.A.

Question: What if the degree of relationship between Mr.B and

2. Conjugal Property:
Mr.C is more than one degree?
Properties acquired prior to marriage shall belong
Answer: The 2nd transfer will still not be subject to estate tax
EXCLUSIVELY to the person who acquired it.
because the 2nd transfer is still being made in accordance with
the will of Mr.A. Note that:
Where then would this fall? Effectivity of Family Code is August 3, 1988.
It would fall under item number (3) Marriage is celebrated after effectivity of Family Code

= Community Property governs.

3.The transmission from the first heir, legatee or donee in Marriage is celebrated before effectivity of Family Code
favor of another beneficiary, in accordance with the desire of
the predecessor = Conjugal Property governs.

If the properties belong to the Community Property or

Conjugal property it will form part of the gross estate.
4.Transfer to social welfare, cultural and charitable
institutions If the property falls under the exclusive property:

It will be excluded from the gross estate if and only if it Determine if exclusive property of surviving spouse or the
complies with the following: decedent.

i. Recipient must be NSNP institution (non-stock,
non-profit) established for social welfare,
cultural, or charitable institution or an institution
that is established for the promotion of
education, religion.
If it’s the exclusive property of the decedent: It will form part
of the gross estate.
If exclusive property of surviving spouse: It will not form part
of the gross estate of the decedent because the decedent does
not have any interest over it.

ii. Not more than 30% of the bequest,device, or Illustration:

legacy must be used for administrative purpose;
Assume that there is community property in the amount of P10
Million.
*if more than 30% has been used for administrative purposes,
the value of the property transferred to that institution will no Exclusive Property (Share of surviving spouse): P5 Million
longer be excluded from the gross estate.
Exclusive Property of decedent: P1 Million
*In order for the transfer to be excluded from the gross estate,
the transfer must be compliant with the abovementioned
requisites of exemption.
Question 1: Which among the properties will form part of the DEDUCTIONS
gross estate?
Resident Decedent
Will the community property form part of the gross estate?
LITTAVS FS
Entire Amount? YES. The ENTIRE AMOUNT.

Note: if the property is classified as a community or conjugal Ordinary Deductions

property, INCLUDE THE ENTIRE VALUE OF THE PROPERTY. Losses
Indebtedness
Taxes
Question 2: What about the exclusive property of the Transfer for Public Use
surviving spouse? Amount received under RA 4917
Vanishing Deduction
Answer: It will not be included in the gross estate of the Share of Surviving Spouse
decedent because the entire value of the exclusive property of
the surviving spouse will not form part of the gross estate of
the decedent. Special Deductions
Family Home
Question 3: What about the exclusive property of the
Standard deduction (5M)
decedent?

Answer: Yes. It will be included in the gross estate of the

decedent.
*In the computation of the share of surviving spouse you only
consider the amount of community property.
*Include entire value of the community property or conjugal
property as part of the gross estate of the decedent then
deduct the share of surviving spouse later.
NET ESTATE & DEDUCTIONS FROM THE GROSS
ESTATE
Computation of Net Estate is:
Gross Estate less deductions= NET ESTATE
Net Estate is the taxable base in the computation of the
estate tax.
Computation of Estate Tax Due is:
Net Estate x 6% Estate tax rate= Estate Tax Due
CAVEAT: Apply RA No. 8424 (Schedular Tax Rate) if the
decedent died prior to 2018.
Deductions can either be:
1. ORDINARY DEDUCTIONS
2. SPECIAL DEDUCTIONS
Why is it important to know whether it is an ordinary or special
deduction?
 Because in the computation of the share of surviving
spouse, you should deduct ordinary deductions from
the community property (meaning the fair market
value of the community property) and half of the net
effect of which shall be considered as deduction of
the share of surviving spouse.
 Amount: Share of surviving spouse is equivalent to ½
of the Net Estate after Conjugal Ordinary Deduction.
 Deductions before arriving at the Net Estate: you
need to deduct LITTAVS from the community
property before you arrive at the net estate, then you
get the share of the surviving spouse
e.g. 10M
Ordinary deductions: 1M
10M – 1M = 9M
50% of 9M which is 4.5M is the share of the surviving spouse
-- this is the rule if the decedent is married
You should not deduct family home and standard deduction
e.g.
Family home: 1M
Standard deduction: 5M
9M – 6M – 3M
50% of 3M = 1.5M (share of surviving spouse)
-- hindi dapat ganito!!
You do not deduct special deduction (family home & standard
deduction) in the computation of the share of the surviving
spouse – this is more beneficial on the part of the estate.
Non-resident Decedent For Funeral Expense
LITTVS S
- It is deductible if such expense has been incurred
prior to death, and they remain unpaid at the time of
Ordinary Deductions:
death. They must be in the nature of a claim against
Losses
the estate.
Indebtedness
Taxes
Transfer for Public Use Prior to TRAIN Law, particularly under RA 8424
Vanishing Deduction
Share of Surviving Spouse - Funeral expense is incurred in order to communicate
about the death of the decedent, and these expenses
were incurred after death, can be considered as
Losses, Indetedness, Taxes deductible expenses
 these deductions shall be in proportion of the gross
estate located within the Philippines that bears over Under the TRAIN Law
the gross estate
- They are no longer considered as deductible expenses
e.g. – if the amount of losses, interests and taxes is 2M and they are not even considered as claims against
- only 20% of the gross estate is sourced within the PH the estate if they have been incurred after death
- only 20% of those deductions shall be sonsidered as because all deductions can be considered as
ordinary deductions from the gross estate deductible amounts from the gross estate only if they
had been INCURRED PRIOR TO DEATH, and they must
- it is limited up to the gross estate located within the be EXISTING AT THE TIME OF DEATH. Otherwise, they
PH that bears over that worldwide gross estate are not considered as deductible from the gross
estate.

Special Deduction
For Judicial Expenses
Standard Deduction (500K)
- Judicial expenses prior to death can be considered as
 Non-resident decident cannot deduct FAMILY deductible items if they remain unpaid at the time of
HOME because he is not residing in the PH at the death because they will be considered as claims
time of death against the estate.

Note:
Expenses are no longer considered as deduction under REQUISITES OF DEDUCTIBILITY of each and every kind of
the TRAIN Law deduction: [Resident Decedent]
 Medical Expense Ordinary Deductions
 Funeral Expense
 Judicial Expense
1. LOSSES
However, these may be deductible if they are in the nature of
Requisites of deductibility
CLAIMS AGAINST THE ESTATE.
a. When it arises frim TRECUSO (Theft, Robbery,
Embezzlement, and other Casual and Unusual
For medical expense Sudden Occurrence)
Assuming that: The decedent incurred medical expenses prior b. They had been incurred not later than the last day
to his death, and these expenses were not paid. for the payment of the tax;
c. The loss can be deducted if it is not supported by
The amount of expense is not deductible as a medical expense, insurance; and
rather it is deductible as claims against the estate in which case d. The loss has not been claimed as a deduction from
it must comply with all the requisites of deductibility of a claim the income tax.
against the estate.
- If one requisite of deductibility is wanting, then the
expense shall be disallowed.
2. INDEBTEDNESS
May be in the nature of:
 A claim against the estate
 A claim against insolvent person
 CLAIM AGAINST THE ESTATE
Requisites of deductibility: ( V E R G )
a. The debt must be valid and subsisting at the time of
death;
b. The debt must be existing at the time of death;
c. The amount of debt must be reasonable;
d. The debt must have been entered in good faith;
e. Under the Revenue Regulations – these indebtedness
must likewise be supported by documents.
Unpaid Mortgage:
- If the indebtedness is in the nature of an unpaid
mortgage – meaning the loan obligation is secured by
a mortgage agreement.
Requisites of deductibility:
a. The debt must be valid and subsisting at the time of
death;
b. The debt must be existing at the time of death;
c. The amount of debt must be reasonable;
d. The debt must have been entered in good faith;
e. Under the Revenue Regulations – these indebtedness
must likewise be supported by documents.
f. The market value of the property mortgage must
likewise be included as part of the gross estate.
If the market value was not included as part of the gross estate,
then that is a ground for the disallowance of unpaid mortgage
as a deduction from the gross estate.
Accommodated Loan
- Is a situation where the decedent borrowed money
not for himself but for the benefit of another
individual or entity.
In cases of Accommodation, the proceeds of the loan will go to
another person who did not enter into an agreement with the
person who lent the money.
Example: A borrowed money from B
A borrowed 1M from B
A delivered the money (1M) to C
With respect to the agreement between A and B – B is the
lender, and A is the borrower
With respect to the agreement between A and C – A is the
creditor, and C is the borrower
(In accommodation loan, there are 2 agreements)
When A dies, the estate of A can deduct the 1M unpaid
obligation, provided that the estate of A will include the
receivable of C to A as part of the gross estate.
- here, A lent 1M to C.
- it is actually a collectible amount by A from C.
- being a collectible amount, it is considered as an
asset that can be collected by the heirs of A from C.
Requisites of deductibility:
a. The debt must be valid and subsisting at the time of
death;
b. The debt must be existing at the time of death;
c. The amount of debt must be reasonable;
d. The debt must have been entered in good faith;
e. Under the Revenue Regulations – these indebtedness
must likewise be supported by documents.
f. The accomodated loan proceeds must be included as
part of the gross estate
As to the example above:
Whatever is the amount not yet paid by C to A must be
included in the gross estate in order for A to deduct his
indebtedness/obligation from B.
Dizon Case
The obligation was condoned after death
A borrowed money in the amount of 1M from B
The obligation was left unpaid when A died
When A died, B told the heirs of A that the obligation is already
condoned
Can the estate of A deduct the 1M?
Answer: Yes because the obligation is still existing at the time
of death. The condonation occurred after death.
 - POST DEATH DEVELOPMENT
In accordance with date of death evaluation rule, POST DEATH
DEVELOPMENTS ARE IMMATERIAL in the valuation of the gross
estate.
This post death development will not affect the deductibility of
the obligation as an expense.
SC Ruling: The obligation is still considered a deduction from
the gross estate because it is still existing at the time of death.
Will the answer be different if the condonation occurred prior
to death? [[ A is still alive when B condoned his debt ]] Can the
estate of A deduct the 1M obligation?
Answer: No. Since the condonation occurred prior to death,
the obligation no longer exists at the time of death.
Since the obligation no longer exists at the time of
death, then it will no longer be considered as a deduction from
the gross estate.
 CLAIM AGAINST INSOLVENT PERSON
Claims against the estate Claims against insolvent person
- the estate has obligation - the estate is the lender
- the estate is the - it lent money to an insolvent
borrower person
Insolvent (under the FRIA)
- financial condition of a debtor that is generally unable to pay
its or his liabilities as they fall due in the ordinary course of
business or has liabilities that are greater than its or his assets
Insolvent person
- refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent
If it has been determined that the debtor is an insolvent
person, then the claim against such person can be considered
as a deduction from the gross estate.
- same concept as bad debt
3. TAXES
Requisites of deductibility:
a. The tax should have accrued prior to death of the
decendent
b. The tax should be existing at the time of death
If the tax accrued after death, or at the time of death
- It can no longer be considered as deduction from the
gross estate
Estate tax is not considered as a deductible tax from the gross
estate because it accrues at the time of death, not prior to
death.
4. TRANSFER FOR PUBLIC USE
- this is a deductible item if and only if it will be
transferred to the government or any of its political
subdivisions or agencies
Requisites for deductibility:
a. The transfer must be testamentary in character
b. It must be transferred to the government or any of its
poliical subdivisions or agencies
c. The property will be exclusively for public use
The transfer must be testamentary in character
- not intestate
- if the decedent transferred property to the
government or any of its agencies pursuant to a will,
and the property will be exclusively used by the
public, then it will be considered as a deduction from
the gross estate.
5. AMOUNT RECEIVED UNDER RA 4917
RA 4917
- Law governing retirement benefits
Income Taxation
- About the taxability of the retirement benefit
- 50 years old – 10 years of service – 1 (availed only
once) = retirement benefits are exempt from tax
Estate taxation
- About the inclusion of the retirement benefits in the
gross estate
-
Will the executor or administrator include the amount
received under RA 4917 (retirement benefit) as part of the
gross estate?
Answer: Yes. It will be added or included in the gross estate
but it will de deducted as amount received under RA 4917.
- Add then deduct
There are certain instances wherein which the net estate is not
material, rather what is material is the amount of gross estate.
6. VANISHING DEDUCTION
- A deduction which is also called as “Property
previously taxed”
Properties Previously Taxed
- This is a situation where there are two transfers, and
the two transfers occurred within a five year period.
The first transfer can be through donation or succession
The second transfer must always be through succession
 The first transfer and the second transfer must occur
within a five year period.
Requisites of deductibility:
a. The death of the decedent must occur within five
years after the date of donation or after the date of
death;
b. The property must be located in the Philippines;
c. It must have been availed of only once;
d. The property must have formed part of the gross
estate in cases of succession, or gross gifts in cases of
donation;
e. The estate tax or donor’s tax should have been paid.
The amount of deduction shall depend on the time that had
lapsed between the first transfer and the second transfer.
 Within 1 year – 100% of the final basis shall be considered
as a deductible amount
 Within 2 years – 80%
 Within 3 years – 60%
 Within 4 years – 40%
 Within 5 years – 20%
It cannot exceed 5 years because the transfer must have
occurred within that five year period.
RR 12-2018
Bar Q:
Is vanishing deduction Applicable to the Estate of Assunta?
Answer in the Bar Q: No. In order to claim a vanishing deduction,
Sec. 86(A2) NIRC requires that the estate tax or the property from
Jaime to Assunta has already been paid. However, in this case, it
is unlikely that the estate has been paid because of the difference
of only one day between the respective times of death.
Alternative Answer in the Bar Q: Yes. Provided that the estate tax
of the property of Jaime was paid before Assunta died, as provided
for inSec. 56(A2) NIRC. Vanishing deduction equal to 100% is
applicable to Assunta’s estate as regards ½ of the cash she
inherited from her son Jaime. Assunta diesd within 1 year after
receiving her share of Jaime’s estate.
Discussion ni ma’am:
Namatay ba within 5 year period? Yes.
Will the estate of Jaime be subject to estate tax? Yes
Will the estate of Assunta be subject to estate tax? Yes
Will the estate of Jaime form part of the estate of Assunta? Yes,
because Assunta is the heir of Jaime.
Is it located in the Philippines? Yes
Babayaran ba yung tax? Yes, need to pay first the tax.
- The estate of Assunta can avail vanishing deduction.
This case happened during the effectivity of RA 8424. Prior to
TRAIN Law, the standard deduction is 1M.
- In this case, Jaime’s gross estate is 1.2M
- Standard deduction of 1M
- 2.1M – 1M = 200k Net estate
- Net estate in the amount of 200K or less shall be
considered as exempt from tax.
- The trick in this case is that, the estate of Jaime is
exempt from tax – therefore not required to pay tax.
Opinion of Ma’am: The estate of Assunta cannot avail of
vanishing deduction because the estate of Jaime did not pay
any tax liability and in which case there is no need to alleviate
the burden of tax.
Take note: Vanishing deduction was granted by the congress
in order to alleviate the burden of the transfer taxes.
In this case, there is a need to distinguish whether the first Example:
estate paid the tax liability or not. Because if the first estate did
not pay any tax liability, then there is no burden to alleviate.
Community Property: 10,000,000 deduct
Ordinary Deduction: 1,000,000
7. SHARE OF SURVIVING SPOUSE = 9,000,000

- The amount of the share of surviving spouse is ½ of 9,000,000 is 4,500,000 (share of surviving spouse)
equivalent to ½ of the community property less the
Net estate: 4,500,000
ordinary deductions that had been taken out from the add
Exclusive Property of the decedent: 1,000,000
community property.
= 5,500,000
(dito mo idededuct yung special deductions)
If the claim against the estate is a claim against the exclusive
property 5,500,000
deduct
- You will not deduct it from the community property Standard Deduction: 5,000,000
- What you will deduct from the community property:
Assuming that the decedent has no family Home to deduct
those deductions that are directly attributable to the
community property = Net estate: 500,00
- If the problem is silent: You can deduct it from the
community property Net estate 500,000 x 6% = 30,000 estate tax due

The total amount of community property minus the amount of Special Deductions
ordinary deductions in order to get the Net Estate
8. STANDARD DEDUCTION
- net estate after ordinary deductions
- Standard Deduction does not need Substantiation
- ½ of the net estate is the share of the surviving spouse
Requirement
-- receipts are not required
This amount of share of surviving spouse is also a deduction
- The resident decedent, upon proving that indeed he
- After deducting the share of the surviving spouse, you is a resident decedent, the estate can deduct 5M
will arrive at the Net Estate
Under RA 8424
Computation:  the amount of Standard Deduction is ₱1,000,000
Community Property  Non-resident Decedent cannot avail of any special
- Ordinary Deductions deduction.
Net Estate after OD
If no exclusive property: Under TRAIN Law
- ½ Share of surviving spouse
Net Estate after Share of SS
Net Estate after Share of SS  the amount of Standard Deduction is ₱5,000,000
+ Exclusive Property (if there is)  Non-resident Decedent can now avail of Standard
- Special Deductions
Net Estate Deduction but only in the amount of ₱500 000.
Net Estate after SD
- Special Deductions
x 6%
Net Estate after SD
x 6% Estate Tax due
Estate Tax due
9. FAMILY HOME

- Family home is a deduction if the decedent is married,

or is a head of the family.

Head of the family

- Considered as head of the family if he has a brother,

a sister, a parent, or a child or children under his care
Requisites of Deductibility: e.g. – if the amount of losses, interests and taxes is 2M
- only 20% of the gross estate is sourced within the PH
a. The decedent is married, or is a head of the family;
- only 20% of those deductions shall be sonsidered as
b. The property must be the dwelling place of the
ordinary deductions from the gross estate
decedent;
c. It must be proven that the decedent is resident of the
- it is limited up to the gross estate located within the
barangay where the property is situated.
PH that bears over that worldwide gross estate
- The Punong barangay must issue a certification that
indeed the decedent is a resident of that barangay. e.g. – If PH G.E is 4M
d. The value of the deduction must be equivalent to the Worldwide GE is 10M
fair market value of the property or the decedent’s 40% = deductible from the GE
interest but not exceeding ₱10,000,000
 Requisites of deductibility for Ordinary Deductions are
the same with that of the resident decedent
What if the value of Family Home is ₱20,000,000 and the
Family Home is exclusive property of the decedent. How much
can be deducted as Family Home?
 Difference:
Answer: ₱10,000,000. The value of the deduction must be  Amount of Standard Deduction for non-resident
equivalent to the fair market value of the property but not decedents shall be lower: ₱500,000
exceeding ₱10,000,000.  No special deduction of Family Home

What if the value of the Family Home is ₱15,000,000, and it is NET ESTATE OF NON-RESIDENT DECEDENT
the exclusive property of the decedent?

Answer: ₱10,000,000. Gross Estate of NRD

- Shall include only those properties located within

the Philippines
What if the ₱15,000,000 Family Home is a conjugal or
community property. How much is the deductible amount of Deductions
Family Home?
- The estate of a non-resident decedent can avail of
Answer: ₱7,500,000. Because the decedent’s interest is only Standard Deduction in the amount of ₱500,000
50% of 15,000,000 since the property is a conjugal or - The estate of a non-resident decedent can avail
community property. The value of the deduction must be ordinary deductions (LITTVS):
equivalent to the decedent’s interest but not exceeding > Losses (Proportionate amount)
₱10,000,000. > Indebtedness (Proportionate amount of claims
against the estate; claims against insolvent person;
unpaid mortgage)
REQUISITES OF DEDUCTIBILITY: NON-RESIDENT DECEDENT > Taxes (Proportionate amount)
> Transfer for Public Use
Ordinary Deductions: > Vanishing Deduction
Losses > Share of Surviving Spouse
Indebtedness
Taxes Declaration of Worldwide Gross Estate
Transfer for Public Use
Vanishing Deduction Should the non-resident decedent declare the worldwide gross
Share of Surviving Spouse estate?
Answer: Yes. The woldwide gross estate will not be subject to
taxm because only properties which is located within the
Losses, Indetedness, Taxes Philippines are subject to tax.
 these deductions shall be in proportion of the gross
estate located within the Philippines that bears over Worldwide gross estate should be declared for
the worldwide gross estate purposes of computing the proportionate amount of losses,
indebtedness and taxes.
 ADMINISTRATIVE REQUIREMENTS
Losses, Indetedness, Taxes - these deductions shall be in
proportion of the gross estate located within the Philippines FILING AND PAYMENT
that bears over the worldwide gross estate
 The estate tax return must be filed within 1 year
Gross estate within the PH from the date of death
÷ Worldwide Gross Estate  The payment of the tax must be done at the time of
------------------------------------ the filing of the return
Proportionate amount of losses, indebtedness and taxes = THE TAX MUST BE PAID WITHIN 1 YEAR FROM THE
DATE OF DEATH

TAX CREDIT FOR ESTATE TAXES PAID Extension

 The filing of the return can be extended for a period
Section 86 (E) Tax Credit for Estate Taxes Paid to a Foreign Country of 30 days
 The application for the extension must be
(1) In General. – The tax imposes shall be credited with the amounts
filed prior to the lapse of the 1 year period.
of any estate tax imposed by the authority of a foreign country.

(2) Limitations on Credit. – The amount of the credit taken under
this section shall be subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to
any country shall not exceed the same proportion of the
tax against which such credit is taken, which the
decedent's net estate situated within such country taxable
under this Title bears to his entire net estate; and
(b) The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is
taken, which the decedent's net estate situated outside
the Philippines taxable under this Title bears to his entire
net estate.
 The payment of the tax may be extended for a
period of:
2 years in cases of extrajudicial settlement of estate;
or
5 years in cases of judicial settlement of estate.
 Can only be extended if the application was:
 done prior to the lapse of the 1
year period and
 upon presentation that the
payment will cause undue
hardships on the part of the heirs

Tax credit  There must be reasonable grounds in the

- A deduction from the estate tax due application of the extension for the
payment of the tax.
Estate tax paid to a foreign country by a resident decedent
 can be used as a tax credit here in the Philippines in Installment Payment
order to counterveil the effects of double taxation
Section 91(C) Payment by Installment. – In case the available
Tax credit: to be deducted from the estate tax liability cash of the estate is insufficient to pay the total estate tax
(LIMITATION) due, payment by installment shall be allowed within two (2)
1. Must not exceed the amount of Philippine estate tax years from the statutory date for its payment without civil
due penalty and interest.
2. Must not exceed this amount:
PH estate tax due x (NE outside÷Worldwide NE)
 It must not exceed a ratable proportion of Extention of payment and Installment Payment
the net estate located outside the Philippines that
bears over the worldwide gross estate on the Extension of Payment Installment Payment
Philippine estate tax due. Undue hardship upon
Grounds Insufficiency of cash
the heirs
Period of 2 years
2 years
Extension 5 years

Posting of May be required by the

Not required
bond CIR
 Civil No interest and
Interest
Penalties surcharges
PARTIAL PAYMENT
In cases of partial payment there is partial disposition of the
estate and the application of the proceeds to the estate tax
due.
Partial Payment happens if:
If what was left by the decedent are properties which are not
liquid (meaning they are not cash).
*The CIR allows the disposition of these properties so that
after its disposition the CIR grants a certificate authorizing
registration. The proceeds of the sale of the properties which
are not liquid will be used for the payment of estate tax.
PROCESS OF PAYING ESTATE TAX
1. If someone dies there will be an execution of extra-
judicial settlement of estate.
2. After execution of extra-judicial settlement of estate,
all documents will be submitted to the BIR.
3. BIR will assess the estate tax due based on their one-
time computation sheet.
4. If the heirs are satisfied with the estate tax due, they
will prepare an estate tax return and proceed to the
bank for payment of the estate tax.
5. The bank issues a deposit slip, then this will be
submitted to the BIR together with all the
documentary requirements.
6. The BIR will thereafter issue a certificate authorizing
registration.
7. This certificate is mandatory in the transfer of the title
from the decedent to the heirs.
8. If the certificate authorizing registration is already
available you will pay the transfer tax with the city
government or provincial government.
9. All the documents will now be endorsed to the
Register of Deeds for the cancellation of the title
under the name of the decedent and issues a new title
in favor of the heirs.
With respect to Partial Payments, what happens is that a
property or certain properties will be released through
certificate authorizing registration, then this particular
property or properties granted certificate authorizing
registration will be sold by the heirs in order for the heirs to
use the proceeds thereof for the payment of the estate tax
due.
PARTIAL WITHDRAWAL FROM BANK ACCOUNT OF THE
DECEDENT
Before TRAIN LAW: there must first be issuance of certificate
authorizing registration before one can withdraw.
So, if the bank manager knows that the decedent already
died, the bank account of the decedent will outrightly be
freezed. This will only be lifted upon the submission of the
heirs of a certificate authorizing registration.
Under the TRAIN LAW:
The heirs can IMMEDIATELY withdraw from the bank account
EVEN WITHOUT SUBMITTING the certificate authorizing
registration.
BUT there shall be a Final Withholding Tax of 6% that shall be
imposed on the amount to be withdrawn and the withdrawal
shall be made within ONE-YEAR (1) from the date of death of
the decedent.
In cases of partial withdrawal: The heirs can do so provided
that the withdrawal be made within one-year from the date
of death of the decedent and the amount withdrawn shall be
subject to 6% FWT.
Question:
Will the amount of the partial withdrawal made be included
in the computation of the gross estate?
Answer: NOT ANYMORE! Because the 6% FWT imposed
thereto already settles the tax liability.
LIABILITY TO PAY AND MODES OF COLLECTION
Under the TRAIN LAW:
The executor or adminstrator is primarily liable for the
payment of the tax while the heirs are merely subsidiarily
liable.
PINEDA CASE:
The SC held that there are 2 modes of collecting tax due from
the heirs, to wit:
1. To collect the tax due from all the heirs in proportion
to their inheritance;
2. To constitute a tax lien over the inheritance and in
constituting a tax lien over the inheritance the
government has the option to collect only from one
or some of the heirs.
In this case there were 15 heirs but the government only
collected the estate tax from Pineda alone.
The SC held that the entire amount can be collected from
Pineda because of the mode of collection through tax lien.
What is only prohibited is that the government collects estate
taxes over and above the amount of inheritance received by
Pineda.
personally and constructively served upon him, at
his last known address. Thereafter, Formal
Assessment notices were served upon Mrs. Marcos
c/o Ferdinand "Bongbong" Marcos II, at his office.
Moreover, a notice to Taxpayer inviting Mrs.
Marcos (or her duly authorized representative or
counsel), to a conference, was furnished the
counsel of Mrs. Marcos — but to no avail.

Remedy of Pineda is to ask for reimbursement from the other The deficiency tax assessments were not
heirs. protested administratively. The BIR Commissioner
issued notices of levy on real property against
certain parcels of land owned by the Marcoses to
satisfy the alleged estate tax and deficiency
CASES FOR ESTATE TAXATION income taxes of Spouses Marcos.
MARCOS V. CA
Issue:
Facts:
Is the approval of the probate court necessary
before the collection of estate tax?
Former President Ferdinand Marcos died in
Honolulu, Hawaii, USA. A Special Tax Audit Team
Held:
was created to conduct investigations and
examinations of the tax liabilities and obligations
No. From the foregoing, it is discernible that the
of the late president, as well as that of his family,
approval of the court, sitting in probate, or as a
associates and "cronies". Said audit team
settlement tribunal over the deceased is not a
concluded its investigation with a Memorandum.
mandatory requirement in the collection of estate
The investigation disclosed that the Marcoses
taxes. It cannot therefore be argued that the Tax
failed to file a written notice of the death of the
Bureau erred in proceeding with the levying and
decedent, an estate tax returns, as well as several
sale of the properties allegedly owned by the late
income tax returns covering the years 1982 to
President, on the ground that it was required to
1986, — all in violation of the National Internal
seek first the probate court's sanction. There is
Revenue Code (NIRC).
nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the
The Commissioner of Internal Revenue thereby
probate or estate settlement court's approval of
caused the preparation and filing of the Estate Tax
the state's claim for estate taxes, before the same
Return for the estate of the late president, the
can be enforced and collected.
Income Tax Returns of the Spouses Marcos for the
years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand "Bongbong" Marcos II for the On the contrary, under Section 87 of the NIRC, it is
years 1982 to 1985. the probate or settlement court which is bidden
not to authorize the executor or judicial
administrator of the decedent's estate to deliver
The BIR issued the following: (1) Deficiency estate
any distributive share to any party interested in the
tax assessment no. against the estate of the late
estate, unless it is shown a Certification by the
president Ferdinand Marcos; (2) Deficiency
Commissioner of Internal Revenue that the estate
income tax against the Spouses Ferdinand and
taxes have been paid. This provision disproves the
Imelda Marcos representing deficiency income
petitioner's contention that it is the probate court
tax for the years 1985 and 1986; (3) Deficiency
which approves the assessment and collection of
income tax assessment against petitioner
the estate tax.
Ferdinand "Bongbong" Marcos II representing his
deficiency income taxes for the years 1982 to
1985. If there is any issue as to the validity of the BIR's
decision to assess the estate taxes, this should
The Commissioner of Internal Revenue avers that have been pursued through the proper
copies of the deficiency estate and income tax administrative and judicial avenues provided for
assessments were all personally and constructively by law.
served upon Mrs. Imelda Marcos and against
Ferdinand "Bongbong" Marcos II were also
In the Philippine experience, the enforcement and
collection of estate tax, is executive in character,
as the legislature has seen it fit to ascribe this task
to the Bureau of Internal Revenue. Section 3 of the
National Internal Revenue Code attests to this.
It has been repeatedly observed, and not without
merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for
the sustenance of government. Taxes are the
lifeblood of the government and should be
collected without unnecessary hindrance.
However, such collection should be made in
accordance with law as any arbitrariness will
negate the very reason for government itself. It is
therefore necessary to reconcile the apparently
conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may
be achieved.
CIR vs. PINEDA
GR NO. L-22734
Facts:
On May 23, 1945 Atanasio Pineda died, survived
by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Manuel B. Pineda. After the
estate proceedings, the estate was divided
among and awarded to the heirs. Manuel B.
Pineda's share amounted to about P2,500.00. the
Bureau of Internal Revenue investigated the
income tax liability of the estate for the years 1945,
1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed.
Thereafter, the Collector of Revenue issued an
assessment. Manuel B. Pineda, who received the
assessment, contested the same. Subsequently,
he appealed to the Court of Tax Appeals alleging
that he was appealing "only that proportionate
part or portion pertaining to him as one of the
heirs." After hearing the parties, the Court of Tax
Appeals rendered judgment on the ground that
his right to assess and collect the tax has
prescribed.
Issue/s:
1. What are the two modes of collecting taxes?
2. Can the BIR collect the entire amount of tax
from Manuel Pineda?
Held:
All told, the Government has two ways of
collecting the tax in question. One, by going after
all the heirs and collecting from each one of them
the amount of the tax proportionate to the
inheritance received. This remedy was adopted in
Government of the Philippine Islands v.
Pamintuan, supra. In said case, the Government
filed an action against all the heirs for the
collection of the tax. This action rests on the
concept that hereditary property consists only of
that part which remains after the settlement of all
lawful claims against the estate, for the settlement
of which the entire estate is first liable.The reason
why in case suit is filed against all the heirs the tax
due from the estate is levied proportionately
against them is to achieve thereby two results: first,
payment of the tax; and second, adjustment of
the shares of each heir in the distributed estate as
lessened by the tax.
2. Yes, the Government can require
Manuel B. Pineda to pay the full amount of
the taxes assessed.
Pineda is liable for the assessment as an
heir and as a holder-transferee of property
belonging to the estate/taxpayer. As an
heir he is individually answerable for the
part of the tax proportionate to the share
he received from the inheritance. His
liability, however, cannot exceed the
amount of his share.
As a holder of property belonging to the
estate, Pineda is liable for he tax up to the
amount of the property in his possession.
The reason is that the Government has a
lien on the P2,500.00 received by him from
the estate as his share in the inheritance,
for unpaid income taxes for which said
estate is liable, pursuant to the last
paragraph of Section 315 of the Tax Code,
which we quote hereunder:
If any person, corporation,
partnership, joint-account (cuenta
en participacion), association, or
insurance company liable to pay
the income tax, neglects or refuses
to pay the same after demand, the
amount shall be a lien in favor of
the Government of the Philippines
from the time when the assessment
was made by the Commissioner of
Internal Revenue until paid with
interest, penalties, and costs that
may accrue in addition thereto
upon all property and rights to
property belonging to the
taxpayer: . . .
 By virtue of such lien, the Government has
the right to subject the property in Pineda's
possession, i.e., the P2,500.00, to satisfy the
income tax assessment in the sum of
P760.28. After such payment, Pineda will
have a right of contribution from his co-
heirs,to achieve an adjustment of the
proper share of each heir in the
distributable estate.
Lorenzo v. Posadas
G.R. No. 43082
Facts:
Thomas Hanley died in Zamboanga on May 27,
1922. He left a will and considerable amount of
real and personal properties. The will provides,
among other things, that his real properties should
not be disposed of for 10 years after his death; that
such properties be handled by his executors
during the same period; and, after the lapse of 10
years, his properties must be given to his nephew,
Mathew Hanley.
The probate court found it proper to
appoint P. J. M. Moore, one of the executors of the
will, as trustee to administer the real properties
during the 10-year period. In 1932, Moore resigned
as trustee and Lorenzo was appointed in his stead.
The CIR assessed against the estate an
inheritance tax in the amount of P1,434.24 which,
together with the penalties for delinquency in
payment consisting of a 1 percent monthly interest
from July 1, 1931 to the date of payment and a
surcharge of 25 percent on the tax, amounted to
P2,052.74.
The CIR alleged that estate left by the deceased
at the time of his death consisted of realty valued
at P27,920 and personality valued at P1,465, and
allowed a deduction of P480.81.
Lorenzo paid the amount under protest, notifying
the CIR at the same time that unless the amount
was promptly refunded, suit would be brought for
its recovery. CIR refused to refund the said amount
or any part thereof.
Seeking relief from the courts, Lorenzo contended
that the CIR decision is incorrect.
ISSUES:
1. When did the obligation to pay accrue?
2. What is the valuation of the estate?
3. Is the compensation of the trustee deductible?
RULING:
1. Inheritance tax accrues upon transmission
or the transfer or devolution of property of a
decedent, made effective by his death.
However, the fact that Thomas Hanley died on
May 27, 1922 does not follow that the obligation to
pay the tax arose as of that date. The time for the
payment of inheritance tax is clearly fixed by
section 1544 of the Revised Administrative code as
amended by Act No. 3031.
As provided under such law, the tax shall
be paid within the six months subsequent to the
death of the predecessor; but if judicial
testamentary or intestate proceedings shall be
instituted prior to the expiration of said period, the
payment shall be made by the executor or
administrator before delivering to each
beneficiary his share.
As such, the tax should have been paid before the
delivery of the properties in question to P. J. M.
Moore as trustee on March 10, 1924.
2. If death is the generating source from which
the power of the state to impose inheritance taxes
takes its being and if, upon the death of the
decedent, succession takes place and the right of
the state to tax vests instantly, the tax should be
measured by the value of the estate as it stood at
the time of the decedent’s death, regardless of
any subsequent contingency affecting value of
any subsequent increase or decrease in value.
3. A trustee, no doubt, is entitled to receive
a fair compensation for his services. But from this it
does not follow that the compensation due him
may lawfully be deducted in arriving at the net
value of the estate subject to tax. There is no
statute in the Philippines which requires trustees’
commission to be deducted in determining the
net value of the estate subject to inheritance tax.
Furthermore, though a testamentary trust has
been created, it does not appear that the testator
intended that the duties of his executors and
trustees should be separated.
 Dizon vs. CA
GR No. 140944
Facts:
On November 7, 1987, Jose P. Fernandez (Jose)
died. His will was probated and Justice Arsenio P.
Dizon was appointed as the administrator while
Atty. Rafael Arsenio P. Dizon was appointed as
Assistant Administrator. On March 14, 1990, Justice
Dizon through Atty. Gonzales filed an estate tax
return with the BIR, showing therein a NIL or no
estate tax liability since the allowable deduction
(including the liability to the creditors) as
computed (P187,822,576) was greater than the
value of the estate (P14,315,611). The BIR issued
Certification Nos. 2052 and 2053 stating that the
estate taxes had been fully paid. Soon after, a
compromise agreement was made between the
creditors of the estate and the estate’s
administrators wherein the creditors agreed to
partially condone the debt of the estate due to
them. Hence, the estate did not pay the original
amount of debt due to the creditors. This
prompted the BIR to reassess the tax liability of the
estate. The BIR argued that the partially condoned
debts should not be allowable as a deduction to
the value of the estate.
tax burdens are not to be imposed, nor presumed
to be imposed, beyond what the statute expressly
and clearly imports, tax statutes being construed
strictissimi juris against the government. Any doubt
on whether a person, article or activity is taxable is
generally resolved against taxation. Second. Such
construction finds relevance and consistency in
our Rules on Special Proceedings wherein the term
"claims" required to be presented against a
decedent's estate is generally construed to mean
debts or demands of a pecuniary nature which
could have been enforced against the deceased
in his lifetime, or liability contracted by the
deceased before his death. Therefore, the claims
existing at the time of death are significant to, and
should be made the basis of, the determination of
allowable deductions.
-------------------x END OF ESTATE TAXATION x--------------------

ISSUE:
Is the condoned obligation deductible?

RULING:
Yes. The condoned obligation is
deductible applying the date-of-death valuation
principle.

The U.S. court ruled that the appropriate

deduction is the "value" that the claim had at the
date of the decedent's death. Also, as held in
Propstra v. U.S., where a lien claimed against the
estate was certain and enforceable on the date
of the decedent's death, the fact that the
claimant subsequently settled for lesser amount
did not preclude the estate from deducting the
entire amount of the claim for estate tax purposes.
These pronouncements essentially confirm the
general principle that post-death developments
are not material in determining the amount of the
deduction.

We express our agreement with the date-of-death

valuation rule, made pursuant to the ruling of the
U.S. Supreme Court in Ithaca Trust Co. v. United
States. First. There is no law, nor do we discern any
legislative intent in our tax laws, which disregards
the date-of-death valuation principle and
particularly provides that post-death
developments must be considered in determining
the net value of the estate. It bears emphasis that
 Donations made by the Husband and Wife Husband Wife

P500,000 P500,000

Husband and wife are considered as two SEPARATE taxpayers.

Thus, being two separate taxpayers, each of them can deduct
P250,000.
Son Son’s Wife Son Son’s Wife
Question: What if the value of the property is P2 Million, and
the property has been donated by husband and the wife P250K P250K P250K P250K
because the property is their conjugal or community property.
Question: How many donations will there be in this case?
Answer: It will be deemed as each of them donating one
million each. Answer: The number of donations in this particular problem
would be 4.
How do we compute the donors’ tax due of such donation?
Why four?
Answer:
1. Husband to Son
Husband’s share: 2. Husband to Son’s wife
3. Wife to son
P1 Million for the husband
4. Wife to son’s wife
Less: P250,000
Question: Will the donation now be exempt from donor’s tax
= P750,000 because each donation is valued at P250K?

x 6% Answer: No. Donor’s Tax is computed on a cummulative basis.

The P250K is not on a per donation basis but rather it is on a
Donor’s Tax Due: P45,000 PER CALENDER BASIS. Thus, in this case, the total gifts made
by the husband during the calendar year shall be P500K.

Thus:
Wife’s share:
P500K
The same as above.
Less: P250K

Net Gifts: P250,000 which shall now be subject to 6% donor’s

Suppose: If the property was donated only by the husband and
tax.
the husband is the owner of the property. The property is
classified as an exclusive property. The same shall apply to the wife’s donation.
How will the donation be computed?

Answer: Since the wife does not have any interest in the SPLITTING OF DONATION
property, the husband shall donate the entire amount of P2
Million less P250,000. Taxable donation will now be P 1.75 Scheme whereby the donor shall delay a portion of the
Million. donation in order for the donor to avoid the payment of
donor’s tax.
What if the husband and the wife donated a property worth P1
Million to their son and the son’s wife, how will the donation This is tax avoidance scheme.
be computed?

Answer: Illustration:
If the donation is P1 Million then the husband and the wife A decided to give gifts to B, C, D, and E.
donated P500K each.

In order for A to avoid the payment of Donor’s Tax he must

only give the gift to B and C in the total amount of P250K during
the year 2020. By the year 2021, A thereafter gives the gifts to
D and E.
TAX CREDIT FOR DONOR’S TAXES
Just remember that:
Foreign tax payments made by the taxpayer can be used as a
tax credit subject to the limitations set forth by law.
Caveat: No need to dwell into the limitations kano.
FILING OF DONOR’S TAX RETURN AND PAYMENT
: The filing of a donor’s tax return must be made within 30
days from the date of the donation.
: The date of donation is the date indicated in the Deed of
Donation submitted to the BIR.
: The donor’s tax must be paid at the time that the return is
filed.
: If the return is NOT filed and paid within the prescribed
period, the taxpayer must pay the following:
1. INTEREST EQUIVALENT TO DOUBLE THE RATE OF
THE LEGAL RATE (12%) PER ANNUM
+
2. SURCHARGE EQUIVALENT TO 25%.
Both the interest and surcharge are based on the tax due.
The BIR can likewise assess compromise penalty.
CASES:
PALGIC v SOF
November 24, 2014
Facts:
PhilamLife’s (PALGIC) shares of stock were sold to
STI in a public bidding in the amount of USD
2,190,000, or PhP 104,259,330 based on the
prevailing exchange rate at the time of the sale.
After the sale, Philamlife filed an application for a
certificate authorizing registration/tax clearance
with the Bureau of Internal Revenue (BIR) Large
Taxpayers Service Division to facilitate the transfer
of the shares. Months later, petitioner was
informed that it needed to secure a BIR ruling in
connection with its application due to potential
donor’s tax liability.
Philamlife requested a ruling to confirm that the
sale was not subject to donor’s tax, pointing out,
in its request, the following: that the transaction
cannot attract donor’s tax liability since there was
no donative intent and, ergo, no taxable
donation, citing BIR Ruling [DA-(DT-065) 715-09]
dated November 27, 2009; that the shares were
sold at their actual fair market value and at arm’s
length; that as long as the transaction conducted
is at arm’s length such that a bonafide business
arrangement of the dealings is done in the
ordinary course of business a sale for less than an
adequate consideration is not subject to donor’s
tax; and that donor’s tax does not apply to sale of
shares sold in an open bidding process. However,
the BIR denied the request. The CIR determined
that the selling price of the shares thus sold was
lower than their book value based on the financial
statements of Philam Care as of the end of 2008.
As such, the Commissioner ruled that the
difference between the book value and the
selling price in the sales transaction is taxable
donation subject to a 30% donor’s tax under
Section 99(B) of the NIRC. Respondent
Commissioner likewise held that BIR Ruling [DA-(DT-
065) 715-09], on which petitioner anchored its
claim, has already been revoked by Revenue
Memorandum Circular (RMC) No. 25-2011.
Secretary of Finance affirmed the ruling.
Issue:
Is the price difference of the book value and the
gross selling price subject to donor’s tax?
Ruling:
YES. The price difference is subject to donor's tax.
R.R. 6-2008 states that In case the fair market value
of the shares of stock sold, bartered, or
exchanged is greater than the amount of money
and/or fair market value of the property received,
the excess of the fair market value of the shares of
stock sold, bartered or exchanged over the
amount of money and the fair market value of the
property, if any, received as consideration shall be
deemed a gift subject to the donor’s tax under
Section 100 of the Tax Code, as amended.
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. Therefore, the transfer is
considered transfer for insufficient consideration
because PhilAmLife (PALGIC) did not prove that it
was made in bonafide sale or at an arm’s length.
REMEMBER:
If the GSP is lower than FMV, there is a presumption
that the sale is a transfer for insufficient
consideration. The difference between the GSP
and the FMV shall be subject to donor’s tax.
Sec. 7(c.2.2) of RR 06-08. Definition of ‘fair market
value’ of Shares of Stock. ‘Fair market value’ of
the share of stock sold shall be: 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.
Abello, et al. vs. CIR
GR No. 120721
Facts:
During the 1987 national elections,
petitioners, who are partners in the ACCRA law
firm, contributed P882,661.31 each to the
campaign funds of Senator Edgardo Angara, then
running for the Senate. The BIR then assessed each
of the petitioners P263,032.66 for their
contributions. Petitioners questioned the
assessment claiming that political or electoral
contributions are not considered gifts under NIRC
therefore, not liable for donors tax. The claim for
exemption was denied by the Commissioner. The
BIR denied their motion. They then filed a petition
with the CTA, which was granted. On appeal, the
CA again held in favor of the BIR.
Issue/s:
1. What are the requisites of a donation?
2. Is political contribution a gift or donation?
3. In this case, is the political contribution
taxable?
4. Under the TRAIN Law, is a political
contribution taxable?
Ruli Ruling:
1. The requisites of a donation are as follows:
a. The reduction of the patrimony of the
donor;
b. The increase in the patrimony of the
donee; and
c. The intent to do an act of liberality or
animus donandi
2. Yes. The political contribution is considered
a gift or donation. In the instant case, the
contributions are voluntary transfers of property in
the form of money from private respondents to
Sen. Angara, without considerations therefor.
Hence, they squarely fall under the definition of
donation or gift. For internal revenue purposes,
political contributions in the Philippines are
considered taxable gift rather than taxable
income. This is so, because a political contribution
is indubitably not intended by the giver or
contributor as a return of value or made because
of any intent to repay another what is his due, but
bestowed only because of motives of
philanthropy or charity. His purpose is to give and
to bolster the morals, the winning chance of the
candidate and/or his party, and not to employ or
buy. On the other hand, the recipient-donee does
not regard himself as exchanging his services or his
product for the money contributed. But more
importantly he receives financial advantages
gratuitously.
3. Yes. The political contribution is taxable. At
the time of the promulgation of this case, the
transfer of political contributions was not yet
exempt from donor’s tax.
4. Under the TRAIN Law, political
contributions are exempt from donor’s tax. On
November 15, 1991, Congress approved Republic
Act No. 7166, providing in Section 13 thereof that
political/electoral contributions, duly reported to
the Commission on Elections, are not subject to
the payment of any gift tax. This being said, all
political contributions given after the effectivity of
the law will be exempt from donor’s tax. This
exemption was reiterated under Republic Act No.
10963, otherwise known as the TRAIN Law.
 GIFT TAXATION
Under the old Tax Code (1930s)
 2 Impositions in the nature of gift tax:
Donor’s Tax & Donee’s Tax
Donee’s Tax
 Tax on the privilege of receiving donation or gift
 No more donee’s tax
 This concept have been removed under the present
tax law
Donor’s Tax
 Tax imposed on the privilege of transferring a
property gratuitously to another individual during
the lifetime of the transferor.
Parish of Nueva Segovia Case
- The parish received 100k from another entity.
- BIR assessed the parish donee’s tax for receiving such
gift.
- Parish argued that it is exempt from donee’s tax because
it is in the nature of a property tax, hence covered by the
Constitutional tax exemption with respect to property
tax.
SC: Donee’s tax is not included within within the ambit of
the constitutional provision. The constitutional provision
related to tax exemption plainly deals with real property
tax.
- Donee’s tax is not in the nature of property tax, rather it
is an the nature of excise tax because it is a tax on the
privilege.
Under the present laws
- There is no longer an imposition of donee’s tax
- If there is a gift, then it is no longer subject to donee’s tax
but only donor’s tax.
Nature of Gift Tax / Donor’s Tax
- In the nature of an excise tax
- Not in the nature of property or poll tax
Concept of “GIFTS”subject to taxes
Sec. 98. Imposition of Tax. –
(A) There shall be levied, assessed, collected and paid upon
the transfer by any person, resident or nonresident, of the
property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and whether
the property is real or personal, tangible or intangible.
- Transfer during lifetime of transferor
 2 concepts:
Donation inter vivos & Donation mortis causa
 Mortis causa: the transfer shall not subject to
donor’s tax because the transfer takes effect upon
the death of the decedent
- the transfer is subject to estate tax.
 Inter vivos: the transfer shall be subject to donor’s
because the transfer shall take effect during the
lifetime of transferor
Sec. 99
 Location of the Property
2 types of donors:
1. Resident Donor
2. Non-resident Donor
Resident Donor
 A resident or a citizen of the Philippines
 Liable for donor’s tax for properties donated which is
located within and outside the Philippines
Non-resident Donor
 Person who is not a resident and not a citizen of the
Philippines.
 Only subject to donor’s tax if the property is located
within the Philippines
 If a non-resident donor owns an Intangible Personal
Property which is located in the Philippines, apply
the reciprocity rule. The IPP shall be exempt from tax
if the following requisites are present:
Reciprocity Rule Requisites:
1. There is an intangible personal property;
2. The IPP is located in the Philippines;
3. The IPP is owned by a non-resident donor;
4. The laws of the domiciliary country grants a tax
exemption to Filipinos not residing in such domiciliary
country.
SITUS OF THE PROPERTY Donor’s Tax will be imposed only if there is a completed
donation.

1. Real property – consider the location of the real If the subject of donation is a real property: The donation must
property be embodied in a public instrument. Otherwise the donation is
void.
2. Personal property – apply the principle of mobilia
sequntur peronam - movable follows the owner If the subject of donation is personal property: The donation
must be contained in a written agreement if the value of the
personal property exceeds P5,000.

The following intangibles are properties considered as Requisites of a taxable donation: ( C I D A )

situated in the Philippines:
1. Capacity of the Donor

a. Franchise which must be exercised in the Philippines; (Capacity of the donee is not important because a gift
can be given even to an unborn child)
b. Shares, obligations or bonds issued by corporation
or sociedad anonima organized or constituted in
the Philippines;
2. Intent to Donate
c. Share, obligations or bonds issued by a foreign
corporation 85% of the busienss of which is located (Can be dispensed with in cases of indirect gifts
in the Philippines; because in the concept of indirect gifts animus
donandi is not present)

3. Delivery
d. Shares, obligations or bonds issued by a foreign
corporation if such shares, obligations or bonds This element that completes the concept of
have acquired a business situs in the Philippines; completed donation.

e. Shares or rights in any partnership, business, or 4. Acceptance

industry established in the Philippines.
This is an element for the validity of a donation.

Concept of Direct Gifts

BASIC PRINCIPLES There has to be an intent to donate.

Few things to consider: There has to be an explicit intention to donate and explicit
acceptance of a donation.
Donor’s Tax= is an Excise Tax and Transfer Tax because it is a
taxed imposed on gratuitous transfers.
Concept of Indirect Gifts
2 Types of Transfer Taxes
May be in the form of:

1. Condonation of indebtedness:
1. ESTATE TAX
Remuneratory Donation: An instance where the
debtor rendered a service in favor of the creditor in
2. DONOR’S TAX order that the creditor will condone the obligation. In
cases of remuneratory donation, the transaction shall
be subject to income tax imposed on the amount of
Under the Local Government Code, transfer taxes being
obligation condoned.
imposed by provinces and cities is a different type of tax.
Donor’s tax, estate tax, or transfer tax being collected by the
Local Government Unit CAN BE IMPOSED ON THE SAME
TRANSFER. There is no direct double taxation because the
taxing authorities are DIFFERENT.
Bar Question:
A borrowed P100,000 from B. Thereafter, A paid P25,000, thus
there is still a balance of P75,000. B then agreed that A will just
clean his house and the remaining obligation shall be
extinguished.
Question: What is the tax implication of the transaction?
Answer: The transaction is subject to income tax because there
exists a rendition of service. Technically, A was paid because of
the services he rendered. Thus, A shall be liable for income tax.
What if the condonation of indebtedness is by reason of sheer
generosity?
The condonation shall be treated as one in the nature of a gift
and this condonation shall be subject to donor’s tax.
Who will be liable for donor’s tax?
Answer: The creditor being the donor.
Condonation by a Corporation in Favor of a Stockholder
There is condonation between a corporation and a stockholder
where the stockholder borrowed money from the corporation
and the corporation thereafter condones the indebtedness of
the stockholder. This is considered as equivalent to a
declaration of dividends.
Tax Implication depends on who the donor is and who the
donee is:
 If both the donor and the donee is a domestic
corporation = dividend income is exempt from tax
pursuant to the inter-corporate dividend principle.
 If donor is RFC or NRFC, and donee is a DC = subject
to NCIT
2. Renunciation of Inheritance
In this case, an heir no longer accepts his or her distributive
share over the inheritance.
2 Types of Renunciation of Inheritance:
i. General Renunciation- Renunciation of
inheritance in favor of ALL the heirs.
This kind of renunciation is EXEMPT from Donor’s Tax.
Example: Siblings A, B, and C inherited several properties
from their parents. A thereafter renounces his share in the
inheritance without specifying any sibling.
ii. Specific Renunciation- Renunciation of
inheritance in favor of ONE or SOME BUT NOT
ALL OF THE HEIRS.
This kind of renunciation is SUBJECT to Donor’s Tax.
Example: Siblings A, B, and C inherited several properties
from their parents. A thereafter renounces his share in the
inheritance in favor of B.
3. Transfer for Insufficient Consideration
TFIC takes place when a property is transferred to another
individual for less than the adequate and full consideration.
Meaning, the property has been sold for less than its Fair
Market Value.
 Take note: Under the present Revenue Regulation,
there exists a presumption that the transfer is
considered a TFIC when the gross selling price is less
than the fair market value. Thus, the difference
between the FMV and the GSP shall be subject to
donor’s tax if the transfer will take effect during the
lifetime of the transferor.
 If the transfer will take effect upon the death of the
transferor, the difference between the FMV and the
GSP shall be subject to Estate Tax.
Remember also that: the concept of TFIC does not apply to
sale of real property classified as capital asset.
Remedy to avoid the payment of Donor’s Tax or Estate Tax
The taxpayer must establish the following:
i. that the transfer was made at arm’s length
ii. or the transfer is a bona fide sale
iii. and transfer was without the intent to donate.
If TP fails to prove this, presumption that the transfer is a TFIC
will remain.
Back to the discussion of Renunciation of Inheritance:
Illustration:
The estate of the decedent is worth P10 Million and the
properties thereto are conjugal or community property. The
decedent is survived by his children A, B, and C and his spouse
D.
1/2 of the estate shall belong to the surviving spouse as her
conjugal share.
The other half will form part of the Net Distributable Estate.
Thus, it will be divided among the first child, the second child,
the third child, and the surviving spouse.
 If the surviving spouse renounces all her interest over
the estate. The renunciation of her conjugal share
shall be subject to Donor’s Tax. The concept of
general renunciation does not apply with respect to
the conjugal share of the surviving spouse because
the renunciation pertains to the renunciation of her
conjugal or community share and NOT the
renunciation of HER SHARE in the inheritance.
 With respect to the share of the surviving spouse in
the Net Distributable Estate, apply the principles of
general renunciation. Thus, if the surviving spouse
renounces her share in the Net Distributable Estate in
favor of ALL the remaining heirs, the renunciation
shall not be subject to Donor’s Tax.
 But if the surviving spouse renounces her share in the
Net Distributable Estate in favor of SOME OR ONE
BUT NOT ALL OF THE HEIRS, the renunciation shall be
subject to Donor’s Tax.
Remember that the concept of General and Specific
Renunciation applies ONLY to the renunciation of inheritance.
Waiver is not the same as renunciation.
In waiver, the heir already received the share in the inheritance
before renouncing while in renunciation the heir has not yet
received his share but he is already renouncing his inheritance.
Determination of Gross Gifts
Gross gifts shall include ALL GIFTS during the calendar year.
(Cumulative Basis of Reporting)
Thus, the donation made in January will still be included in
the computation of gross gifts at the end of the year.
In the valuation of gross gifts, any diminution of the value of
the property shall be reflected in the tax return.
 The assumption of mortgage by the donee shall be
considered as a diminution of the value of the
property.
Illustration: A property is worth P 1 Million but the
donee mortgaged the same but the value of the debt
is only worth P400K. Technically, the donee only
receives only P400K and not P1 Million. The value of
the diminution shall be deducted from the amount of
gross gifts.
Illustration: the value of the property is worth P1
Million but the donor indicated a stipulation that after
a year the donee needs to transfer a portion of the
property to another individual. In this case, there is
likewise a diminution of the value of the property
because the donee cannot enjoy the entire property
itself. If that is the case, the value of the gross gift shall
be diminished by the value to be transferred to
another individual.
VALUATION
Valuation of properties that shall form part of the gross gifts
shall be based on the Current Fair Market Value at the TIME
OF DONATION.
Current Market Value= The higher amount between the zonal
value and the assessed value.
Computation of Donor’s Tax Liability
6% in excess of P250,000.
Thus any amount in excess of P250,000 multiplied by 6% shall
be the amount of donor’s tax due.
Under the TRAIN LAW, regardless of the status of the
relationship between the donor and the donee, the tax rate
shall be pegged at 6% based on the amount of the net gifts.
 EXEMPT GIFTS
1. Gifts made to or for the use of the National
Government or any entity created by any of its
agencies which is not conducted for profit, or to any
political subdivision of the said government; and
2. Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation,
institution, accredited non-government organization,
trust, or philanthropic organization or research
institution or organization
The 2nd exemption applies only if:
I. the recipient is a non-stock non-profit
organization;
II. the recipient is one established for the purposes
abovementioned;
III. That not more than 30% of the donation shall be
used for administrative purposes.
3. Political Contributions provided that the following
requisites are complied with:
i. There is compliance with the
reportorial requirements provided
under the Omnibus Election Code;
ii. That there has to be a filing of
statement of contributions and
expenses (COSE)
iii. That the contributions must be
spent during the campaign period;
iv. That the contributions must be fully
utilized. (Unutilized portion shall be
subject to donor’s tax)
Under the revenue regulation, the political party or
candidate who accepted the political contribution is
mandated to withhold the tax from the income
payment made to the suppliers upon which the
political contributions had been used.
If there is Failure to withhold the same: The amount
paid to the supplier will be considered as UNUTILIZED
thus subject to Donor’s Tax.
VALUE ADDED TAX
Definition: VAT is a tax on the value added by the performance
of the service or sale of goods.
 It is a tax on the privilege to conduct a business
within the jurisdiction of the Philippines. Therefore,
VAT is in the nature of a business tax.
 It is likewise ad valorem tax because the tax is based
on the value of the property being sold.
 VAT is equivalent to 12% of the gross sales or gross
receipts. Therefore, it is immaterial whether the
profit is derived from rendering the service or selling
goods.
 VAT is cumulative in nature because VAT is not a
single-staged tax. Single-staged tax refers to the
imposition of tax only at the first stage of production.
 Multi-staged Tax refers to where the tax to be
imposed will be imposed from the time that the
product is manufactured until the time that the
product is sold.
 VAT is a regressive tax because the payment thereof
does not consider the ability to pay of the taxpayer.
 In the concept of VAT, only the burden of tax is
shifted to the end consumer, the tax liability remains
with the seller.
 The imposition of VAT is equitable because it
considers the VAT exemption of those taxpayers
whose gross sales or gross receipts do not exceed the
threshold amount. If the taxpayer did not earn P3
Million then the taxpayer will not be subject to VAT.
(Kapatiran vs. Tan)
 VAT is a tax imposed on the seller, lessor, importer, or
service provider.
2 General Types of Business Tax
1. VAT
2. Percentage Tax
The national government cannot impose both taxes at the
same time, within the same taxable period because that would
be equivalent to direct double taxation. There is direct double
taxation because the taxes are of the same nature (same
business tax), same subject matter (privilege to conduct
business), same taxable period, and both of them are being
collected by the national government.
Reimbursement-of-cost basis: The sale of a seller is only
equivalent to the cost of sales. Example: You bought P100
pesos worth of goods then you only sold it for the same value.
CASE: What if the taxpayer is only operating only on
“reimbursement-of-cost basis”, can the BIR still impose VAT
on the taxpayer?
Answer: Yes. The transaction is still subject to VAT
notwithstanding the fact that there is no profit earned from
the transaction, the transaction is still subject to VAT based on
the gross selling price.
COVERAGE OF VAT
Coverage:
Sale
Barter
Exchange
Lease
Of goods or services “in the ORDINARY course of business”.
Also includes importation of goods notwithstanding the fact
that it is not made in the ordinary course of business.
If importation of goods, it need not be made in the ordinary
course of business.
Question: Will the collection of association dues be subject to
VAT?
Answer: No. Any collection made is not made in the ordinary
course of business. In fact, what is only being done is collection
by the association in trust for all the owners of the
condominium units or homeowners in a subdivision.
Association dues are not subject to VAT because the collection
made is not done in the ordinary course of business nor is it
subject to income tax because association dues are merely
held in trust by the homeowner’s association.
Caveat: Sale of a CAPITAL ASSET shall never ever be subject to
VAT or percentage tax because the sale of a capital asset is not
made in the ordinary course of business!!
CIR vs. Magsaysay Lines
MBC was sought to be privatized. To privatize MBC, MBC sold
5 vessels. During the auction Magsaysay Lines won.
Question: Is the transaction subject to VAT?
Answer:
The sale of the 5 vessels is not considered as sale of goods in
the ordinary course of business because it is merely an isolated
transaction. Being an isolated transaction, the transaction is
not subject to VAT.
Also, MBC was merely forced to sell the 5 vessels because of
the privatization program. By reason of this, we cannot
consider the sale as subject to VAT. It is not even considered
as an incidental transaction.
However, under RA. No. 9337, all income or receipts from
incidental transactions shall be subject to VAT.
Mindanao Geothermal Case
Mindanao Geothermal is engaged in the business of
generating electric power. Thereafter, it sold a Nissan Patrol
Truck which was being used in the operations of their business.
It now argues that the sale of the Nissan Patrol Truck is not
subject to VAT because it is not engaged in the business of
buying and selling of vehicles and is engaged in the generation
of electric power. Further, it argues that the sale of the truck is
not even incidental to its business.
Ruling of SC: it was erroneous for Mindanao Geothermal to
conclude that the sale was not an incidental transaction when
in truth the Nissan Patrol Truck was being used in its business.
In fact, based on the financial statements of Mindanao
Geothermal, the Nissan Patrol Truck was listed as part of the
Property, Plant & Equipment. Meaning it is indeed used for its
business. Being used in its business, the asset shall be classified
as an ordinary asset which if sold will be subject to VAT.
Conclusion:
Check if the asset is being used in the ordinary course of
business.
If ordinary asset: Subject to VAT
PSALM Case
PSALM was created by the government for purposes of selling
hydro-power plants. PSALM thereafter sold assets of
Pantabangan Dam. By reason of this transaction, BIR
collected VAT from PSALM.
Question: Will the sale of the assets of Pantabangan Dam by
PSALM be subject to VAT?
Answer: NO. PSALM was merely forced to sell the assets of
Pantabangan Dam because PSALM was mandated under the
law which created it to sell the following assets. Thus, since
PSALM was forced to sell the assets herein because it is its
mandate under the law, we cannot therefore consider the
transaction as one being done in the ordinary course of
business.
exemption from the tax being imposed. Further, the SC held
that VAT’s tax liability is imposed on the seller and not the
consumer. What is merely being done in VAT is that the
burden of paying the tax is shifted to the end consumer or
buyer. Since the tax liability remains with the seller, PH
Acetylene shall be liable for the VAT even if it cannot shift it
to the consumer.
GOTAMCO Case
Facts:
GOTAMCO entered into a transaction with WHO.
GOTAMCO constructed the WHO building. WHO is exempt
from tax under the Host Agreement. Thereafter,
contractor’s tax (same as VAT) was collected from
GOTAMCO.

BIR argued that GOTAMCO is not the one who is exempt but
rather it is WHO who is exempt from tax.
VAT is a tax on consumption
SC RULING:
-It is imposed on each sale, barter, lease or exchange of goods
or properties or on each rendition of services in the ordinary GOTAMCO shall not be liable to pay the contractor’s tax.
There is an express provision in the Host Agreement which
course of business as they pass along the production and
states that persons or entities dealing with WHO shall be
distribution chain.
exempt from taxes.
-It should be understood not in the context of the person or
entity that is primarily, directly, and legally liable for its
payment. Difference of the two cases:

INDIRECT TAX
Incidence of Tax= refers to the Burden of tax
Impact of Tax= refers to the Tax liability
GATAMCO CASE:
In the Host Agreement which granted the tax exemption of
WHO, an additional provision has been included therein which
states that “ALL PERSONS TRANSACTING WITH WHO WITH
RESPECT TO THE CONSTRUCTION OF THE WHO BUILDING
SHALL LIKEWISE BE EXEMPT FROM TAX”

VS.

PH ACETYLENE
Philippine Acetylene Case
In the Visiting Agreement with respect to the Voice of America,
Facts: the Voice of America is exempt from taxes both direct and
indirect taxes. Nowhere is it stated in the agreement that “ALL
PH Acetylene (Seller) entered into a transaction with Voice PERSONS DEALING WITH VOICE OF AMERICA SHALL LIKEWISE
of America (Buyer). BE EXEMPT FROM TAX”.
Voice of America now claims that it is exempt from tax.
According to PH Acetylene, since Voice of America is GOTAMCO CASE PH ACETYLENE
exempt from tax, PH Acetylene should likewise be exempt There is an explicit provision There is no express
from VAT. in the Host Agreement provision on the Visiting
providing for the exemption Agreement providing for
SC RULING: from taxes of persons or exemption from taxes of
entities dealing with WHO persons who are dealing
PH Acetylene is not exempt from tax. Even if Voice of with the Voice of America.
America is exempt from indirect tax, PH acetylene is still
liable for VAT because PH Acetylene does not enjoy any

CIR v. American Rubber
Facts:
American Rubber is engaged in the production of rubber
products. At the time of the promulgation of this case, these
products are exempt from VAT but at the present time
these products are no longer exempt from VAT.
In this case, the VAT was paid by the purchasers of the
rubber products. The purchasers now argued that they
should not have paid the VAT because the sale of the rubber
products are exempt from tax.
American Rubber now fails a claim for refund. The
purchasers sought the dismissal of the case since it was not
American Rubber who paid the tax.
SC RULING:
Since the tax liability still remains to be with American
Rubber, it shall therefore have the personality to file a claim
for refund of the erroneously paid tax.
The rule is: the statutory taxpayer has the personality to file
a claim for refund.
When the claim for refund is successful, American Rubber
will hold the taxes refunded by the government in trust for
the purchasers who shouldered the burden of tax.
CIR v. Sony Philippines
Facts:
This case involves Sony Singapore and Sony Philippines.
Sony Philippines incurred advertising expense which Sony
Philippines could not pay.
Sony Singapore then paid for the advertising expense as a
way of assisting Sony Philippines.
The BIR then assessed Sony Philippines for VAT with respect
to such transaction.
SC Ruling:
The transaction is not subject to VAT because there is no
sale, barter, lease or exchange of goods or services in the
ordinary course of business. Take note that Sony Philippines
did not sell, exchange, nor lease any goods or services to
Sony Singapore. This being said, the transaction is not
subject to VAT but that does not mean that there is no
income involved. In this case, the amounts received as
subsidy by Sony Philippines shall be treated as an income.
The existence of an income does not automatically result to
the imposition of a business tax be it in the nature of a VAT
or percentage tax. In the imposition of VAT, there must be
sale, barter, lease or exchange of goods or services in the
ordinary course of business.
TAX CREDIT MECHANISM
Definition:
It is a scheme adopted by VAT registered entities whereby the
INPUT VAT will be used to reduce the amount of OUTPUT
VAT.
It also involves a situation where the creditable input VAT can
be used to reduce the amount of OUTPUT VAT for the next
succeeding taxable periods.
APPLICABLE ONLY TO TAXPAYERS WHO ARE SUBJECT TO VAT
AND WHO ARE REGISTERED UNDER THE VAT SYSTEM.
OUTPUT VAT: The VAT imposed on the sale of goods to
another whether VAT registered or not.
INPUT VAT: Is the VAT acquired from the purchase of goods
from VAT registered entities.
Output VAT minus Input VAT is the concept of Tax Credit
Method.
If the OV > IV= there is VAT liability.
If the OV < IV= there is Creditable Input VAT
The Creditable Input VAT can be carried over to the next
succeeding taxable period and it can be used to reduce the
amount of output VAT over the next succeeding taxable
periods
Illustration:
Assume that Mr. A is the manufacturer of a bag. He is not VAT
registered.
A then sells the bag to B (VAT registered) for P1,000.
Since B is VAT registered, if B sells to C the same bag for
P10,000, the sale will now be subject to VAT. Thus, C will pay
the amount of P11,200 (P10,000 + 12% VAT). On the part of
B, the amount of P1,200 is called OUTPUT VAT.
What if C is likewise a VAT Registered Entity and sells the
same bag to Mr.D for P20,000. Will the sale be subject to
VAT?
Answer: Yes. Thus, D will pay C the amount of P20,000 + 12%
VAT. On the part of C, the amount of P2,400 will be
considered as OUTPUT VAT.
Further, since C earlier paid the VAT of P1,200, such amount
shall be treated as INPUT VAT.
Thus, what then is the VAT liability of C?
Output VAT: P2,400
Less Input VAT: P1,200
_________________________________
VAT Liability: P1,200
The manner where you deducted the input VAT from the
Output VAT is called Tax Credit Method.
Creditable INPUT VAT
If the OV is less than the IV then there exist a Creditable Input
VAT which is considered as an asset.
Why asset?
Because you can use it as payment for the next succeeding
taxable period.
Illustration:
In the year 2020 there is creditable input VAT in the amount
of P1 Million. In the first quarter of 2021, the taxpayer has an
output VAT of P3 Million. This would mean that the VAT
liability will not be P3 Million because the taxpayer can
deduct the input VAT during that taxable period plus the
creditable input VAT in the amount of P1 Million.
Computation of VAT Liability:
OUTPUT VAT
LESS: INPUT VAT
LESS: CREDITABLE INPUT VAT
= VAT LIABILITY if THE OV > IV
= CREDITABLE INPUT VAT if the OV < IV
DESTINATION PRINCIPLE
(Not the same as Cross-Border Doctrine)
Destination Principle states that VAT shall be imposed to form
part of the cost of goods destined for consumption in the
territorial border of the taxing authority.
Applying this principle in the Philippine context, if the goods
are consumed in the Philippines, VAT shall be imposed.
On the other hand, Cross-Border Doctrine states that no VAT
shall be imposed to form part of the cost of goods destined
for consumption outside the territorial border of the taxing
authority.
Exception to the Destination Principle:
In the case of CIR v. AMEX, the SC ruled that Foreign Currency
Denominated Transactions involving services shall be
considered as an exemption to the destination principle.
Why?
The SC held that consumption would mean the extinguishment
of the liability of the taxpayer with respect to the contract of
service. Thus, if the services shall be performed in the
Philippines, in order to relieve the taxpayer from the liability,
the services must be consumed in the Philippines.
In FCDTs, the services are performed in the Philippines, all the
contractual obligations shall be extinguished in the Philippines.
Therefore, the services are consumed in the Philippines.
However, the SC held that notwithstanding the fact that the
goods are consumed in the Philippines, it will not be subject to
12% rather, the transaction is subject to 0% VAT.
Summary:
General rule: Goods consumed in the Philippines shall be
subject to 12% VAT. (Destination Principle)
Exception: Foreign Currency Denominated Transactions
involving services. Notwithstanding the fact that the goods are
consumed in the Philippines, it will not be subject to 12%
rather, the transaction is subject to 0% VAT.
What else?
Under Zero-Rated Transactions, export sales are NOT subject
to 12% rather it is subject to 0% VAT.
Why 0%?
0% because pursuant to the Cross-Border Doctrine, you cannot
impose VAT on goods that are consumed outside the
Philippines. Since the goods in export sales are to be consumed
outside the Philippines, it will not be subject to 12% VAT but
rather 0% VAT.
Take Note:
If the taxpayer is NOT VAT REGISTERED= the export sale will
still not be subject to VAT because as can be gleaned from the
list of VAT exempt transactions, export sales by Non-VAT
registered taxpayers are considered as VAT EXEMPT
transaction.
PERSONS LIABLE TO VAT
SCOPE OF VAT
Mandatory Registration:
The persons mandated to register under the VAT system are:
i. Those who voluntarily register under the VAT
system
ii. Those who are mandated to register
Persons or entities mandated to register:
 Taxpayers who reached the threshold
amount of MORE THAN P3 Million gross
sales or gross receipts.
IMPOSITION OF VAT: TAX BASE
The imposition of VAT shall be based on the gross sales or
gross receipts.
In order to know the proper taxable base, you need to
determine the transaction first.
Determine if the transaction involves the:
1. Sale of goods- Taxable base is Gross Selling Price
Under Revenue Regulation 13-2018, gross selling
price means the total amount of money or its
equivalent which the purchaser pays or is obligated
to pay to the seller in consideration of the sale, barter
or exchange of the goods or properties, excluding
VAT. The excise tax, if any, on such goods or
properties shall form part of the gross selling price.
In the case of sale, barter, or exchange of real
property classified as an ordinary asset subject to
VAT:
Taxable base is the gross selling price which shall
mean the consideration stated in the sales document
or the fair market value, whichever is higher.
Would it include the capital gains tax?
Answer: No. Because if the sale involves sale of capital
asset it is not subject to VAT because the sale is not
made in the ordinary course of business.
2. Importation of goods- taxable base shall be the total
value used by the Bureau of Customs in determining
the tariff and custom duties plus excise tax and other
charges which shall be paid prior to the release of
the goods from the custom’s custody.
Custom Duties are determined on the basis of the
quantity or volume of the goods= VAT shall be based
on the landed cost plus excise tax, if any.
3. Sale of Services- the taxable base shall be based on
gross receipts.
“Gross Receipts”- refers to the total amount of
money or its equivalent representing the contract
price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied
with the services and deposits applied as payments
for services rendered, and advance payments
actually or constructively received during the taxable
period for the services performed or to be
performed for another person, excluding VAT.
Medicard Case
Facts:
Medicard received P2,500 which represents the service fee
of medicard in the amount of P500 and the remaining
P2,000 represents the amount that will be used to pay
hospital bills and doctor’s fee.
BIR assessed Medicard VAT based on P2,500.
Medicard argued that taxable base should have been the
amount of P500 only because the P2000 is merely held in
trust by medicard.
The BIR argued that Medicard received the full amount of
P2,500 thus it shall be constituted as their gross receipts.

SC Ruling:
The SC held that Medicard must only include as part of its
gross receipts or gross sales the amount of P500 only.
The SC held that gross receipts or gross sales must not
include the amounts held in trust for another individual. Any
amount held in trust by the taxpayer will not be subject to
VAT.
Here, the amount of P2,000 is merely held in trust by
Medicard for the hospital bills and doctor’s fee.
TRANSACTIONS DEEMED SALE
Take note:
NIRC does not limit the definition of “sale” to commercial
transactions.
TRANSACTIONS DEEMED SALE ARE TRANSACTIONS
INVOLVING THE FOLLOWING:
1. Transfer, use or consumption not in the ordinary
course of business of goods or properties originally
intended for sale or for use in the course of business
In order for this transaction to be considered as a
transaction deemed sale the goods used must be
originally intended for sale.
2. Distribution or transfer to shareholders or investors
as share in the profits of the VAT-registered persons,
or to creditors in payment of debt or obligation
Illustration:
A has a grocery store. A is indebted to B. A can no longer pay
his obligation to B. A then requested B that the obligation be
paid through his grocery items. B agrees. The payment made
to B shall be treated as a transaction deemed sale even if there
is no actual sale.
3. Consignment of goods if actual sale is not made
within 60 days following the date of such goods were
consigned
The following elements must be present:
i. There was no actual sale made within 60 days;
ii. And the consigned goods were not returned to
the consignor within the 60-day period.
Note that in consignment, what is being transferred is merely
the possession and not the ownership over the goods.
4. Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of
such retirement or cessation
In this case, any type of retirement from or cessation of
business by a VAT registered taxpayer shall be equivalent to a
transaction deemed sale. Thus, the ending inventory of the
VAT registered taxpayer is considered as constructively sold
even if the goods were not actually sold.
Change or Cessation of Status as VAT Registered Taxpayer
This is considered as retirement from or cessation from
business.
A change in the status of the VAT person or there is a cessation
of its status as a VAT person, it shall be considered as
retirement from business.
Coverage of Change or Cessation of Status as VAT Registered
Taxpayer
1. Change of business activity from VAT to VAT-exempt
status;
2. Approval of a request for cancellation of registration
due to reversion to exempt status;
3. Approval of a request for cancellation of registration
due to a desire to revert to exempt status after the
lapse of three (3) consecutive years from the time of
registration by a person who voluntarily registered
despite being exempt (below threshold); and
4. Approval of a request for cancellation of registration
of one who commenced business with the
expectation of gross sales/receipts exceeding P3
Million but who failed to exceed this amount during
the first 12 months of operation.
 If the taxpayer is a VAT EXEMPT PERSON, the taxpayer may
file a claim for refund of unutilized input VAT provided that
A person whose registration has been cancelled due to
the taxpayer is VAT registered.
retirement from or cessation of business, or due to changes in
or cessation of status may, within two (2) years from the date
of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.
ZERO-RATED TRANSACTIONS
The filing of the claim shall be made only after completion of
3 Classifications:
the mandatory audit of all internal revenue tax liabilities.
1. Export Sales;
Upon the determination that indeed the taxpayer has
unutilized input VAT, the Commissioner will issue a Tax Credit
2. Foreign Currency Denominated Transactions
Certificate. This will now be used by the TP to pay off other
internal revenue tax liabilities.

3. Effectively Zero-Rated Transactions

THE DIFFERENT TRANSACTIONS SUBJECT TO VAT

1. ORDINARY TRANSACTIONS which are subject to 12% 1.Export Sale
VAT
(Limited to sale of Goods)
2. ZERO-RATED TRANSACTIONS which are subject to 0%
Under the NIRC, the enumeration of export sale will include:
VAT
I. Actual shipment of goods to a foreign country
and will also include constructive shipment of
3. VAT EXEMPT TRANSACTIONS – there is no goods to a foreign country.
imposition of VAT.
Constructive Shipment to a Foreign Country- There is no
actual shipment to a foreign country but the law
considers the transaction as an export sale.
Zero Rated Transaction vs. VAT Exempt
Transaction Illustration:

If an individual sells supplies to Texas Instruments which is

Zero Rated VAT EXEMPT
As to There is an imposition There is no an export oriented enterprise (it considered as an export
imposition of VAT but it is only imposition of VAT. oriented enterprise because more than 70% of its
of VAT pegged at 0%. production are shipped abroad). Technically Texas
Instruments is the one who exports the products. It is
As to claim The taxpayer is The taxpayer is not Texas Instruments who has actual shipment abroad. But
for refund allowed to claim for allowed to claim for the law considers sale of goods to Texas Instruments as an
refund of unutilized refund of unutilized export sale because it is a sale made to an export oriented
input VAT input VAT. enterprise.
As to the The taxpayer must be It is not necessary
need of VAT registered. If the that the taxpayer is
registration taxpayer is not VAT registered under the
II. Sale of goods by Pioneer Enterprises which are
under the registered, the VAT system. Thus,
VAT system. taxpayer’s transaction whether the registered with the Bureau of Investment
will not be classified as taxpayer is There is no actual shipment abroad but the law considers it as
zero-rated. registered or not,
export sale.
the transaction can
be classified as VAT
exempt.
 2.Foreign Currency Denominated Differences
Transaction Zero-rated Effectively Zero Rated

(Limited to Sale of Services) Person Benefits the Seller Benefits the Buyer
Benefited
If we talk about foreign currency denominated transactions Nature Generally refers Refers to the sale of
this are transactions where the services are performed in the to the export sale goods or supply of
Philippines but these services were rendered in favor of non- of goods and services to persons or
resident clients and the taxpayer receives an acceptable supply of services entities whose
foreign currency denominated transaction in accordance with exemption under
special laws or
BSP rules and regulations as payment for the services.
international
Elements of FCDT: agreements to which
the PH is a signatory
1. Service must be performed in the Philippines; effectively subjects
2. The service must be performed in favor of a non- such transactions to a
resident client; zero rate.
3. The service should have been paid in an acceptable
foreign currency in accordance with BSP Rules and
Highlights of Zero-Rated Transaction
Regulations.
1. The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
The element that the service must be covered in the international air transport operations is subject to
enumeration under the NIRC is no longer an element of FCDT zero-rate transaction provided, that the goods,
because in the case of CIR v. AMEX and CIR v. PLACERDOME, supplies, equipment, and fuel shall be used
the SC held that ALL SERVICES ARE COVERED BY THE exclusively for international shipping or air transport
DEFINITION OF FOREIGN CURRENCY DENOMINATED operations.
TRANSACTION.
In this particular item, the sale of goods must be made
to:

3.Effectively Zero-Rated Transaction I. Persons engaged in international shipping;

or
Effectively Zero-Rated Transaction involves sales to entities or
persons who are exempt from VAT and a provision in a special II. Persons engaged in international air
law or treaty effectively subjects the transaction to a zero- transport operations
rated transaction.
III. That the goods must be EXCLUSIVELY used
2 Elements:
for international shipping or air transport
I. There is a sale made to entities or persons who operations.
are exempt from VAT
What if the taxpayer sold P1 Million worth of petroleum
II. That there is a provision that effectively subjects
products to an entity engaged in international shipping and
the transaction to a zero VAT.
60% of which is used in international shipping and the 40% was
Illustration: used for domestic air transportation?

PH Acetylene case and GOTAMCO case. Answer: Only the 60% sold will be zero-rated. The 40% will be
subject to 12% VAT.

2. Services rendered to persons engaged in

international shipping or air transport operations,
including leases of property for use thereof shall be
subject to zero-rate transaction provided, that these
services shall be EXCLUSIVELY for international
shipping or air transport operations.
Has the same elements above. The only difference is that this
item refers to a service while the first item refers to the sale of
goods.
Vetoed Provisions under the TRAIN LAW:
Registered enterprises within a separate customs territory as
provided under special law. However, the locators are still
considered as located in a foreign country.
Registered enterprises within tourism enterprise zones as
declared by the TIEZA subject to the provisions under RA No.
9593 or the Tourism Act of 2009. However, the incentives
under RA No. 9593 remains in effect. TIEZA law allows only
duty and tax-free importation capital requirement,
transportation equipment and other goods.
Notwithstanding the fact that DU30 vetoed the first provision,
the separate customs territory is still treated by legal fiction of
law as a foreign territory.
Notwithstanding the fact that Du30 vetoed the second
provision, it remains that they are still exempt from tax and
duties on importation of capital equipment, transport
equipment and other goods.
CIR v. Seagate Technology
Facts:
Seagate bought supplies from Supplier A.
Seagate like context is located in an eco-zone.
The supplier shifted VAT to Seagate.
Seagate paid the VAT.
Seagate filed a refund for unutilized input VAT before the
BIR.
Issue:
Will the claim for refund prosper?
Held:
Yes. Because Seagate is VAT registered entity.
Question: If Seagate filed a claim for refund under Section
229 of the NIRC, will the claim prosper?
Answer:
No. Because Seagate is not the statutory taxpayer.
Question: If Seagate filed a claim for refund under Section
112 of the NIRC, will the claim prosper?
Answer:
Yes. Because Seagate is VAT registered.
In this case, Seagate was filing a claim for refund under
Section 112.
Under Section 112, the transaction must be attributable to
a zero-rated transaction or to an effectively zero-rated
transaction. This means that the input VAT acquired by
Seagate must be used by Seagate for its zero-rated
transactions or effectively zero rated transactions. Thus, the
supplies it bought from supplier A, must be used for
transactions of Seagate that are classified as either zero-
rated transaction or effectively zero-rated transaction.
Discussion:
If an entity is within an export zone, the entity is
considered as located in a foreign territory.
What if Seagate sells within the Philippines?
Answer: The sale will be considered as an importation of
goods thus it is subject to VAT.
However, in this case, under RA No. 7227, Seagate is
exempt from both direct and indirect tax.
Locators enjoy exemption from both direct and indirect
tax.
Locators are liable for 5% tax and this in lieu of national or
local taxes.
Since Seagate is exempt from both direct and indirect tax,
then Seagate should be free from the payment of VAT.
Since Seagate is VAT registered and is exempt from both
direct and indirect tax, then Seagate is considered as a VAT
exempt entity, being a VAT exempt entity, it can file a claim
for refund of unutilized input VAT provided that it is VAT
registered.
 CIR v. Context
Facts:
Context bought supplies from supplier A.
Context is located in an eco-zone.
Supplier A shifted the VAT to Context.
Context objected, but made the objection belatedly
because the VAT was already shifted to it.
Context argued that it erroneously paid the tax to supplier
A. Context then filed for a refund of the VAT that it
erroneously paid to supplier A.
This claim for refund was filed with the CIR.
Issue:
Will the application for refund prosper?
Held:
NO. Because Context is not the statutory taxpayer. If a
taxpayer will file a claim for refund of erroneously paid tax
under Section 229 of the NIRC, it is necessary that this
person must be the statutory taxpayer.
If the person is not the statutory taxpayer, the claim for
refund under Section 229 will not prosper.
Can Context file for a refund of unutilized input VAT under
Section 112 of the NIRC?
Answer:
No. Because context is NOT VAT REGISTERED.
PLACERDOME CASE
Facts:
Placerdome PH was engaged by Placerdome Canada.
They agreed that PlacerDomePh will rehabilitate the river
that has been affected by the operations of a mining
company.
PlacerDome Canada paid PlacerDomePh in an acceptable
foreign currency.
In this particular case, the services were performed in the
Philippines, and PlacerDomePh was paid in an acceptable
foreign currency. The client is PlacerDome Canada, a non-
resident foreign corporation.
Thus, since all the elements of foreign currency
denominated transaction are present, this transaction shall
therefore be subject to 0% tax.
(Same ruling in AMEX Case)
VAT EXEMPT TRANSACTIONS
Take note that:
If the gross annual sales and/or receipts of which does not
exceed the amount of P3 Million= The transaction will fall
within the status of VAT EXEMPT TRANSACTION.
What if the expected sales will be P3 Million?
It will qualify as a VAT TAXABLE TRANSACTION.
What if the taxpayer failed to meet the expected sales?
The taxpayer may opt to revert back to Non-VAT but that
would be considered as cancellation of registration as VAT.
If that is the case, the ending inventory will be subject to VAT
because that is considered as a Transaction Deemed Sale.
OTHER TRANSACTIONS WHICH ARE EXEMPT FROM VAT
REGARDLESS OF THE AMOUNT OF GROSS SALES/RECEIPTS
1. Educational Services-
Exempt from VAT but take note that the exemption
refers only to tuition fees and other related activities.
Further, the educational institution must be duly
accredited by CHED, DepEd, or Tesda.
Question: Does it matter whether the educational
institution is stock or non-stock?
Answer: No. It does not matter. Thus, even if
proprietary educational institution, it is VAT
EXEMPT.

Question: University of Baguio is a proprietary
educational institution, is it exempt from VAT?
Answer: Yes. But only with respect to their tuition fee
because UB is an educational institution duly
accredited by CHED.
2. Senior Citizen and PWD
Senior Citizen and PWDs are exempt from VAT.
Thus, when the following buy their basic necessities,
their purchase will not be subject to VAT. Likewise,
the services rendered by Professionals to the
following shall be exempt from VAT.
3. Health Services NOT rendered by Professionals
Take note that:
Health services, medical, and veterinary services NOT
rendered by professionals shall be exempt from VAT.
Example: If you went for an X-Ray.
However, if you already have reader’s fee (doctor
reading the x-ray), the reader’s fee will not be subject
to VAT provided that the gross receipts of the doctor
exceeded P3 Million.
4. Cooperatives
Cooperatives are exempt from VAT with respect to
their transactions WITH MEMBERS.
If the transaction is NOT WITH MEMBERS, then it is
SUBJECT TO VAT.
Exception: When the cooperative is an agricultural
cooperative and such is selling agricultural products,
the sale thereof is NOT SUBJECT TO VAT even if they
had transacted with non-members.
CIR v. United Cadiz
Facts:
United Cadiz Sugar Farmers Association Multi-
purpose Cooperative (UCSFA-MPC) is a multi-
purpose cooperative. It is engaged in producing
refined sugar. In BIR Ruling No. ECCP-015-08, the
CIR ruled that the cooperative "is considered as
the actual producer of the members' sugarcane
production, because it primarily provided the
various inputs (fertilizers), capital, technology
transfer, and farm management." (emphasis
supplied) The CIR thus confirmed that UCSFA-
MPC's sale of produce to members and non-
members is exempt from the payment of VAT.
However, Regional Director Galanto of the CIR,
again demanded the payment of advance VAT
from UCSFA-MPC. Unable to withdraw its refined
sugar from the refinery/mill for its operations,
UCSFA-MPC was forced to pay advance VAT
under protest.
Issue:
Is the transaction subject to VAT?
Ruling:
No.
As a general rule under the NIRC, a seller shall be
liable for VAT on the sale of goods or properties
based on the gross selling price or gross value in
money of the thing sold. However, certain
transactions are exempted from the imposition of
VAT.
One exempted transaction is the sale of
agricultural food products in their original state.
Agricultural food products that have undergone
simple processes of preparation or preservation for
the market are nevertheless considered to be in
their original state. Sugar is an agricultural food
product.
Notably, tax regulations differentiate between
raw sugar and refined sugar. For internal revenue
purposes, the sale of raw cane sugar is exempt
from VAT40 because it is considered to be in its
original state. On the other hand, refined sugar is
an agricultural product that can no longer be
considered to be in its original state because it has
undergone the refining process; its sale is thus
subject to VAT.
Although the sale of refined sugar is generally
subject to VAT, such transaction may nevertheless
qualify as a VAT-exempt transaction if the sale is advance payment of VAT upon withdrawal from
made by a cooperative. Under Section 109(1) of the refinery/mill. The agricultural cooperative's
the NIRC,sales by agricultural cooperatives are exemption from the requirement of advance
exempt from VAT provided the following payment is a logical consequence of the
conditions concur, viz: First, the seller must be an exemption from VAT of its sales of refined sugar.
agricultural cooperative duly registered with the
CDA. An agricultural cooperative is "duly
registered" when it has been issued a certificate of
registration by the CDA.

This certificate is conclusive evidence of its

registration. Second, the cooperative must sell SALE OF AGRICULTURAL PRODUCTS IN THEIR
either: 1) exclusively to its members; or 2) to both
members and non-members, its produce, whether ORIGINAL STATE
in its original state or processed form. The second (VAT EXEMPT)
requisite differentiates cooperatives according to
its customers. If the cooperative transacts only with
members, all its sales are VAT-exempt, regardless
of what it sells. On the other hand, if it transacts This exemption applies ONLY to food products and only if the
with both members and non-members, the following requisites are present:
product sold must be the cooperative's own
produce in order to be VAT-exempt. Stated
differently, if the cooperative only sells its produce 1. The food products must be in the nature of
or goods that it manufactures on its own, its entire
agricultural and marine products;
sales is VAT-exempt.
2. The food products must be sold in their ORIGINAL
A cooperative is the producer of the sugar if it
owns or leases the land tilled, incurs the cost of STATE.
agricultural production of the sugar, and
produces the sugar cane to be refined. It should
Original State- the food products have undergone simple
not have merely purchased the sugar cane from
processes of preparation or preservation for the market, such
its planters-members. UCSFA-MPC satisfies these
requisites in the present case. First, UCSFA-MPC as freezing, drying, salting, broiling, roasting, smoking, or
presented its Certificate of Registration issued by stripping.
the CDA. It does not appear in the records that
Polished and/or husked rice, corn grits, raw cane
the CIR ever objected to the authenticity or
sugar and molasses, ordinary salt, and copra shall be
validity of this certificate. Thus, the certificate is
considered in their original state.
conclusive proof that the cooperative is duly
registered with the CDA.

While its certificate of registration is sufficient to Question: What if the vegetables were chopped and sold in
establish the cooperative's due registration, we SM, is the sale exempt from VAT?
note that it also presented the Certificate of Good
Standing that the CDA issued. This further Answer: Yes. The chopping of vegetables was merely a simple
corroborates its claim that it is duly registered with process of preparation for the market.
the CDA. Second, the cooperative also
presented BIR Ruling No. ECCP-015-08, which Question: What if the taxpayer goes to Teriyakishit and buys
states that UCSFA-MPC "is considered as the sashimi, is it subject to VAT?
actual producer of the members' sugar cane
Answer: Yes. The sashimi is no longer in its original state
production because it primarily provided the
because the restaurant is no longer engaged in the sale of
various productions inputs (fertilizers), capital,
food products rather it is now engaged in the sale of its
technology transfer, and farm management." It
concluded that the cooperative "has direct service, thus, subject to VAT.
participation in the sugar cane production of its Illustration: If you buy Lechon Manok from Andoks, subject to
farmers-members. The sale of refined sugar by an
VAT because what is being sold by Andoks is their service.
agricultural cooperative duly registered with the
CDA is exempt from VAT. A qualified cooperative
also enjoys exemption from the requirement of
 PROVISION R.A No. 8424 RA No. DISCUSSION ON SALE OF RESIDENTIAL LOT
10693

(APPLY
In SALE OF RESIDENTIAL LOT, it will be subject to VAT if the
THIS)
gross selling price is more than P1.5 Million, if the gross selling
price is P1.5 Million and below, it will be exempt from VAT.
Sale of gold to Bangko Zero-rated VAT-exempt
Sentral ng Pilipinas because it is Question:
an export sale
What if the taxpayer sold 4 residential lot worth P1 Million
each for the taxable year 2021, will the sale be subject to
Sale or lease of goods and VAT-exempt VAT-exempt
VAT?
services to senior citizens (under special (Highlighted
and persons with disability laws) under the Answer:
TRAIN LAW)
No. Since the transaction involves the sale of residential lots,
we must consider the gross selling price per transaction. Since
Transfer of property No Provision VAT EXEMPT the gross selling price per transaction per lot is only P1 Million,
pursuant to Section on VAT- then it will not qualify under VAT. Thus, even if his annual gross
40(c)(2) of the NIRC Exemption sales is P4 Million but the per sales transaction is only P1
Million which did not exceed the threshold amount of P1.5
(TAX FREE EXCHANGE) Million, then the same shall not be subject to VAT.

Association dues, No Provision VAT EXEMPT

membership fees, and on VAT- (Highlighted
other assessments and Exemption under the DISCUSSION ON SALE OF RESIDENTIAL HOUSE AND LOT
charges collected by TRAIN LAW)
(Includes Sale of Condominium Units)
homeowner associations
and condominium
corporations.
In SALE OF RESIDENTIAL HOUSE AND LOT, under the TRAIN
LAW, the gross selling price must exceed P2.5 Million in order
Sale of drugs and Not Exempt VAT-EXEMPT for the sale to be subject to VAT. If the gross selling price is P2.5
medicines prescribed for from VAT Million and below, the sale is not subject to VAT.
diabetes, high cholesterol
and hypertension
beginning January 1,2019.
Question:

What if the taxpayer sold two residential house and lot worth
Sale of Residential Lot P1,919,500 P1,500,000 P2 Million each, will the transaction be subject to VAT?
and below and below
(Must be classified as an (EXEMPT) (EXEMPT)
ordinary asset)
More than this More than Answer:
amount, this amount,
subject to VAT subject to No. Because the sales of the taxpayer per transaction does
VAT not exceed P2.5 Million.

Sale of Residential House P3,199,200 P2,500,000 REMINDER:

and Lot and below and below
(EXEMPT) (EXEMPT) Under Revenue Regulation 13-2018:
(Must be classified as an
If two or more adjacent residential lots are sold or disposed in
ordinary asset) More than this More than
amount, this amount, favor of one buyer, for the purpose of utilizing the lots as one
subject to VAT subject to residential lot, the sale shall be exempt from VAT only if the
VAT aggregate value of the lots do not exceed P1.5 Million.
Requisites for this to apply: Rules with respect to Lease of Residential units under
Revenue Regulation No. 13-2018
1. Two or more adjacent lots are sold;
2. In favor of only ONE buyer; Monthly Rent Aggregate Rental Business Tax
3. And the same shall be utilized by the buyer as one Implication
residential lot; P15,000 or below P3,000,000 or Exempt from VAT
4. The aggregate value of the lots must not exceed P1.5 below and percentage
Million. P15,000 or below More than Exempt from VAT
P3,000,000 and Percentage
Thus, if the aggregate value of the lots exceeds P1.5 Million, Tax
then subject to VAT.
More than P15,000 P3,000,000 or Percentage Tax
below
More than P15,000 More than VAT
Illustration: P3,000,000
If three lots are sold the values of which are P1.5 Million each
and there is only one buyer and the buyer utilizes the lots as
Conclusion:
one residential lot. The transaction shall be subject to VAT
because you consider the aggregate amount of the three lots 1. If the monthly rental is less than P15K= It will NEVER
pursuant to RR. 13-2018. be subject to VAT and Percentage Tax;

Adjacent residential lots, although covered by separate titles 2.
and/or separate tax declarations, when sold or disposed to one
and the same buyer, whether covered by one or separate Deed
of Conveyance, shall be presumed as a sale of one residential 3.
lot.
There would only be a business tax implication if the
rent is more than P15K
Thus, if the monthly rental is more than P15k and
the aggregate rental is P3 Million and Below= subject
only to Percentage Tax;

4. If monthly rental is more than P15K and the

aggregate amount exceeds P3 Million= Subject to
DISCUSSION ON LEASE OF RESIDENTIAL UNIT VAT
(Includes apartments, dormitories, house)

(DOES NOT INCLUDE MOTELS, HOTELS, INNS AND LODGING The term “unit” shall mean any apartment unit in the case of
HOUSES) apartments, house in the case of residential houses; per
person in the case of dormitories, boarding houses and bed
spaces; and per room in case of rooms for rent.
Apply this rule ONLY if the lease pertains to RESIDENTIAL
UNITS. Do not apply this rule if the lease pertains to
commercial units.

VAT EXEMPT IF:

1. Lease Does Not Exceed P15,000 per month IMPORTATION OF FUEL, GOODS AND SUPPLIES BY PERSONS
And ENGAGED IN INTERNATIONAL SHIPPING OR AIR TRANSPORT
OPERATIONS
2. Aggregate of such rentals does not exceed P3
Million.

BOTH requisites must concur to be VAT EXEMPT. Otherwise, if = VAT EXEMPT PROVIDED THAT:
either of the requisites exceed the threshold amounts, then The fuel, goods, and supplies shall be used for international
SUBJECT TO VAT. shipping or air transport operations.
Do not be confused with the Zero-Rated Transaction:
The Zero-Rated Transaction pertains to the SALE of fuel,
goods, and supplies. This one pertains to the IMPORTATION.
TRANSACTIONS BY INTERNATIONAL AIR CARRIERS
(Under this rule the International Carrier is the one purchasing
the goods)
Illustration: Petron SOLD goods, supplies, equipment, fuel to
the International Carrier.
The international carriers will use the fuel or petroleum
products for international flights and domestic flights.
 If used by the International Carrier for its
INTERNATIONAL FLIGHTS = Subject to 0%
VAT (Zero-Rated Transaction)
 If the used by the International Carrier for
its DOMESTIC FLIGHTS = Subject to 12%
VAT.
If Petron IMPORTS the goods, supplies, equipment or fuel to
the international carrier:
 If used by the International Carrier for its
INTERNATIONAL FLIGHTS = EXEMPT FROM VAT
 If used by the International Carrier for its DOMESTIC
FLIGHTS= SUBJECT TO 12% VAT
INTERNATIONAL CARRIERS
(Under this rule, the International Carrier is the one Selling
Services)
(Subject to 3% OPT regardless of the amount of gross
sales/receipts)
 If the International Carrier earned income from
DOMESTIC FLIGHTS= The income earned shall be
VAT EXEMPT.
 If the International Carrier earned income from
INTERNATIONAL FLIGHTS= VAT EXEMPT
Why is this the rule?
Answer:
Because International Carriers are subject to 3% Other
Percentage Tax (OPT) regardless of the amount of gross
sales/receipts.
The government cannot impose VAT and OPT at the same
time (because these are both business taxes). Otherwise to
impose both taxes at the same time shall result to direct
double taxation.
DOMESTIC CARRIERS
 PROCEDURE FOR THE REFUND OF UNUTILIZED INPUT VAT

 If the Domestic Carrier IMPORTED goods, supplies,

fuel and the same was used for its INTERNATIONAL
DIFFERENCE BETWEEN INPUT TAX AND OUTPUT TAX
FLIGHTS = VAT EXEMPT
INPUT TAX- Tax acquired by reason of the purchase of goods

OUTPUT TAX- VAT imposed on the sale of goods.

 If the Domestic Carrier IMPORTED goods, supplies,
fuel and the same was used for its DOMESTC
FLIGHTS = 12% VAT
If OV > IV = VAT LIABILITY

If OV < IV = Creditable Input Tax (this can be used as a tax

If there is SALE of goods, supplies, equipment to the credit for the succeeding taxable quarters)
DOMESTIC CARRIER and the DOMESTIC CARRIER USES IT
FOR: Applying this rule:

1. INTERNATIONAL FLIGHTS= 0% VAT If the transaction is Zero-Rated Transaction, the OUTPAT VAT
2. DOMESTIC FLIGHTS= 12% VAT will always be pegged at 0. If the taxpayer in this transaction
acquires supplies from another VAT registered entity, this VAT
registered entity may shift the VAT to the taxpayer. Thus, in
which case a taxpayer engaged in Zero-Rated Sales may pay
RULE UNDER RECEIPTS EARNED BY THE DOMESTIC CARRIER
INPUT VAT.

Under Section 112 of the NIRC:

The refund of Unutilized INPUT VAT under Section 112 of the

NIRC can be made if:

Southern Philippines v. CIR

SC enumerated the requisites in order that the taxpayer

can file a claim for refund under Section 112 of the NIRC.

The requisites are as follows:

If the Domestic Carrier earns income from:
1. The taxpayer is VAT-registered;
1. DOMESTIC FLIGHTS = SUBJECT TO 12% VAT
2. INTERNATIONAL FLIGHTS = 0% VAT (ZERO RATED) 2. The TP is engaged in zero-rated or effectively
zero-rated sales;

3. The input taxes are due or paid;

DIFFERENCE WITH INTERNATIONAL CARRIER:
4. The input taxes are not transitional input
IF INTERNATIONAL CARRIER REGARDLESS WHETHER THE
taxes;
INCOME WAS EARNED FROM ITS INTERNATIONAL OR
DOMESTIC FLIGHTS, IT IS VAT EXEMPT WITH RESPECT 5. The input taxes have not been applied against
BECAUSE IT IS ALREADY SUBJECT TO 3% OPT output taxes during and in the succeeding
quarters;
IF DOMESTIC CARRIER ONLY INCOME EARNED FROM THE
DOMESTIC FLIGHT IS SUBJECT TO 12% VAT. THE INCOME 6. The input taxes claimed are attributable to
EARNED FROM INTERNATIONAL FLIGHT IS 0% OR ZERO zero-rated or effectively zero-rated
RATED TRANSACTION. transaction;
 7. For zero-rated sales under Section 106 (FCDTs)
the acceptable foreign currency exchange
proceeds have been duly accounted for in
accordance with BSP Rules and Regulations;
8. Where there are both zero-rated or effectively
zero-rated 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;
9. The claim is filed within two years after the
close of the taxable quarter when such sales
were made.
Applicability of Section 112
Section 112 will only be applicable if the transaction is a
ZERO-RATED TRANSACTION.
Illustration:
OV is Zero
IV is 12%
Difference: Creditable Input VAT of 12%
Such amount shall be subject to refund under Section 112 of
the NIRC because the INPUT VAT is attributable to a zero-
rated transaction.
If the TP is engaged in BOTH zero-rated transaction and a
transaction subject to 12% VAT, this would mean that we
need to attribute the INPUT VAT. (han ko maawatan
discussion ditoyen)
If we talk about VAT EXEMPT PARTY, the TP can still file a
claim for refund under Section 112 of the NIRC provided that:
1. The TP is the one that is EXEMPT;
2. This particular TP is VAT-Registered
TRANSITIONAL INPUT TAX:
= Is the INPUT TAX that can be availed of by the a NEWLY
REGISTERED VAT TAXPAYER.
Question:
Is there a requirement that the TP should have voluntarily
registered under the VAT system?
Answer:
There is no requirement. What is only required is that the TP
is a NEWLY REGISTERED VAT TAXPAYER.
What if the TP was mandated to register under the VAT
system?
Answer: It does not matter. What is only important is the fact
that the TP is NEWLY REGISTERED. If the TP is a newly
registered, this would mean that the TP can claim transitional
input tax.
Transition Input Tax is equivalent to 2% of the beginning
inventory or the actual input tax whichever is higher.
This could thereafter be used to reduce the amount of output
VAT during the first time that a TP had registered under the
VAT system.
How does this work?
This particular amount of transitional input tax can be claimed
if the TP submits a beginning inventory to the BIR. Without this
beginning inventory submitted to the BIR, the TP cannot file a
VAT return indicating a transitional input tax.
Illustration:
ABC Corporation is a newly registered under the VAT system.
Since it is newly registered under the VAT system, what it did
was to submit a beginning inventory to the BIR.
Question: Can ABC Corp., deduct transitional input VAT from
the output VAT arising from the sales made during the first
time that it registered under the VAT system?
Answer: Yes. Because ABC Corporation is a newly registered
VAT taxpayer.
Note: FORT BONIFACIO V. CIR

The TRAIN LAW removed foreign currency denominated sales Facts:

from VAT zero-rating and subjects to the VAT indirect
exporters and agents only upon the establishment and Fort Bonifacio purchased parcels of land from the
implementation of an enhanced VAT refund system. government. At the time of purchase of the
parcels of land, the transaction was not yet
Thus, foreign currency denominated sales are no longer
subject to VAT.
considered as zero-rated sale.

While Indirect Exporters and agents are still considered as
subject to Zero-Rated Sales because the government did not
yet establish a VAT refund center.
These sales or services are no longer considered as export sales
upon the establishment of a VAT refund center.
Thus, Fort Bonifacio did not pay any VAT with
respect to such transaction.
Later on, Fort Bonifacio developed these parcels
of land and sold these parcels of land to different
entities.

Establishments affected by the establishment of a VAT
Refund Center:
I. Sale of raw materials or packaging materials to a
non-resident buyer for delivery to a resident local
export-oriented enterprise to be used in
manufacturing, processing, packing or repacking
in the Philippines of the said buyer’s goods and
paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the BSP;
II. Sale of raw materials or packing materials to
export-oriented enterprise whose export sales
exceed 70% of total annual production;
III. Those considered export sales under EO No. 226,
otherwise known as the Omnibus Investment
Code of 1987 and other special laws
Other Types of INPUT VAT
1. Transitional Input VAT- 2% of the value of the
inventory or the actual VAT, whichever is higher.
At this time that the sales were made, the sales are
now subject to 12% VAT.
Fort Bonifacio now claims for transitional input tax
which the CIR disallowed arguing that Fort
Bonifacio cannot avail of the transitional input tax
because Fort Bonifacio did not pay any VAT.
Issue:
Whether or not the output VAT from the sale of the
parcels of land by Fort Bonifacio can be reduced
by the amount of transitional input tax.
Held:
The payment of INPUT TAX is NOT considered a
condition sine qua non for the availment of
transitional input vat.
The INPUT VAT is merely used as ceiling amount for
the utilization of transitional INPUT VAT. Meaning, if
the TP has a beginning inventory and was
submitted to the BIR, then the first parameter has
already been set, particularly 2% of the value of
the beginning inventory or the actual input VAT
paid. In this case, it would be 0 because Fort
Bonfacio did not pay any INPUT TAX.

 Applies only if the taxpayer is newly vat-

registered
 There has to be submission of beginning
inventory to the BIR (without this the
transitional input vat will not be recognized)
 The payment of INPUT TAX is NOT
considered a condition sine quo non for the
availment of transitional input vat.
 2. Presumptive VAT INPUT VAT- 4% of gross value in REFUND OR TAX CREDIT OF EXCESS INPUT VAT
money of their purchases of primary agricultural
Refund under:
products.
SECTION 112 (A)

1. The TP is VAT registered;

 Can be availed of by taxpayers engaged in the
2. The TP is engaged in zero-rated or effectively zero
PRODUCTION of sardines, mackerel, milk, refined
rated sales;
sugar, cooking oil, packed noodles.
3. The input taxes are due or paid;
 The enumeration is EXCLUSIVE.
4. The input taxes are not transitional input taxes;
5. The input taxes have not been applied against output
 If the manufacturer produces the said goods, then the
taxes during and in the succeeding quarters;
manufacturer can claim presumptive input VAT
6. The input taxes claimed are attributable to zero-rated
equivalent to 4% of the gross value in money of their
or effectively zero-rated sales;
purchases of primary agricultural products.
7. For Zero-Rated Sales, the acceptable foreign currency
exchange proceeds have been duly accounted for in
 Take note that these agricultural products are not
accordance with BSP rules and regulations;
subject to INPUT VAT because they are sold in their
8. Where there are both zero-rated or effectively zero-
original state, thus the sale thereof shall be classified
rated sales and taxable or exempt sales, and the input
as a VAT EXEMPT transaction. NONETHELESS, the
taxes cannot be directly and entirely attributable to
taxpayer can STILL claim a presumptive input VAT
any of these sales, the input taxes shall be
equivalent to 4% of the gross value in money of their
proportionately allocated on the basis of sales
purchases of primary agricultural products.
volume; and
9. The claim is filed within two years after the close of
Illustration: the taxable quarter when such sales were made.

If we talk about sardines the main ingredient in the

manufacture of such is obviously a fish.

Is the fish agricultural product sold in their original state?

Answer: Yes. Thus, if the fishes were bought from the
fisherman the manufacturer has no INPUT TAX. If they will
already sell the canned sardines, there will now be VAT.
The manufacturer does not incur any INPUT VAT from the
purchase of the fishes because the fishes are goods sold in
their original state, and the sale of these goods are exempt
from VAT. Since there is no INPUT VAT, the manufacturer is
burdened considering that there is nothing that can reduce his
OUTPUT VAT.
This is the reason why Congress granted Presumptive Input
VAT in order to alleviate the burden of paying the VAT.
Southern Philppines Case
Facts:
Southern Phils., is a pioneer enterprise.
Being a pioneer enterprise, under the Omnibus
Investment Code, it will be engaged in a zero-
rated transaction (export sales)
Since its transactions are zero-rated transaction, it
has no liability because the OUTPUT VAT is
computed as 0% multiplied by gross sales.
In this case, Southern Phils., made purchases. Its
purchases have INPUT TAX, the burden of which is
shifted to Southern Phils.

Issue:

Can Southern Phils., claim the INPUT tax shifted to

it?

Held:

Yes. Application for Zero-rating is not material

because the law itself classifies the transaction as
 a zero-rated transaction. The application is just a
confirmation that indeed the transaction is a zero-
rated transaction.
But take note, the application is not a condition for
the classification of such transaction as a zero-
rated transaction because the law classifies it as
such.
PRESCRIPTIVE PERIOD
(Section 112)
(Applies ONLY to ADMINSITRATIVE CLAIMS FOR REFUND)
The two-year period is counted from the close of the taxable
quarter when the sales were made.
MIRANT Case
Facts:
MPC is a domestic firm engaged in the generation
of power which it sells to the National Power
Corporation (NPC). For the construction of the
electrical and mechanical equipment portion of
its Pagbilao, Quezon plant, which appears to have
been undertaken from 1993 to 1996, MPC secured
the services of Mitsubishi Corporation (Mitsubishi)
of Japan.
In the light of the NPC’s tax exempt status, MPC,
on the belief that its sale of power generation
services to NPC is, pursuant to Sec. 108(B)(3) of the
Tax Code, zero-rated for VAT purposes, filed on
December 1, 1997 with Revenue District Office
(RDO) No. 60 in Lucena City an Application for
Effective Zero Rating. Not getting any response
from the BIR district office, MPC refiled its
application in the form of a "request for ruling" with
the VAT Review Committee at the BIR national
office on January 28, 1999.
The Commissioner of Internal Revenue issued VAT
Ruling No. 052-99, stating that "the supply of
electricity by Hopewell Phil. to the NPC, shall be
subject to the zero percent (0%) VAT, pursuant to
Section 108 (B) (3) of the National Internal
Revenue Code of 1997." It must be noted at this
juncture that consistent with its belief to be zero-
rated, MPC opted not to pay the VAT component
of the progress billings from Mitsubishi for the
period covering April 1993 to September 1996—for
the E & M Equipment Erection Portion of MPC’s
contract with Mitsubishi. This prompted Mitsubishi
to advance the VAT component as this serves as
its output VAT which is essential for the
determination of its VAT payment. MPC filed on
December 20, 1999 an administrative claim for
refund of unutilized input VAT.
ISSUE:
Was the claim for refund timely filed?
RULING:
NO. Section 112 provides in no uncertain terms
that unutilized input VAT payments not otherwise
used for any internal revenue tax due the
taxpayer must be claimed within two years
reckoned from the close of the taxable quarter
when the relevant sales were made pertaining to
the input VAT regardless of whether said tax was
paid or not. As the CA aptly puts it, albeit it
erroneously applied the aforequoted Sec. 112(A),
"[P]rescriptive period commences from the close
of the taxable quarter when the sales were made
and not from the time the input VAT was paid nor
from the time the official receipt was issued." Thus,
when a zero-rated VAT taxpayer pays its input VAT
a year after the pertinent transaction, said
taxpayer only has a year to file a claim for refund
or tax credit of the unutilized creditable input VAT.
The reckoning frame would always be the end of
the quarter when the pertinent sales or transaction
was made, regardless when the input VAT was
paid. Be that as it may, and given that the last
creditable input VAT due for the period covering
the progress billing of September 6, 1996 is the third
quarter of 1996 ending on September 30, 1996,
any claim for unutilized creditable input VAT
refund or tax credit for said quarter prescribed two
years after September 30, 1996 or, to be precise,
on September 30, 1998.
Consequently, MPC’s claim for refund or tax credit
filed on December 10, 1999 had already
prescribed. To be sure, MPC cannot avail itself of
the provisions of either Sec. 204(C) or 229 of the
 NIRC which, for the purpose of refund, prescribes Remember the Taxable Quarters: M J S D
a different starting point for the two-year
1. End of 1st Quarter = March 30
prescriptive limit for the filing of a claim therefor.
Section 229 sets a two-year prescriptive period, (January- March)
reckoned from date of payment of the tax or
2. End of 2nd Quarter= June 30
penalty, for the filing of a claim of refund or tax
credit. Such provision applies only to instances of (April-June)
erroneous payment or illegal collection of internal
3. End of 3rd Quarter= September 30
revenue taxes
(August-September)

4. End of 4th Quarter= December 31

*** Under recent CTA decisions: the concept of “sales were
(October-December)
made” pertains to the date when the sales have been earned
by the taxpayer, it does not pertain to the date when the
taxpayer purchased goods. (APPLY THIS!!)
Under the TRAIN LAW

Illustration:
Administrative Claim for Refund
If the sales were made on January 10-30, 2020.
The CIR has a period of 90-days to act on the administrative
Question: Until when can the TP file an administrative claim for
claim for refund.
refund?
The lapse of the 90-day period is NOT considered as an
Answer:
automatic denial of the claim for refund.
The TP can file an administrative claim for refund until March
31, 2022.

Why March 31,2022?

Judicial Claim for Refund

Because the close of the taxable quarter with respect to The Judicial Claim for refund must be filed within 30-days from
January shall be March 31, 2020, thus, the 2-year period shall the receipt of the decision.
be counted from March 31, 2020. The TRAIN LAW already removed the concept of implied
denial. Inaction by the CIR is not deemed a denial.

What if the Sales were made on August 2020?
When is the close of the taxable quarter if the sales were made
on August 2020?
Answer: September 2020.
Since close of the taxable quarter is September 30, 2020, TP
can file an administrative claim for refund until September 30,
2022.
Before the TRAIN LAW, the claim for refund can either be filed
30-days from the receipt of the decision of the CIR or the lapse
of the 120-day period.
Under the TRAIN LAW, the reckoning date of the 30-day
period is FROM THE RECEIPT OF THE DECISION of the CIR.
Therefore, the decision is necessary in order for the TP to file
a judicial claim for refund
Without any decision rendered by the CIR, the TP cannot file
a judicial claim for refund. Thus, the receipt of the decision is
a condition in the filing of a judicial claim refund.
PROCESS IN THE FILING OF AN ADMINISTRATIVE CLAIM FOR
REFUND
(Section 112)
1. The filing of an Administrative Claim for Refund
before the Commissioner which shall be filed within 2
years from the close of the taxable quarter when the
sales were made (Mandatory Requirement)
Without this the Judicial Claim for Refund shall be
dismissed on the ground that there is failure to
exhaust administrative remedies.
2. The CIR shall act upon it within 90 days from the date
of submission of the official receipts or invoices and
other documents in support of the application
3. The TP has 30 days from the receipt of the decision of
the CIR denying the claim to file a judicial claim for
refund.
NOTE THAT: All claims for refund/tax credit certificate filed
prior January 1,2018 shall still be governed by the one-hundred
(120)-day processing period.
Thus, when the administrative claims for refund was filed prior
to TRAIN LAW, the 120-day period shall apply.
ADMINISTRATIVE AND PENAL SANCTIONS
The CIR or his duly authorized representative may order
suspension or closure of a business establishment for a period
of not less than 5 days for any of the following violations:
a. In the case of a VAT-registered person.-
i. Failure to issue receipts or invoices;
ii. Failure to file VAT return as required under
Section 114 or;
iii. Understatement of taxable sales or receipts
by thirty percent (30%) or more of his correct
taxable sales or receipts for the taxable
quarter.
b. Failure of any person to register as required under
Section 236
c. One that may result to a presumption that there is
fraud. This presumption applies also to other taxes
which the TP is deficient. The presumption will arise
only when the TP’s sales or receipts are under-
declared by thirty-percent (30%) or more of the
correct taxable sales or receipts.
d. If there is a failure to register as a VAT payer, the
business can be suspended or closed.
AMORTIZATION OF INPUT VAT
Amortization of INPUT VAT applies when the TP acquired
depreciable property such as machineries, equipment,
furniture, and buildings with an aggregate acquisition cost of
more than P1 Million.
If the TP purchases depreciable property during the taxable
year, and it amounts to more than P1million, the input vat
attributable to such purchase shall be amortized for a period
of 5 years or the estimated useful life whichever is LOWER.
(Not asked in BAR)
 PROCEDURE FOR REFUND
If the TP did not file the judicial claim for refund within the 30-
day period from the receipt of the decision of the CIR or from
the lapse of the 120-day period, the judicial claim for refund
shall be dismissed.
If the judicial claim for refund is filed before the lapse of the
120-day period, the petition will likewise be dismissed on the
ground that there was premature filing. Except if the judicial
claim for refund was filed during the effectivity of D.A 489-03
(2003 to October 6, 2010)
Beginning October 6,2010, premature filing is no longer
allowed. If there is a premature filing the judicial claim for
refund will definitely be dismissed.
The 120-day + 30 day rule will be applied ONLY when the TP
filed the judicial claim for refund before January 1, 2018.
If the judicial claim for refund was filed after January 1, 2018,
then the provision of TRAIN LAW shall apply.
OTHER TAXES
Percentage Tax- a business tax imposed on the sale, barter,
exchange or lease of goods or properties in the ordinary course
of business only that the transaction is VAT exempt because
the TP did not reach the threshold amount of more than P3
Million.
Excise Tax- tax imposed on sin products or non-essential
products
Documentary Stamp Tax- tax imposed on transfers of property
whether in the nature of a sale or donation
TAX ADMINISTRATION
3 Stages of the Power of Taxation
1. Levy- pertains to the act of enacting a law
in order for the government to assess and
collect taxes
2. Assessment- refers to the computation of
the tax liability
3. Collection- refers to the settlement of the tax
liability
LEVY
-Is inherently legislative because it deals with the
enactment of laws. Thus, it cannot be delegated to
the executive branch of the government.
- vs-
Assessment & Collection
-Are the components of tax administration. Thus, it
can be delegated to the executive branch of the
government.
Tax Administration being implemented by the
Executive
Government agencies involved in tax
administration:
1. Bureau of Internal Revenue
2. Bureau of Customs
3. LTO
Why is LTO included?
The LTO is included because the automobile
registration fees are being collected by the LTO and
these fees are in the nature of a regulatory tax.
Being a regulatory tax, it therefore implies that LTO is
collecting taxes.
EXTENT OF CONGRESS’ POWER RELATED TO TAX
ADMINISTRATION
The power of the Congress does not involve
SCRUTINY because it will violate the principle of
separation of powers.
The power of SCRUTINY involves an act to check
whether the executive branch is implementing the
law correctly. The guidelines or details on how to
implement the law is SOLELY vested with the
EXECUTIVE BRANCH of the government.
The Congress can act in order to aide legislation.
ABAKADA Guro Party List vs. Purisima
RA 9335 covers all employees of both agencies
regardless of their employment status as long as
they have already rendered at least six months of
service. The DOF, DBM, BIR, and CSC were tasked
to issue and implement the IRR of RA 9335 subject
to the approval of the Joint Congressional
Oversight Committee of the Congress.
Ruling
Issue on Undue Delegation
In order for a valid delegation of legislative power
there must be two tests that must be
conducted(Quiz/Exam):
i. Completeness Test: A law is complete
when it sets forth therein the policy to be
executed, carried out or implemented by
the delegate.
ii. Sufficient Standard Test: It lays down a
sufficient standard when it provides
adequate guidelines or limitations in the
law to map out the boundaries of the
delegate’s authority and prevent the
delegation from running riot.
Remember: RA 9335 adequately states the policy
and standards to guide the President in fixing
revenue targets and the implementing agencies
in carrying out the provisions of the law. Hence,
the president will merely perform a ministerial act.
‘Revenue targets’ refers to the original estimated
revenue collection expected of the BIR and the
BOC for a given fiscal year as stated in the Budget
COMPOSITION (SEC 3 NIRC):
of Expenditures and Sources of Financing (BESF)
submitted by the President to Congress.
Separation of Powers
Remember: The Congress cannot indicate in the
law that any IRR shall be subject to its approval
otherwise it will violate the Separation of Powers.
This is already considered as Scrutiny. The Section
creating the committee is unconstitutional
because the moment the law becomes effective,
any provision that empowers the Congress to
create a role in the implementation of the law is a
violation of the principle of separation of powers.
(from KAMM NOTES)
AMERICAN BRITISH TOBACCO vs. CAMACHO
G.R. No. 163583, 20 August 2008
RA 8420 was made effective in January 1997. In
June 2001, American British introduced Lucky
Strike, Mentol Light and Lucky Strike filter. RR 9-2003
provides that the new brands should be classified
based on the net retailed price. RMO 6-2003
provides for periodic reclassification of the new
brands every two years, or earlier as provided by
the CIR.
Ruling:
No violation of the Equal Protection Clause
because the State has the power to elect the
subject of taxation i.e. articles, goods, etc. The
court also applied the Rational Basis test i.e. that
there is substantial distinction between the new
and old brands. Upon the enactment of RA 8420,
the new brands were not existing at that time, for
practical reasons, the Congress provides for this
parameter. RR 9-2003, RMO 6-2003 and RR 22-2003
were invalid because it empowers the CIR to
reclassify the new brands every two years or
earlier. Remember: Nowhere in the RA 8420 that
grants power to CIR to reclassify the brands, it
merely provides for the reclassifications. Under RA
8420, the classification shall be effective upon the
approval of the Congress. The power to reclassify
still belongs to the Congress.
BUREAU OF INTERNAL REVENUE
1. Commissioner;
2. Deputy Commissioners
SEC. 2. Powers and Duties of the Bureau of Internal
Revenue. - The Bureau of Internal Revenue shall be
under the supervision and control of the
Department of Finance and its powers and duties
shall comprehend the assessment and collection
of all national internal revenue taxes, fees, and
charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith,
including the execution of judgments in all cases
decided in its favor by the Court of Tax Appeals
and the ordinary courts. The Bureau shall give
effect to and administer the supervisory and
police powers conferred to it by this Code or other
laws.
SEC. 3. Chief Officials of the Bureau of Internal
Revenue. - The Bureau of Internal Revenue shall
have a chief to be known as Commissioner of
Internal Revenue, hereinafter referred to as the
Commissioner, and four (4) assistant chiefs to be
known as Deputy Commissioners.

SEC. 4. Power of the Commissioner to Interpret Tax
Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax
laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review
by the Secretary of Finance. (This 1st function is
called “QUASI-LEGISLATIVE FUNCTION”
The power to decide disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or
other matters arising under this Code or other laws
or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of
the Court of Tax Appeals. (QUASI-JUDICIAL
FUNCTION)
JURISDICTION OF THE CIR:
1. The power to interpret the provisions of tax
laws shall be under the EXCLUSIVE and
ORIGINAL jurisdiction of the Commissioner,
subject to review by the Secretary of
Finance;
2. The power to decide D R O P cases arising
under tax laws subject to the exclusive
appellate jurisdiction of the CTASPECIFIC
FUNCTIONS OF THE CIR
(If we refer to the specific functions of the CIR, we
are referring to the power of the CIR to INTERPRET
TAX LAWS and to DECIDE CASES)
The cases referred to under Section 4 of the NIRC
shall pertain to D R O P cases.
D- Disputed Assessment
R- Refund
O- Other matters governed by the tax laws
P- Penalties being imposed pursuant to the Tax
Code
These are the cases that can be entertained by the
Commissioner of Internal Revenue.
Take note:
 The power of the CIR to interpret tax laws
shall be called “Quasi-legislative
functions”
 The 2nd function of the CIR which is the
power to decide D R O P cases can be
delegated.
 The 1st function is appealed to the
Secretary of Finance.
 The 2nd function is appealed to the CTA.
Simply Put:
1. If the CIR exercised its quasi-legislative
function, appeal should be made before
the Secretary of Finance
2. If the CIR exercises its quasi-judicial
function, appeal should be made before
the CTA
INTERPRETATION OF TAX LAWS RULES
The CIR’s exercise of its power to interpret tax laws
comes in the form of revenue issuances, which
include RMOs that provide “directives or instructions;
prescribe guidelines; and outline process,
operations, activities, workflows, methods, and
procedures necessary in the implementation of
stated policies, goals, objectives, plans, and
programs of the Bureau in all areas of operations,
except auditing. (Courage v. CIR)
Thus, all acts related to revenue issuances shall come
within the ambit of quasi-legislative function of the
CIR.
Question:
Will issuance of rulings be included?
Answer: Yes.
Tax Rulings- are official position of the BIR on inquiries
of taxpayers, who request clarification on certain
provisions of the NIRC, other tax laws, or their
implementing regulations, usually for the purpose of
seeking tax exemptions. Rulings are based on
particular facts and circumstances presented and
are interpretations of the law at a specific point in
time. The BIR also issues rulings to answer written
questions of individuals and juridical entities
regarding their status as taxpayers and the effects of
their transactions for taxation purposes.
To be valid, the ruling must be in conformity with the
law that it seeks to implement.
To be valid, a ruling of first impression must not only government
be conformable with law. It must also be issued by agency.
the CIR himself, as it is one of the non-delegable
powers of the CIR.
Binding It is binding upon It is not binding, but
Simply put, the issuance of a ruling of first impression Effect courts for being has great weight.
is a non-delegable power of the CIR, it is only the CIR a subordinate
who can issue the same. legislation.

2 Types of Administrative Issuances:

Ruling of First Impression- is a ruling that involves a
NOVEL issue. Meaning such issue has not yet been 1. The Legislative Rule – is in the nature of
interpreted before by the CIR or such ruling does not subordinate legislation, designed to
have any precedent. implement a primary legislation by providing
the details thereof.

REVENUE REGULATION VS. ADMINISTRATIVE RULING 2. The Interpretative Rule – is designed to

provide guidelines to the law which the
Revenue Administrative Ruling administrative agency is in charge of
Regulation enforcing.
Issuing It is issued by the It is issued by the
Body Secretary of CIR(if ruling of first Simply put, we can call a revenue regulation as a
Finance and not impression) or his legislative rule. While an administrative ruling is an
the CIR, the CIR subordinates( if the interpretative rule.
will only ruling is not in the
recommend the nature of a ruling of CIR v. Fortune
promulgation of first impression
Revenue In order for a legislative rule to be valid, there has
Regulations but to be compliance with the requirement of
the CIR will not publication and hearing. Without which, there
issue the shall be a violation of the due process clause of
Revenue the Constitution. Hence, legislative rule shall be
Regulations considered as void.
because it is the
Secretary of On the other hand, publication and hearing shall
Finance who NOT be required in cases of Interpretative Rule
issues the same. because the bear issuance thereof shall make the
Nature It is in the nature It is the best guess of ruling valid.
of an the CIR concerning
implementing tax applications.
rule of tax laws
NON- RETROACTIVITY OF RULINGS
Scope It is applicable to It is applicable to
all taxpayers taxpayers who SEC. 246. Non- Retroactivity of Rulings. - Any
requested the ruling, revocation, modification or reversal of any of the
except when the rules and regulations promulgated in accordance
ruling is in the nature
with the preceding Sections or any of the rulings or
of a general
circulars promulgated by the Commissioner shall not
interpretative rule.
be given retroactive application if the revocation,
A general modification or reversal will be prejudicial to the
interpretative ruling is taxpayers, except in the following cases:
issued without a
(a) Where the taxpayer deliberately misstates or
requesting taxpayer,
omits material facts from his return or any document
this ruling is issued
based on query of a required of him by the Bureau of Internal Revenue;
unit of such
(b) Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
Bar Question:
There was a ruling issued in favor of a taxpayer. Later
on the BIR gathered facts which was not mentioned
by the taxpayer.
In the first ruling, the taxpayer is exempt.
With respect to the 2nd ruling, the taxpayer is no
longer exempt because the BIR gathered facts that
was not mentioned by the taxpayer and which
would entirely change everything.
Discussion: If the revocation will have a retroactive
effect it would simply mean that it would be deemed
as if the first ruling has not been issued at all. Would
this mean that the BIR can collect deficiency taxes
from the TP with respect to the period that the first
ruling has been in effect? Answer would be yes.
Question: Will the retro-active application of the
revocation be prejudicial to the taxpayer?
Answer: Yes. Because if the revocation would be
retro-actively applied the taxpayer will be
mandated to pay deficiency taxes.
However, the non-retroactivity of ruling shall not
apply in this case because as an exception to the
rule when the TP deliberately misstated or omitted
material facts from his return, the retro-active
application of the revocation shall still apply.
Thus, if the revocation will be retro-actively applied,
the taxpayer shall be answerable for any deficiency
taxes.
CIR v. Burroughs
Facts:
The CIR issued revenue memorandum circular in
the year 1980. In this particular revenue
memorandum circular, it states that the basis of
the 15% branch profit remittance tax shall be the
total amount remitted. It will not include the
amount earmarked for remittance.
Another Revenue Memorandum Circular was
issued in the year 1981, in this particular RMC, it has
been stated that the 15% Branch Profit Remittance
Tax should be based on the total amount remitted
and the amount earmarked for remittance.
Issue:
Will the revocation of the 1980 RMC have a retro-
active effect?
Held:
No. Because the revocation of the ruling will be
prejudicial to the taxpayer. Hence, the revocation
will not have a retroactive effect.
What if the RMC in 1980 states that the 15% Branch
Profit Remittance Tax shall be based on the total
amount remitted and the amount earmarked for
remittance. In the year 1981, this has been
revoked by another ruling issued by the CIR and in
this ruling the 15% Branch Profit Remittance Tax
shall now be based on the amount remitted ONLY.
Question: Will the revocation of the ruling have a
retroactive effect?
If the revocation will be given a retroactive
application, it would be beneficial on the part of
the taxpayer. Because, it would mean that the
taxpayer can claim for refund since there is no
basis for the computation of the tax liability at the
time that it has been computed.
However, the TP cannot claim a refund of the
taxes it had paid based on the 1980 RMC because
in this particular case we still apply the non-
retroactivity of rulings. There must be adherence
to the prospective application of tax laws.
PB Com v. CIR
Facts:
The CIR issued an administrative issuance which
states that the TP has a period of 10 years instead
of 2 years counted from the date of payment to
claim a refund. In issuing this circular, the CIR
opined that the proper provision is the provision of
the Civil Code with respect to prescriptive periods
and the prescriptive periods dealing with written
transactions shall be 10 years.
PB Com, filed a claim for refund beyond the 2-year
period provided under Section 204 & 229 of the
NIRC.
Under Section 229 of the NIRC, the TP has a period
of 2-years from the date of payment regardless of
any supervening event to file a claim for refund.
However, PB Com filed the claim for refund
despite the fact that it has already been filed
beyond the said 2-year period under Section 229
of the NIRC because according to PB Com, it
capitalized on the administrative issuance of the
CIR, and in this administrative issuance, claims for
refund may be filed within a period of 10-years.
The Court then nullified the administrative
issuance.
If the Court nullified this administrative issuance
and the revocation will be retroactively applied
what would be the effect?
It is as if the administrative issuance was not issued
at all. It would therefore mean that the claim for
refund of PB Com pursuant to the 10-year period
will no longer have any legal basis. And if PB Com
will not have any legal basis for the 10-year period,
this would mean that there would be no ground or
basis for the claim of refund filed by PB Com.
If the revocation will not be retroactively applied,
it would mean that the administrative issuance
remains to be valid, thus, the administrative claim
for refund of PB Com filed beyond the 2-year
period but within the 10-year period shall be
respected.
Ruling of SC:
No taxpayer can claim a vested right over a
wrong construction of a law. In this particular case,
when the CIR issued the administrative issuance,
there was a wrong construction of the law. Since
there was wrong construction of law, then the
revocation, modification, or reversal of the
administrative issuance shall be retroactively
applied notwithstanding the fact that such
revocation shall be prejudicial to the taxpayer.
CIR v. San Roque Power Corporation
Burroughs v. PB COM
Operative Fact Doctrine
In Burroughs, a provision of the law is complicated,
subject to different interpretations.
GR: A void law or administrative act cannot be a
source of legal right
XPN: Operative Fact Doctrine, if there is a judicial
declaration of its invalidity, then it does not
obliterate the effects and consequences of its
invalidity.
Remember:
A TP can be deemed to have relied in GF if the
provision of the law is complicated and subject to
different interpretation.
However, if the provision of the law is clear and
unequivocal or it is not subject to different
interpretation, then you cannot apply 246.
SC Ruling:
In order to know the applicability of Section 246 of
the NIRC, it must first be determined whether there
is a complex issue involved.
If the issue does not involve a complicated matter,
then we apply the case of PB Com v. CIR because
in this particular case, if the law is not subject to
any interpretation and the taxpayer relied on the
ruling which is obviously contrary to the provisions
of the law, then the taxpayer is deemed to have
acted in bad faith.
In addition to this, the SC held that Section 246
shall likewise apply if the entity which revoked the
ruling is a court.
Here, DA-489-03 was revoked by the Supreme
Court through the case of CIR v. Aichi.
Can the taxpayers who relied on DA-489-03 be
considered to have acted in good faith?
Yes. Because the issue involved in the issuance of
DA-489-03 is considered to be a complicated
issue. Hence, the taxpayers can rely on it in good
faith.
Having relied on it in good faith then we apply
Section 246 of the NIRC, hence any revocation or
modification shall not be retroactively applied if
the revocation or modification is prejudicial to the
taxpayer.
In PB COM, the provision of the law is not subject to
different interpretation, rather it is clear and
unequivocal.
Take note:
(Appellate Procedure in Cases of Quasi-Legislative
Functions of the CIR)
If a taxpayer disagrees with a ruling of the CIR or his
duly authorized representative, the taxpayer may,
within 30-days from the date of receipt of such ruling,
seek its review by the Secretary of Finance. The
request for review shall be in writing and under oath.
COURAGE v. CIR
SC RULING:
These revenue issuances are subject to review of
the Secretary of Finance. In relation thereto,
Department of Finance Department Order
No.007-002 issued by the Secretary of Finance laid
down the procedure and requirements for filing an
appeal from the adverse ruling of the CIR to the
said office.
A taxpayer is granted a period of thirty (30) days
from receipt of the adverse ruling of the CIR to file
with the Office of Secretary of Finance a request
for review in writing and under oath.
QUASI-JUDICIAL FUNCTIONS OF THE CIR
Pertain to the power of the CIR to decide D R O P
cases.
The decision of the CIR is reviewable by the Court of
Tax Appeals.
COURAGE v. CIR
SC Ruling:
The CTA has undoubted jurisdiction to pass upon
the constitutionality or validity of a tax law or
regulation when raised by the taxpayer as a
defense in disputing or contesting an assessment
or claiming a refund. It is only in the lawful exercise
of its power to pass upon all matters brought
before it, as sanctioned by Section 7 of RA No.
1125, as amended.
This Court, however, declares that the CTA may
likewise take cognizance of cases directly
challenging the constitutionality or validity of a tax
law or regulation or administrative issuance such
as revenue orders, revenue memorandum
circulars, rulings.
Furthermore, with respect to administrative
issuances (revenue orders, revenue memorandum
circulars, or rulings), these are issued by the
Commissioner under its power to make rulings or
opinions in connection with the implementation of
the provisions of internal revenue laws.
Tax rulings, on the other hand, are official positions
of the Bureau on inquiries of taxpayers who
request clarification on certain provisions of the
NIRC, other tax laws, or their implementing
regulations.
Hence, the determination of the validity of these
issuances clearly falls within the exclusive
appellate jurisdiction of the CTA under Section
7(1) of RA No. 1125, as amended, subject to prior
review by the Secretary of Finance, as required
under RA No. 8424
Simply put if the issue pertains to the quasi-
legislative function of the CIR, the appeal should
first be made before the Secretary of Finance
before elevating it to the CTA.
A direct invocation of the CTA’s jurisdiction should
only be allowed when there are special,
important, and compelling reasons clearly and
specifically spelled out in the petition.
BRIEF SUMMARY:
Quasi-Legislative Function of the CIR- Appeal first
before the Secretary of Finance before elevating it
to the CTA.
Quasi-Judicial Function of the CIR- Upon receipt of
the decision of the CIR, appeal can be made
directly to the CTA because the CTA has exclusive
appellate jurisdiction.
POWERS OF THE CIR
1. Power of the Commissioner to Obtain
Information, and to Summon, Examine, and
Take Testimony of Persons (Sec.5)

 This power is SOLELY vested in the CIR
 This power can be delegated by the
CIR to its duly authorized officials or
representatives.
 Under the present administrative
issuances, this power is delegated to
the Revenue Regional Director.
With respect to the act of obtaining information from
taxpayers or persons transacting with taxpayers, the
books of accounts of persons transacting with
taxpayers may likewise be subject of an audit
investigation.
However, before the revenue officers may do so,
they must be armed with a Letter of Authority.
Letter of Authority- is an official document which
authorizes the revenue officers to examine the books
of accounts of the taxpayer or the books of account
of individuals transacting with the taxpayer for
purposes of determining the deficiency taxes that
the taxpayer had incurred.
CAVEAT:
 Without this Letter of Authority, any
assessment made shall be considered as
VOID.
 A Letter Notice is NOT considered a valid
substitute for a Letter of Authority.
**In answering Bar Questions, if there exist no
irregularity, then do not assume that there is
irregularity. Rather, assume regularity.
Letter of Authority; When Issued?
The Letter of Authority must be served upon the
taxpayer WITHIN 30-DAYS from the date of issuance.
If there is failure on the part of the revenue officers to
serve the same within the prescribed period, the
taxpayer may refuse to submit the books of
accounts on the ground that the Letter of Authority
is no longer considered as valid.
Question: If the period had already lapsed, what is
the remedy of the revenue officer?
Answer:
Ask another Letter of Authority.
Question: What if the taxpayer allowed the
examination of books of accounts and later on the
taxpayer realizes that the Letter of Authority was
served beyond the 30-day period? Can the
taxpayer question the validity of the Letter of
Authority?
Answer:
No. Because the taxpayer is already in estoppel. The
taxpayer already allowed the examination of his
books of accounts.
Third-Party Verification Rule- is a scheme whereby
the revenue officers would inquire from parties
transacting with the taxpayer in order to determine
whether the taxpayer incurred deficiency taxes.
Or it may also involve cross-reference with the
information submitted by the taxpayer to other
government agencies.
It may likewise involve data submitted to other
government agencies.
If the revenue officers will conduct third-party
verification, and it involves the books of accounts of
individuals transacting with the taxpayer, the
revenue officers must be ARMED WITH A LETTER OF
AUTHORITY.
Except when the records are already with the BIR, a
letter of authority is no longer required.
Inquiry into Bank Deposits- (SECTION 6(F))
GR: Revenue officers cannot inquire into bank
deposits by reason of the Bank Secrecy law.
EXCP: If the revenue officers are armed with a waiver
of the Bank Secrecy Law or any of the following
circumstances apply:
1. A decedent to determine his gross estate
- This is considered as an exception to the
general rule because the administrator or
executor is required to submit a certificate of
the outstanding balance of the decedent.
Here, you cannot therefore claim that there is
a violation of Bank Secrecy Law.
 2. Any taxpayer who has filed an application for
compromise of his tax liability under Section Issue:
204(A)(2) of this Code by reason of financial
incapacity to pay his tax liability Can the CIR use this information as a basis?

GROUNDS FOR COMPROMISE APPLICATION: SC:

i. Reasonable doubt as to the validity of Yes. The lack of consent of the taxpayer to the
the assessment submission of the books of accounts and various
- In this ground, the execution of a documents does not warrant the non-use of the
waiver of the Bank Secrecy Law is said documents. Establishment of the tax liability of
NOT mandatory. the taxpayer partakes the nature of administrative
proceedings which are not governed by the
ii. Financial Incapability to pay the tax technical rules of evidence. Moreover, the BIR is
liability. vested with ample powers to secure all relevant
- In this ground, the execution of waiver documents in connection with the establishment
of the Bank Secrecy Law is mandatory. of tax liabilities, even without the consent of
taxpayers.
3. A specific taxpayer or taxpayers subject of a
Hence, in this particular case, the SC upheld the
request for the supply of tax information from validity of the assessment because such is
a foreign tax authority pursuant to an covered within the powers of the BIR.
international convention or agreement on
tax matters to which the Philippines is a Further, no cross-examination can be had
signatory or a party of: Provided, That the because this does not involve a criminal case.
information obtained from the banks and
other financial institutions may be used by
the BIR for tax assessment, verification, audit
and enforcement purposes.
What is the DOCTRINE OF WILFULL BLINDNESS? (BAR
“Foreign tax authority” as used herein, shall 2012)
refer to tax authority of tax administration of
The doctrine of willful blindness is defined as “the
the requesting state under the tax treaty or
deliberate avoidance of knowledge of a certain
convention to which the Philippines is a
crime, especially by failing to make a reasonable
signatory or a party of.
inquiry about a suspected wrongdoing despite
being aware that is highly probable”

Summon Persons and Take Testimony- *Those highlighted in yellow are matters that are
covered by Section 5 of the NIRC.
Question: Can the taxpayer object to an audit
based on the information supplied by its former
accountant?
Question: Can the BIR commence tax investigation
notwithstanding the issuance of a Commencement
Order by a Rehabilitation Court?
Fitness by Design Case
Answer:
Facts:
If there already is a commencement order issued by
Without the consent of a taxpayer subject of an a rehabilitation court, the investigation of the
audit, its former accountant was able to taxpayer should likewise be suspended or tolled
surreptitiously secure the taxpayer’s books of because all assessment notices or notice of informal
accounts and submitted them to the BIR which conference must be coursed through the
eventually became the basis of establishing the rehabilitation court.
tax liability of the taxpayer. The taxpayer
complained on the ground that the documents
should not be used in evidence as the same was
illegally obtained.
Case:
The Revenue Officers issued a Notice of Informal
Conference and Assessment Notices against the
taxpayer notwithstanding the fact that a
commencement order had already been issued
by the rehabilitation court.
SC RULING:
Such is not allowed. The act of the Revenue
Officers is considered as in contempt of court.
Once a commencement order is issued,
investigation of the taxpayer is also suspended.
LETTER OF AUTHORITY
 It is an official document which authorizes the
revenue officers to examine the books of
accounts of the taxpayer or the books of
account of individuals transacting with the
taxpayer for purposes of determining the
deficiency taxes that the taxpayer had
incurred.
 A LOA is the authority given to the appropriate
revenue officer assigned to perform assessment
functions. It empowers or enables said revenue
officer to examine the books of account and
other accounting records of a taxpayer for the
purpose of collecting the correct amount of tax.
Case of Sony Philippines
A Letter of Authority (LOA) was issued to a team of
BIR examiners to audit the taxpayer Sony for “the
period 1997 and unverified prior years”. It appears,
however, that Sony was using fiscal year, and that
it reported its tax liabilities for the period “April
1,1997 to March 31, 1998.”
Deficiency taxes were discovered by the team of
examiners covering the period 01 January 1998 to
March 31 1998. This was contested by Sony as the
same was not covered by the LOA. The BIR argued
that the contested period is part of the taxable
year of Sony.
What is a Letter of Authority? What is its purpose
and why is it issued?
The Government has 2 modes of collecting liability:
Answer:
It is an official document which authorizes the
revenue officers to examine the books of
accounts of the taxpayer or the books of account
of individuals transacting with the taxpayer for
purposes of determining the deficiency taxes that
the taxpayer had incurred.
Purpose of LOA: is to extend authority to the
revenue officers to examine the books of
accounts of a taxpayer.
Why issued?
It is issued because this revenue officers are not
vested such power under the law. Hence, the
power is delegated through the issuance of a
LOA.
Did the BIR act properly in assessing Sony for taxes
covering the period January 01 1998 to March 31,
1998?
No. Because such period is not covered by the
Letter of Authority issued. The Letter of Authority
does not indicate the period “January to March
1998”. Since the assessment is not preceded by a
LOA, the assessment is void. Then, there can be no
collection with respect to this tax because the
collection of the tax through the administrative
remedy of collecting the tax must be preceded by
a valid assessment notice.
SC RULING:
No. The BIR team of examiners went beyond the
scope of its authority because the deficiency tax
assessment was based on records from January to
March 1998 or using the fiscal year which ended
in March 31, 1998.
The CIR knew which period should be covered by
the investigation. If the CIR wanted to or intended
the investigation to include the year 1998, it should
have done so by amending the LOA to include
the said period, or by issuing another LOA.
Moreover, the statement in the LOA “and
unverified prior years,” violated the rule that LOA
should cover a taxable period not exceeding one
taxable year.
If the LOA will cover more than one taxable
period, those taxable periods must be specifically
indicated in the LOA.
I. Administrative Collection- issuance of a
warrant of distraint or levy. The issuance
of a warrant of distraint or levy must
 always be preceded by a valid
assessment notice. If the notice of
assessment is void, then a void
assessment bears no fruit. Thus, any
collection made or any act made
pursuant thereto will be considered as a
VOID act.
II. Judicial Collection- the filing of a case in
court.
2. Power of the CIR to make Assessments and
Prescribe Additional Requirements for Tax
Administration and Enforcement
In making an assessment the CIR may do so even if
there is no return.
I. The CIR has the power to make an
assessment based on the return filed by
the taxpayer.
The assessment issued by the CIR can be based on
the Best Evidence Obtainable by the CIR. (Best
Evidence Obtainable Rule)
Assessments should always be based on the best
evidence obtainable. The CIR cannot make an
assessment or prepare a return based on
speculations or assumptions.
If there is no evidence to support the assessment,
such assessment is called a “NAKED ASSESSMENT”. A
naked assessment is a void assessment.
BEST EVIDENCE OBTAINABLE RULE
= States that an assessment can be issued based on
the best evidence obtainable through the exercise
of the following functions: (L T I S)
1. Letter of Authority;
2. Third-Party Verification Rule;
3. Inquiry into bank deposits;
4. Summon persons and take testimony
**Said rule is still applicable if the assessment is based
on a scenario where the taxpayer did not submit any
return. If the taxpayer did not submit any return, the
CIR may prepare a return based on the best
evidence obtainable.
CIR v. Hantex
Facts:
The taxpayer was subject of an assessment issued
by the CIR and the assessment was based on an
information by an informant and this information
was sworn to and made under oath and the
photocopies of documents issued by the taxpayer
Hantex.
Hantex questioned the assessment and argued
that the assessment is considered as void because
it is a naked assessment. It is a naked assessment
because the assessment is not supported by facts
and the assessment is merely based on
conjectures, speculations, and assumptions.
Is the argument of Hantex correct?
SC RULING:
The arguments raised by Hantex are meritorious
because indeed the assessment is a naked
assessment. While it is true that hearsay evidence
can be used as a basis of an assessment, such
hearsay evidence must still be verifiable. Meaning,
such information must be verified by documents.
In this particular case, there was an informant.
Question is: can the information supplied by the
informant be used as a basis for the assessment?
Answer:
Yes. Hearsay evidence can be used as a basis for
the assessment. However, in using such hearsay
evidence, there must be supporting documents.
In this case, the hearsay evidence was supported
by photocopies of the documents issued by the
taxpayer. However, the SC held that these
photocopies DO NOT HAVE PROBATIVE VALUE.
There being no probative value, the photocopies
cannot be used in supporting the assessment.
Likewise, it is not necessary that the assessment
must be with mathematical exactness.
The rule is, when there is information supplied to
the revenue officers, the revenue officers must
ensure that this information is corroborated by
supporting documents.
 CIR v. Embroidery Garments
Facts:
The revenue officers used the information by the
former manager of Embroidery Garments.
The CIR issued an assessment based on the sworn
statement of the former manager.
Is the assessment valid?
SC RULING:
The assessment is a naked assessment; therefore,
it is void. The assessment cannot be solely based
on a sworn statement of an individual. The
assessment must be based on a verified
information. For it to be considered as a verified
information, the information must not be based on
speculation or conjectures. The information must
be verified through supporting documents.
II. The CIR also has the POWER TO CONDUCT
INVENTORY-TAKING, SURVEILLANCE and TO
PRESCRIBE PRESUMPTIVE GROSS SALES and
RECEIPTS
Inventory-taking- can only be done when there is a
reason to believe that the taxpayer is not reflecting
the correct amount of gross sales/receipts. This is
otherwise called “Mission Order” of the BIR.
Surveillance- a revenue officer is dispatched to the
business establishment of the taxpayer and
conduct a surveillance and based on the
surveillance conducted, they will compute the
estimated amount of gross sales/receipts.
Prescribing presumptive gross sales/receipts- will
only be allowed if the taxpayer did not keep books
or the taxpayer does not issue gross sales/receipts.
III. The CIR can also terminate taxable
periods
2 Types of Taxable Period:
Calendar Year- 12-month period beginning the
month of January and ending in the month of
December.
Fiscal Year- 12-month period beginning in any
month of the year and ending in any month of the
year other than December.
**In order for the CIR to assess the tax liabilities of the
taxpayer, the CIR must first complete the taxable
period.
Exception:
Termination of the taxable period can only be
made in the following instances:
(H I R R O)
1. The taxpayer hides his property;
2. The taxpayer has the intention to leave the
Philippines;
3. The taxpayer removes his property from the
business premises;
4. The taxpayer retires from his business;
5. If the taxpayer obstructs the proceedings for
the collection of the taxes.
In this instances, the CIR can immediately terminate
the taxable period by providing a notice to the
taxpayer that the period has already been
terminated.
Upon service of such notice, the CIR can now make
any assessment with respect to that shortened
taxable period.
Note: Individual taxpayers only have one taxable
period and that is CALENDAR YEAR.
AMENDMENT OF RETURNS
When the taxpayer had already filed his or its return,
the taxpayer can still amend this return.
Provision of the Tax Code:
Any return, statement of declaration filed in any
office authorized to receive the same shall not be
withdrawn: Provided, that within three (3) years from
the date of such filing, the same may be modified,
changed, or amended: Provided, further, that no
notice for audit or investigation of such return,
statement or declaration has in the meantime been
actually served upon the taxpayer.
Simply put:
If the taxpayer already filed a return the same could
no longer be withdrawn. The remedy is to amend the
return.
The amendment must be made within 3-years from
the date of such filing.
However, if there is already a notice for audit or
investigation issued to the taxpayer, the amendment
COULD NO LONGER BE MADE.
SECTION 71 OF THE NIRC:
After the assessment shall have been made, the
returns together with any corrections thereof which
may have been made by the Commissioner, shall be
filed in the Office of the Commissioner and shall
constitute public records and be open to inspection
as such upon the order of the President of the
Philippines, under rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
This particular rule shall likewise apply when there is a
foreign tax authority requesting for the returns of a
particular taxpayer.
Illustration:
The IRS of US requested the copy of the return of X
corporation. Notwithstanding the fact that the return
of X corporation is a public record, it can only be
inspected by a requesting foreign tax authority if
there is an order issued by the President of the
Philippines.
SECTION 270 OF THE NIRC:
Any officer or employee of the BIR who divulges or
makes known in any other manner to any person
other than the requesting foreign tax authority
information obtained from banks and financial
institutions pursuant to Section 6(F), knowledge or
information acquired by him in the discharge of his
official duties, shall upon conviction, be punished by
a fine of not less than P50,000 but not more than
P100,000, or suffer imprisonment of not less than 2
years but not more than 5 years, or both.
Simply put:
Information received or obtained by a revenue
officer in the discharge of his duties cannot be
disclosed.
**Revenue officers have separate and distinct
assignments: thus, a revenue officer shall be
considered as one in the discharge of his functions if
he is performing acts pursuant to his assignment.
SECTION 12 OF THE NIRC:
Any officer or employee of an authorized agent
bank assigned to receive internal revenue tax
payments and transmit tax returns or documents to
the BIR shall be subject to the same sanctions and
penalties prescribed in Section 269 and 270 of the
Tax Code.
SECTION 237-A OF THE NIRC:
The data processing of sales and purchase data shall
comply with the provisions of RA No. 10173, otherwise
known as the “Data Privacy Act” and Section 270 of
the NIRC, as amended, on unlawful divulgence of
taxpayer information and such other laws relating to
the confidentiality of information.
IV. CIR has the Power to Accredit Tax Agents
and Prescribe Procedural and
Documentary Requirements
 The accreditation of tax agents does not
apply to lawyers because lawyers can
represent their clients before the BIR even
without accreditation.
 The CIR likewise has the power to prescribe
rules with respect to E-Filing, Substituted Filing,
Net Worth Method.
Net Worth Method- is the method used in order to
determine the amount of deficiency taxes.
Thus, if there is an increase in the net worth to the
exclusion of the non-taxable items, the increase in
the net worth will be treated as an undeclared
revenue.
THE POWER TO PRESCRIBE REAL PROPERTY VALUES
The commissioner can fix real property values, called
zonal value/valuation. It is the commissioner that has
the power to prescribe real property values, the
governing section is section 6E of the NIRC.
Requirements with respect to the act of prescribing
real property values/zonal values:
1. Mandatory consultation with competent
appraisers both from private and public
sectors.

-this requirement existed even prior to the
TRAIN Law and still after the TRAIN Law;
2. With prior notice to the affected taxpayers;
-New requirement under Section 6E. Applies
only after the effectivity of the TRAIN Law;
3. There must be an automatic adjustment
every three (3) years;
4. The adjustment must be published in a
newspaper of general circulation and
posted in the provincial capitol, city or
municipal hall and two (2) other conspicuous
places; and
5. That the basis of any valuation, including the
records of consultations done, shall be public
records open to the inquiry of any taxpayer.
*only number 1 was a requirement prior to the TRAIN
Law, numbers 2 to 5 are new under the TRAIN Law.
POWER TO DELEGATE
 covers all functions indicated in the Tax Code
except: (RICA)-non-delegable functions of the
CIR
1. Recommend the issuance of revenue
regulations, since only the Commissioner can
recommend the issuance of these regulations,
cannot be delegated to anyone else.
(Letter I in RICA talks about two (2) acts)
2. A. The act to issue rulings of first impression. The
issuance of a ruling is a delegable function, it
only becomes non-delegable when the ruling is
a first impression.
 Ruling of first impression: one that involves a
novel issue, meaning the commissioner did
not yet issue any ruling dealing with the same
subject matter or the same issues.
2. B. Act of revoking, revising, and modifying a
previously issued ruling. Only the
commissioner can revoke, revise, and modify
rulings previously issued.
(Letter C in RICA speaks of two (2) acts as well)
3. The power to (1)compromise and (2)abate.
 Compromise is different from abatement,
which will be discussed later.
4. The power to assign and re-assign employees
designated in establishments subject to excise
tax.
Story of ma’am Tin about how establishments pay
Excise Tax:
BIR assigns Revenue Officers within the
establishment. He has rolls for proof of payment of
excise tax (rolls of those that are stuck to products,
such as those stuck to wine bottles that look like
documentary stamp taxes). The officer will be
assigned in the establishment only for a period not
exceeding two (2) years. Only the commissioner can
assign and reassign these officers.
-The employees under number 4 does not
pertain to employees of the establishment but to the
revenue officers of the BIR.
NOTE: Compromise and Abatement have different
grounds.
COMPROMISE
Grounds:
1. A reasonable doubt as to the validity of the
claim against the taxpayer exists; or
2. The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax.
 it is important to determine the ground in the
application of a compromise because:
A. If the ground is reasonable doubt as to the
validity of the claim against the taxpayer,
then the settlement offer must not be less
than 40% of the basic tax due. That is the
prescribed rate of the settlement offer.
B. If the ground is the financial position of the
taxpayer, the settlement offer must not be
less than 10% of the basic tax due, it does
not include the interest, surcharge, and
compromise penalty.
NOTE: If it goes below the settlement rates,
the application for compromise shall be
subject to the approval of the National
Evaluation Board which shall comprise the
Commissioner and the Four (4) Deputy
Commissioners.
Where the basic tax involved exceeds One Million
Pesos, or where the settlement offered is less than the
prescribed minimum rates, the compromise shall also
be subject to the National Evaluation Board.
Instances where the Regional Evaluation Board (REB)
may act on the application for compromise,
meaning they can recommend the approval or 4. Delinquent accounts with duly approved
disapproval of the application for compromise: schedule of installment payments.
 There is neither doubt nor a possibility of
1. The assessment was issued by the regional
financial inability on the part of the
office of the BIR;
taxpayer as he was the one who
2. The amount involved a basic deficiency tax
proposed or has agreed to the schedule
of Php 500,000.00 or less, or those involving
of installment payments.
minor criminal violations;
3. The same was discovered by regional and
district officials. (What was discovered was
the assessment)
BAR QUESTION:
-whenever the REB acts on the application, it
is merely a recommendation, since it is the Does the Court of Appeals have the power to review
Commissioner that approves or disapproves compromise agreements forged by the
the application. Commissioner and a taxpayer?

All tax cases, even criminal cases, may be the NO. The CA does not possess such authority.
subject of a compromise, for as long as sufficient
1. The power to compromise is a sole
grounds exist, except in the following:
prerogative of the CIR. It is a discretionary
1. Those involving fraud, or power and courts have to authority, as a
2. Criminal violation of the NIRC that are general rule, to compel him to exercise such
already filed in the courts. discretion one way or another;
2. If the CIR commits grave abuse of his
Specific examples of tax cases that may not be discretion by not following the parameters
compromised under the revenue regulation: set by law, the CTA, not the CA, may correct
such abuse of the matter is appealed to it.
1. Withholding tax cases, unless the applicant-
The exercise of the power to compromise
taxpayer invokes provisions of law that cast
may fall within the parameters of “other
doubt on the taxpayer’s obligation to
matters” that the CIR is empowered to
withhold.
perform under the NIRC.
 Tax withholding cases cannot normally be
compromised because they involve ABATEMENT
fraud.
 Withholding tax cases- cases where the Grounds:
withholding agent has been assessed. It
1. The tax or any portion thereof appears to be
cannot be compromised because he is
unjustly or excessively assessed; or
not the taxpayer, he is the collector. It will
2. The administration and collection costs involved
be like estafa if he does not remit the tax
do not justify the collection of the amount due.
withheld.
 Example: amount of gift worth 251,000.00.
 Can it be a ground that the agent was not
The 250,000 will be exempt from donor’s tax.
able to collect?
1,000.00 will be subject to donor’s tax.
NO, that is a doubtful ground. Under the
1,000.00 x 6% tax will be 60.00.
revenue regulation, the only way for the
 The expenses of the government to collect
withholding agent to compromise his
the 60.00 will be greater than the 60.00 to be
liability is when the agent invokes a
collected. Hence, the Commissioner has the
provision of the law that casts a doubt on
power just to abate the tax liability since the
the taxpayers’ obligation to withhold.
cost of collecting the tax deficiency will be
way more than the tax to be collected.
2. Criminal tax fraud cases confirmed as such
by the CIR or his duly authorized Difference between the 1st ground under abatement
representative; and compromise:

3. Criminal violations already filed in court; In compromise, there is a legal basis which is doubtful
as to its application.
In abatement, there is no legal basis at all for the
collection. If there is a legal basis but it is not sure if
the application was proper, it is not considered
unjust, hence, it cannot fall under abatement.

People vs. Tan

An agreement denominated as a compromise

agreement was entered into between the
Commissioner and SMB. In that agreement, SMB
will only pay 10M of tax liability, not 300M. SMB
paid the 10M. The agreement was questioned
and Tan was sued in his official capacity as the
Commissioner of the BIR as a violation of RA 3019.

Did Tan violate any provision of the law?

SC: No. There was Tax Pyramiding in this case.

The reason why the liability reached 300M was
because they imposed a tax on the tax already
imposed. The basic liability was taxed, and was
again imposed a tax which included the
previously imposed tax. Thus, the tax liability
increased. This concept of Tax pyramiding does
not find any legal basis under the law. Since
there is no legal basis for such imposition, then
the tax was unjustly assessed. Although the
agreement was denominated as a compromise
agreement, it is not considered as a compromise
because erroneous taxes cannot be
compromised. Only valid taxes can be
compromised. Hence, it is not a compromise but
an abatement as there was no legal basis for the
collection. And under abatement, the entire
amount of tax liability, or a portion thereof, may
be removed, there is no prescribed rate.
Rule-Making Authority of the SOF:
The SOF is granted, under Section 244 of the
NIRC, the authority to promulgate the necessary
rules and regulations for the effective enforcement
of the provisions of the law. Such rules and
regulations, as well as administrative opinions and
ruling, ordinarily deserve to be given weight and
respect by the courts. Such authority, however, is
subject to the limitation that the rules and regulations
must not override, but must remain consistent and in
harmony with, the law they seek to apply and
implement. It is well-settled that an administrative
agency cannot amend an act of Congress.
Thus, when a provision of law grants tax
incentives, such incentives cannot be withdrawn by
the SOF in the guise of enacting a regulation, as he
cannot arrogate upon himself a power reserved
exclusively to Congress.
Ex: revenue regulations requiring
confirmatory rulings first before the application of the
tax exemption. This is allowed for purposes of
administration, but this is considered as void for
purposes of revoking the tax exemption because the
law grants the tax exemption. The Secretary cannot
issue additional condition for the tax exemption
since in such a case, the Secretary arrogates upon
himself a power exclusively reserved to the Congress.
A confirmatory ruling is merely for the
purpose of an effective administration of the law, it
cannot be considered as an additional condition,
unless the Congress makes it so. The SOF is limited to
the provisions of the law, they cannot expand,
supplement or override the provisions of the law.
ASSESSMENT
Notice of assessment is not the same as a preliminary
assessment notice, a notice of assessment refers to a
formal assessment notice or a formal letter of
demand with assessment notice.
CiR vs. Gonzales-a notice of assessment has been
defined as a declaration of deficiency taxes issued
to a taxpayer who fails to respond to a preliminary
assessment notice (PAN) within the prescribed
period of time.
-in this definition, we can conclude that a
notice of assessment is not a PAN.
Things to consider:
1. In order for a formal assessment notice (FAN) or
a notice of assessment to be considered as
valid, the FAN with assessment notice, or no
matter how it is called, must contain:
a. The fact;
b. The law;
c. The rules and regulations; and
d. The jurisprudence upon which the
assessment is based.
 if there is non-compliance with this rule,
then the assessment is considered a void
assessment. If an assessment is void, then
it cannot bear fruit, hence, the
government cannot collect
administratively the taxes because it is not
supported by a valid assessment.
The government can only collect
administratively if, and only if, such collection
is preceded by a valid assessment.
In order for the assessment notice to be valid,
it is necessary that the FAN must contain a
demand to pay. If there is no demand to
pay, then the assessment notice is also void.
Hence, possible grounds to declare an assessment
void:
1. The assessment does not contain the factual
or legal basis;
2. It does not contain a demand to pay;
3. The assessment notice must be addressed to
the taxpayer;
4. It was not sent to the taxpayer;
5. It does not contain a definite amount of tax
liability;
6. The FAN does not contain the due dates for
the tax liability;
7. When the assessment was not issued within
the period indicated under Section 203 of the
NIRC or Section 220 with respect to
extraordinary period to assess the tax;
8. The Regional Director or the Commissioner
did not issue a PAN; (if there is not PAN, the
FAN is void)
CIR v. Gonzales
The lack of a control number is not a requirement
for the validity of an assessment. The assessment
will still be valid.

CIR vs. Enron
A FAN has been issued which indicates the
supposed tax, surcharge, interest, and the
compromise penalty, but the assessment did not
provide the specific provision of the Tax Code or
the Rules or Regulations which were not complied
with by Enron. Hence, there was no legal basis for
the assessment. The CIR argued that the
assessment is still considered valid even if it did not
state the legal basis because the CIR informed
the employee of Enron through a preliminary five
(5) day letter and the audit working paper about
all the legal basis.
SC: the preliminary 5 day letter and the audit
working paper given to the employee of Enron
are not considered as valid substitutes for the
mandatory notice in writing because the law
mandates the government to indicate both the
factual and legal basis on which the assessment
is based, and these must be contained in the
assessment itself.
DIFFERENCE BETWEEN ENRON AND SAMAR:
In Enron, the taxpayer did not participate in
the administrative proceedings. Enron only replied
when the FAN was issued.
In Samar, the taxpayer participated in all the
administrative proceedings, hence, the taxpayer
was duly apprised during the entire proceedings
about the legal and factual basis on which the
assessment was based.
Ma’am Tin: does not agree with the case of Samar
because of the mandate that whatever happened
prior to the issuance of a FAN, it is a requirement that
both the legal and factual basis to which the
assessment was based must be contained in the FAN
itself.
Answer only based in the case of Samar if the
problem given is the same with the factual
circumstances of the case. If they are not the same,
stick with the factual and legal basis must be
indicated in the assessment.

Samar Electric Case

The taxpayer participated in all the parts of the

administrative proceedings. When a Letter of
Authority was issued, Samar also gave documents.
When a notice of informal conference was issued,
Samar answered the notice, to which the BIR
likewise replied to. When the government replied,
it issued a Preliminary Assessment Notice (PAN).
After the issuance of the PAN, the taxpayer again
replied to the PAN. The government replied again,
and thereafter issued a FAN. When the FAN was
issued, the taxpayer argued that the assessment
notice did not contain both the legal and factual
basis on which the assessment is based. BIR
argued that it replied and explained both the
legal and factual basis during the course of the
administrative proceedings. From the time the
notice of informal conference was issued up to the
time that the assessment had been issued,
everything was answered.

SC: the assessment is valid because there was

compliance with the due process requirement
because the taxpayer was duly apprised during
the entire proceedings. When the taxpayer filed a
letter in response to the notice of informal
conference and in response to the PAN, the
government had explained to the taxpayer both
the legal and factual basis to which the
assessment was based.
 CIR vs. Pascar Realty
A complaint was filed against Pascar.
The Revenue officers executed and attached
an affidavit in support of the case filed for tax
evasion. In the affidavit, the revenue officers
indicated the deficiency taxes, the reason for
the deficiency taxes, etc. The government
collected the deficiency taxes administratively
and claimed that the assessment notice is the
affidavit.
SC: the taxpayer must be certain that a specific
document is an assessment notice. In this case,
there was no indication that the affidavit issued
by the revenue officers already represents the
assessment notice of the BIR. The affidavit
cannot be considered as an assessment notice
for the following reasons:
1. In order for a document to be
considered an assessment, the
document must be sent to the taxpayer.
In this case, the affidavit was not sent to
the taxpayer, It was made as an
attachment to the complaint;
2. The assessment is deemed made only
when the revenue officers mails or sends
the document to the Taxpayer.
In this case, the affidavit merely contained a
computation of the tax, it did not state a
demand to pay the tax, it was not addressed to
the taxpayer, and it was not sent to the
taxpayer. The affidavit was even addressed to
the Secretary of Justice, not the taxpayer. The
affidavit was meant merely as a support of the
claim, not a notice of assessment.
CIR vs. Reyes
The factual and legal basis must be
indicated in the assessment notice, otherwise
the assessment is void. Hence, since the
assessment notice did not contain both the legal
and factual basis, then the assessment is void.
CIR vs. Fitness by Design
There were 2 issues raised:
1. Whether the extraordinary assessment
shall be applied;
2. Whether a formal assessment notice
which does not contain a definite due
date is valid.
Facts:
On April 11, 1996, the annual income tax
return (AITR) for the year 1995 was filed.
On June 9, 2004, the taxpayer received
the FAN which was dated March 17, 2004.
The FAN was issued by virtue of a letter of
authority. The FAN contained the computation
of the tax, and the details of discrepancy.
However, the notice of assessment contained
the phrase:
“Please note, however, that the interest
and total amount due will have to be adjusted.
If paid prior or beyond a particular date…”
On Feb. 2, 2005, a warrant of distraint or levy was
issued. (If the problem states that a warrant of
distraint or levy was issued, it means that the BIR
resorted to an administrative remedy of
collecting the tax, not judicial remedy. If the
mode of collecting the tax was administrative, it
must be preceded by a valid FAN).
SC: an assessment refers to the determination of
amounts due obligated to make payments.
Assessment process as discussed in the case:
1. Assessment process starts with the filing of a
tax return (AITR) and the payment of the tax.
It does not start with the LOA. It starts from the
preparation of the income tax return and the
payment of the tax, this is called the self-
assessment since the taxpayer computes his
tax liability.
2. After the filing of a return, the CIR may allow
the examination any taxpayer for assessment
of the proper tax liability, but the examination
of the taxpayer can only be done if there is a
letter of authority (LOA). Thus, issuance of
LOA for the examination. In Medicard case,
a letter notice is not considered a substitute
for a LOA. If there is no LOA, the assessment
is void.
3. After the issuance of a LOA, the examination
begins. When the examination ends, the BIR
will not issue a notice of informal conference
(or notice of discrepancy based on RR 22-
2020, depending on the year the assessment
was made), which is required because that is
one of the due process requirements under
the revenue regulations.
Under RR 22-2020, it is no longer called notice
of informal conference (NIC) but a notice of
discrepancy (NOD), but the principle is still
the same. Upon the issuance of a notice of
discrepancy, the BIR must schedule a
discussion on discrepancy, which must be
done within a 30 day period after the notice
of the notice of discrepancy. When the
taxpayer wants to submit all relevant
documents in support of its claim, it must be
submitted within the same 30 day period.
4. After the issuance of the notice of informal
conference, the taxpayer has 15 days to
respond (not under RR 22-2020 yet). When
the BIR is not satisfied, the BIR will issue a PAN.
Only the Regional Director has the authority
to issue a PAN, not the revenue district officer,
pursuant to administrative issuances by the
Commissioner;
Exceptions to the issuance of a PAN under
Section 228 of the NIRC:
a. If the finding is the result of a
mathematical error appearing on the
face of the return, then the regional
director or CIR does not need to issue
a PAN;
b. If the tax withheld is not equal to the
tax remitted, then a PAN is no longer
necessary since it can be seen on the
face of the return;
c. If the taxpayer filed a claim for refund
of excess withholding taxes but later
on it was determined that the
taxpayer carried over the subject of
the refund;
d. If the excise tax has not been paid;
and
e. If articles locally purchased or
imported by exempt persons were
sold to non-exempt persons.
In these cases, the Regional Director
or the Commissioner can issue a FAN.
5. When the PAN is issued, the taxpayer has a
period of 15 days (prior to RR 22-2020) to
respond. If the taxpayer does not respond,
he is considered in default.
Under section 228 of the NIRC, the PAN must
likewise contain the facts, the law, the rules
and regulation, and the jurisprudence on
which the assessment is based.
The difference of a PAN and a FAN is that the
FAN has a formal letter of demand.
6. If the BIR is not satisfied with the explanation
of the taxpayer, the Regional Director or the
Commissioner may now issue a FAN. At any
case, the FAN can be issued if the taxpayer
replied or did not reply. The FAN or Formal
Letter of Demand with Assessment Notice
(FLDWAN) includes the notice of
discrepancy.
7. The taxpayer has a period of 30 days to file a
protest, which may be in the nature of a
request for reinvestigation or a request for
reconsideration;
8. If the taxpayer did not file a protest, the
assessment becomes final and demandable,
which means that the taxpayer can no
longer raise the defense of prescription, the
correctness of the computation, and the rest.
The assessment notice will already be valid. It
is important that the taxpayer files a protest
 in order for the assessment to not become
final.
9. The taxpayer has a period of 60 days to
submit relevant documents, but only if the
protest is in the nature of a request of a
reinvestigation.
10. The CIR has a period of 180 days to decide
FDDA (Final Decision of Disputed
Assessment). FDDA is issued by Regional
Director or Commissioner, depending where
the case is pending. The RD or Commissioner
is required to decide within the 180 day
period, but there is no effect since there is no
repercussion, unlike in Section 112. But there
needs to be a decision first before the
taxpayer can elevate the case to the CTA.
In a protest case, the CIR has 180
days to rule on the protest, if the CIR
did not decide within the 180 day
period, the taxpayer has 2 options:
a. File a petition for review before the
CTA within 30 days after the lapse of
the 180 day period. Meaning the
taxpayer may treat the lapse or
inaction of the CIR within the 180 day
period as an implied denial;
b. Wait for the decision on the disputed
assessment. Once the assessment has
been issued, the taxpayer can file a
petition for review within 30 days after
the receipt of the decision.
-pwedeng may forever pag hinde
sumagot sa ang RD/CIR. The trick is to
utilize the 2nd remedy if the 180+30
day period had already lapsed and
just wait for the decision.
11. Remedy depends on who issued the
FDDA, if the RD issued the FDDA, appeal to the CIR
(Administrative appeal) within 30 days after the
receipt of the FDDA. The CIR has another 180 days to
decide, after the lapse of the 180 days, appeal to
the CTA by filing a petition for review or await for the
issuance of the decision of the CIR on the
administrative appeal. (Same process as before).
If the CIR issued the FDDA, go to the CTA
division by filing a petition for review within 30 days
after the receipt of the decision.
If there is inaction in the disputed assessment,
file an appeal with the CTA division within 30 days
after the lapse of the 180 day period.
Thus:
AITR-LOA-NIC/NOD-30 days discussion-PAN-reply-
FAN or FLDWAN-30 days to file protest-60 days to
submit relevant documents-FDDA issued by RD or
CIR or inaction-CTA based on number 11.
ASSIGNMENT: can a FAN be issued even if the 15 day
period has not yet lapsed without the taxpayer
having replied?
READ: CIR VS. ROCA
What is the reason behind the process of
assessment? In order to provide due process in
favor of the taxpayer.
SC decision of the case:
The assessment is not valid. The FAN is not a valid
assessment because no definite amount of tax
liability is indicated in the assessment. The phrase
indicated (“please note”) as stated above, leads
to the conclusion that there is of definite amount
of tax liability because if provides that the tax due
is still subject to modification.
The assessment notice is likewise void since it does
not contain due dates for payment in the FAN.
The lack of due date in the FAN negates the
demand to pay. Since the document did not
contain a due date, as it was just left blank by the
revenue officers or regional director, then it is
considered a ground for the nullity of the
assessment.
Hence, since the FAN was void, then the warrant
of distraint/levy is also void since an invalid
assessment bears no fruit.
NOTE: Read the questions in the problems, an
assessment is different from a warrant of
distraint/levy. It could be that the problem is only
asking the validity of the assessment, or the warrant
of distraint/levy, or both.
DIFFERENT KINDS OF ASSESSMENT:
1. Self-assessment-where the taxpayer is the
one computing for his or its tax liability;
2. Deficiency assessment-an assessment by the
examiner whereby the amount of tax is
determined after audit. So kung na audit na,
at mayroong kulang na tax, deficiency
assessment ang tawag doon;
3. Illegal or void assessment-an assessment
where the examiner has no power to act on
it;
 4. Erroneous assessment-one where the
examiner has the power to make such
assessment but errs in the exercise of such
power. Example: wrongful computation;
5. Jeopardy assessment-an assessment issued
without a complete or partial audit.
Nagmadali ung revenue officer. The period
to asses was already about to expire, and
they had to issue the FAN, and the FAN did
not contain a complete or partial audit.
Section 203 NIRC: STATUTE OF LIMITATION ON
ASSESSMENT
Provides that there must be a three (3) year period
after the last day prescribed by law for the filing of
the return in order to assess the tax liability.
SECTION 203 AND SECTION 222 OF THE NIRC
Section 203, NIRC
SEC. 203. Period of Limitation Upon Assessment and
Collection. - Except as provided in Section 222,
internal revenue taxes shall be assessed within three
(3) years after the last day prescribed by law for the
filing of the return, and no proceeding in court
without assessment for the collection of such taxes
shall be begun after the expiration of such period:
Provided, That in a case where a return is filed
beyond the period prescribed by law, the three (3)-
year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed
before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.
Three (3) year period in the first part applies to both:
1. Collection of the tax without assessment (judicial
collection of taxes); and
2. Assessment of taxes.
For Number 2:
If there is an assessment, the government has a
period of three (3) years counted from the date of
assessment to collect the tax. The date of assessment
is the date when the assessment has been sent to, or
mailed to, the taxpayer. It is not the date received
by the taxpayer.
The last part of section 203 means that the reckoning
date can either be the last day prescribed by law or
the date of filing. The actual date of filing will only be
applied when there has been a belated submission
or filing of the tax return.
EXAMPLE:
Taxable period 2019. The income tax return must be
filed on April 15, 2020, which is the last day prescribed
by law. If the return was filed April 13, 2020, the
government has until April 15, 2023 to assess the taxes
or 3 years after. Why April 15, and not April 13?
Because the law provides that if the return was filed
before the last day prescribed by law for the filing of
the return, then the 3-year period shall be counted
from the last day prescribed by law. In this example,
it was filed before the last day prescribed by law, so
the 3-year period shall be reckoned from the last day
prescribed by law for the filing of the return, which is
April 15, 2020. So, count from April 15, 2020, thus, the
government has until April 15, 2023 to assess the tax
liability. If the taxpayer filed on the last day
prescribed by law, or on April 15, 2020, the
government has 3 years or until April 15, 2023 to
assess the tax liability.
If the taxpayer filed belatedly, or on April 30, 2020,
then the government will have until April 30, 2023 to
assess the taxes, since that is the actual date of filing.
 It is only in cases of belated filing that the 3-year
period to assess will be counted from the actual
date of filing.
For Number 1, where the government will collect
taxes without assessment, meaning, this can only be
done when the government will collect taxes
judicially.
 Assessment notice is no longer necessary since
there is a trial process that they must follow. The
trial of that case will give due process to the
taxpayer. But if the government will resort to this
type of method, the collection of the tax must
be done within 3 years from the last day
prescribed by law for the filing of a return or if
the return has been belatedly filed, such
collection must be done within 3 years from the
actual date of filing.
How to reckon the date of collection of the tax if the
government will collect the tax after the issuance of
an assessment notice?
 Under Section 203, the government has a
period of three (3) years to collect the tax from
the date of assessment, if an assessment notice
is issued. However, Section 203 does not state
the date of assessment. Check the case of CIR
vs. United Salvage and towage.
 In CIR vs. United Salvage and Towage, the SC
held that upon the issuance of an assessment
notice (a formal or final assessment notice), the
 government has a period of 3 years to collect
the tax from the date of assessment.
Example: The government issued an assessment on
March 12, 2021. This is the date when the assessment
has been sent to the taxpayer. Until when can the
government collect the tax? Until March 12, 2024, or
3 years after.
NOTE: This assessment does not only apply to income
taxes, it applies to all types of internal revenue taxes.
**Section 203 applies with respect to withholding
taxes. Withholding taxes on the part of the
withholding agent are not considered as penalties,
but internal revenue taxes. The prescriptive period
under Section 203 applies to withholding taxes with
respect to the liability of withholding agents.
COLLECTION WITH ASSESSMENT
 Collection must be done within a period of 3
years from the date of assessment.
o 3 years came from the case of CIR vs. United
Salvage and Towage. There was change
from 5 years to 3 years.
Section 222, NIRC
SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes.-
(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the
tax may be assessed, or a proceeding in court for the
collection of such tax may be filed without
assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission: Provided,
That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for
the collection thereof.
The extraordinary period to collect shall only apply
when:
1. there is a filing of a false or fraudulent return with
the intent to evade the tax;
2. There is a failure (omission) to file a return;
These are the 2 instances when the government can
use the extraordinary periods under Section 222 of
the NIRC. The government will have a period of
within 10 years after the discovery of the falsity, fraud,
or omission to make an assessment or to collect the
tax without any assessment.
The 10 year period will be made to apply if we talk
about assessment or filing a collection in court
without an assessment.
Condition of the last part of Section 222 (a): the fraud
assessment will be final and executory if there will be
no filing of a protest, if there is no compliance with
the procedure laid down under section 228 of the
NIRC.
(b) If before the expiration of the time prescribed in
Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in
writing to its assessment after such time, the tax may
be assessed within the period agreed upon. The
period so agreed upon may be extended by
subsequent written agreement made before the
expiration of the period previously agreed upon.
 Letter (B) is called the waiver of the statute of
limitations.
(c) Any internal revenue tax which has been
assessed within the period of limitation as prescribed
in paragraph (a) hereof may be collected by
distraint or levy (ADMINISTRATIVE) or by a
proceeding in court (JUDICIAL) within five (5) years
following the assessment of the tax.
 Letter (C) speaks of collection of taxes. If an
assessment has been issued within the 10-year
period, the government has a period of 5 years
to collect the tax, whether judicially or
administratively.
(d) Any internal revenue tax, which has been
assessed within the period agreed upon as provided
in paragraph (b) hereinabove, may be collected by
distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration
of the five (5) -year period. The period so agreed
upon may be extended by subsequent written
agreements made before the expiration of the
period previously agreed upon.
 Also called the waiver of the statute of
limitations.
(e) Provided, however, that nothing in the
immediately preceding and paragraph (a) hereof
shall be construed to authorize the examination and
investigation or inquiry into any tax return filed in
accordance with the provisions of any tax amnesty
law or decree.
Section 203 refers to the ordinary period to assess
and collect taxes. Pertains to the regular period to
assess.
Section 222 is the extraordinary period to assess and
collect taxes. It is extraordinary because it only
applies to those instances mentioned under section
222.
RECAP:
ORDINARY/REGULAR PERIOD
Assessment:
The government has a period of within 3 years
counted from the last day prescribed by law for
filing, or the last day of filing if belatedly filed to
ASSESS the tax.
Collection without Assessment:
The government has a period of within 3 years
counted from the last day prescribed by law for
filing, or the last day of filing if belatedly filed to
COLLECT the tax.
Collection with Assessment:
The government has a period of 3 years from the
date of assessment. In such collections, there is 3
years to assess, and 3 years to collect.
EXTRAORDINARY PERIOD
Assessment:
The government has a period of 10 years from the
discovery of the falsity or omission to ASSESS the tax.
Collection without Assessment:
The government has a period of 10 years from the
discovery of the falsity or omission to COLLECT the
tax.
Collection with Assessment:
The government has 5 years from the date of
assessment to COLLECT the tax.
Atty. Tin: ibig sabihin, pag collection under ordinary
period, ang iisipin mo e 3-3, 3 years to assess, 3 years
to collect.
Pag extraordinary, ang isipin mo 10-5, 1 years to
asses, 5 years to collect.
When will the extraordinary period be applied?
 it will be applied if and only if there is a clear
showing that there is an intent to evade the tax.
 the facts of fraud must be indicated in the
assessment, if the facts of fraud are not
indicated in the assessment, the extraordinary
period shall not be applied.
 it is necessary that the assessment notice
contains the fact that the taxpayer committed
a fraudulent act. If such fact is not indicated in
the assessment notice, then the extraordinary
period shall likewise not be applied.
During the previous discussion:
Emphasis: There has to be a strict compliance with the
mandatory period within which the government could assess
or collect the tax.
Take Note:
The assessment periods are intended to protect the rights of
the taxpayer in order to prevent unscrupulous investigation
investigations by revenue officers for an indefinite period of
time. This being said the, the period must be strictly complied
with by the revenue officers.
Reiteration of the PROCESS OF ASSESSMENT
1. It always starts with a Letter of Authority. Without this, the
assessment is considered as void.
2. Then it is followed by a Notice of Discrepancy
Previously, this was called as “notice of informal conference”.
However, under Revenue Regulation No. 22-2020, the same is
now called as Notice of Discrepancy. There must be a
discussion on discrepancy within the 30-day period. If the
taxpayer will reply or submit documents in order to dispute the
discrepancy, the taxpayer must submit the necessary
documents within that same 30-day period.
3. After the issuance of Notice of Discrepancy, the
government must issue a Preliminary Assessment Notice
(PAN). Without the issuance of a notice of discrepancy AND a
PAN, the assessment notice is void.
**Reminder: The LOA, Notice of Discrepancy, and PAN are
all mandatory.
This are all processes that must be complied with in order not
to contravene the due process clause of the Constitution.
 CERTAIN EXCEPTIONS WITH RESPECT TO THE ISSUANCE OF
PAN:
Section 228 NIRC:
SEC. 228. Protesting of Assessment. - When the Commissioner
or his duly authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a pre-assessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing
on the face of the return; 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 excisable articles has not 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.
4. The taxpayer is then given 15-days to reply to the PAN.
5. If the Regional Director finds the arguments raised by the
taxpayer as unmeritorious, the RD will issue a Formal
Assessment Notice (FAN) and attached thereto is the
document denominated as “Details of Discrepancy”
6. After the issuance of a FAN, the taxpayer must file within a
period of 30-days from the issuance thereof, a request for re-
investigation or a request for reconsideration.
The failure of the taxpayer to protest within the 30-day period
renders the assessment final and executory.
Request for Re-investigation: Is a type of protest that raises
ADDITIONAL EVIDENCE. It is not necessary that these pieces of
evidence are considered as newly discovered. So long as there
is additional pieces of evidence, it is reinvestigation.
Request for Reconsideration: Is a type of protest that will NOT
involve additional evidence and the arguments are plainly
based on law and on existing documents that had already been
submitted to the BIR.
Why the need to know the difference?
The 60-day period to submit additional documents will apply
only if the taxpayer filed a protest that is in the nature of a
request for re-investigation.
If the taxpayer did not file additional documents within the 60-
day period, the assessment becomes final and executory.
There is no submission of additional relevant documents if the
taxpayer filed a request for reconsideration.
7. Upon submission of the additional documents, the CIR or
the RD in most cases, the CIR has 180-days to decide on the
protest.
8. There can now either be inaction or a decision.
The decision is called a “Final decision on disputed
assessment” or FDDA.
9. If there exists an inaction, the only remedy of the taxpayer
is to file, within a period of 30-days a Petition for Review before
the CTA Division. Or wait for the decision pursuant to the case
of Lascona v CIR.
10. If the RD issued a FDDA, the taxpayer has two options:
I. To file an administrative appeal or
II. To file a judicial appeal.
If the taxpayer opts to file an administrative appeal:
The administrative appeal must be filed before the CIR and
must be filed within a period of 30-days from the receipt of the
FDDA.
The CIR will again have a period of 180-days to decide. There
can either be inaction or can be acted upon by the CIR.
 Where the CIR rendered a decision, the taxpayer will
have a period of 30-days from the receipt of the
decision of the CIR to file a petition for review before
the CTA Division.
 Where there is inaction on the part of the CIR, the
taxpayer has 30-days after the lapse of the 180-day
period within which to decide to file a petition for
review before the CTA Division.
If the taxpayer would resort to a Judicial Appeal
A petition for review before the CTA Division must be
filed within a period of 30-days from the receipt of the FDDA
issued by the RD.
11. Next step is file an appeal before the CTA EN BANC but
before going to the CTA En Banc, there must first be a filing of
a Motion for Reconsideration or Motion for New Trial which
must be filed within 15-days from receipt of decision of the
CTA-Division.
12. SUPREME COURT
Take note that: if we talk about the Final Assessment Notice
(FAN), this has to be issued to the taxpayer within 3-years
counted from the last day prescribed by law for the filing of a
return or if the return has been belatedly filed, then it will be
counted from the actual date of the filing.
If the return has been filed before the last day prescribed by
law for the filing of return, the reckoning date shall be the last
day prescribed by law for the filing of the return. Meaning, you
will only apply the actual date of filing if the return was
belatedly filed.
**Question: 2019 Bar question: the taxpayer did not receive
the assessment and the BIR does not have any proof that the
taxpayer received the assessment, what happens in that case?
Answer:
The BIR has the burden of proof to prove that indeed the FAN
has been sent to the taxpayer. If the revenue officers cannot
present an evidence that indeed the assessment was sent to
the taxpayer, then the assessment will be considered as if it
was not issued.
STATUTE OF LIMITATION ON ASSESSMENT OF INTERNAL
REVENUE TAXES
Discussion on:
RMO 20-90
RMO 14-2016
Both RMO speaks of the mandatory requirements for the
validity of a waiver of the statute of limitations.
Section 222 of the NIRC talks about the extension of the
period to assess and collect. In order to extend this period to
assess and collect, it is necessary that the taxpayer must
execute a waiver of the statute of limitations.
**If the waiver is not executed by the taxpayer AND the CIR
or his duly authorized representatives, then the period is not
validly extended.
Mandatory Requirements under RMO 14-2016:
a) The Waiver of the Statute of Limitations under Section 222
(b) and (d) must be executed before the expiration of the
period to assess or to collect taxes. The date of execution shall
be specifically indicated in the waiver. If the date of execution
is not indicated in the waiver, then the waiver is invalid.
b) The waiver must be signed by the taxpayer himself or his
duly authorized representative. ln the case of a corporation,
the waiver must be signed by any of its responsible officials (it
is no longer necessary that these officials are armed with SPA.
As long as the official is in charge during the audit, such official
is considered an authorized representative)
c) The expiry date of the period agreed upon to assess/collect
the tax after the regular three-year period of prescription
should be indicated in the waiver.
Material Dates above:
I. Date of execution
II. Expiry Date
Date of acceptance is no longer considered as a material date.
Therefore, as long as it can be proven that the government
accepted the waiver within the 3-year period, that will
already suffice. Notwithstanding the fact that the date of
acceptance was not indicated in the waiver, the waiver is still
valid, provided, that the CIR accepted the same within 3-year
period.
Note: The execution by the taxpayer and the acceptance by
the government must be done before the expiration of the
regular period to assess or to collect.
Under RMO 20-90, the fact of receipt must be indicated on
the waiver. But this is no longer considered a mandatory
requirement under RMO 14-2016.
Note:
 Waiver of the Period to Assess= there is no need to
specify the tax.
 Waiver of the Period to Collect= there is a need to
specify the tax being collected otherwise the waiver
is void.
The waiver need not be notarized. It is not mandatory.
The waiver must be signed by both parties (TP and CIR)
CIR v. Kudos
Facts:
The irregularities of the waiver are:
1. There is no notarized written authority;
2. The waiver failed to indicate the date of
acceptance;
3. The fact of receipt by the TP was not indicated in
the original copies.
RULING OF SC:
The waiver is considered a void waiver and
therefore the period to assess was not extended. The waiver
is void because it did not comply with RMO 20-90. The
waivers were executed without the notarized authority of
the accountant. The waivers did not indicate the date of
acceptance and the fact of receipt by the taxpayer was not
indicated in the original copy of the waiver.
If these regularities still happened at the present time or
during the effectivity of the RMO 14-2016, will the waiver be
considered as valid?
No. The waiver in this case is a valid waiver.
The notarized written authority is no longer a requirement
under RMO 14-2016. In fact, under RMO 14-2016, the
taxpayer is charged with the burden of ensuring that the
waivers were executed by an authorized representative of
the taxpayer. The taxpayer’s representative who
participated in the audit may no longer be contested.
CIR v.CARNATION
Facts:
The following irregularities occurred:
1. The CIR’s authorized representative or the CIR
himself did not sign the waiver
If this occurred during the effectivity of RMO 14-2016, is
the waiver valid?
No. If the waiver is not signed by both parties or their
authorized representatives, the waiver has no binding
effect. Implied consent cannot be presumed.
RCBC v. CIR
Facts:
On August 15, 1996, a LOA was issued.
On January 23, 1997, RCBC executed waiver extending the
period to assess up to December 31, 2000.
On January 27, 2000, a Formal Letter of Demand with
Assessment Notice was issued.
The taxpayer filed a protest on February 24, 2000.
On November 20, 2000, the TP filed a petition for review
before the CTA.
On December 6, 2000, a Formal Letter of Demand was issued
after negotiations. This time, the Formal Letter of Demand
already indicated a reduced amount of deficiency taxes. By
reason of this, on the same date, RCBC paid the tax.
RCBC assails the validity of the waiver on the ground that it
was merely attested to by the coordinator of the CIR and
there is no indication of the acceptance by the CIR.
Therefore, according to RCBC, since the waiver is invalid,
then the Formal Letter of Demand issued AFTER the 3-year
regular period to assess, then the assessment is void.
RULING OF SC:
RCBC was estopped when it made partial payments of the
revised assessments. RCBC’s subsequent action effectively
belies its insistence that the waiver is invalid. Thus, RCBC is
estopped from questioning the validity of the waiver.
CIR v. Standard Charter Bank
Facts:
The TP executed waivers.
On July 14, 2004, a Formal Letter of Demand (FLD) was
received by the TP.
On August 12, 2004, the TP filed a protest.
On March 9, 2005, a petition for review was filed before the
CTA due to the inaction of the CIR.
On October 14, 2005, the TP filed a motion for leave of
court to serve supplemental petition due to the alleged
payments of the other taxes except income tax and final
tax.
Take note that in this particular case the payment of taxes
was done during the pendency of the case before the CTA.
Also, despite the payment of the tax, they had indicated all
their arguments related to the validity of the waiver.
Technically, there was payment under protest.
Can the TP still question the validity of the waiver?
SC RULING:
The waivers are not valid. When the TP paid under protest,
there was no waiver of prescription because it was made on
record that the TP continued to raise the defense of
prescription in its pleadings. Further, the CIR belatedly raised
the defense on estoppel.
Furthermore, the SC held that, when payment was accepted
by the BIR without objection during the pendency of the case
before the CTA, the acceptance of the payment extinguished
the liability of the taxpayer.
CIR v. GJM Philippines
Facts:
The material dates are:
On April 12, 2000, GJM filed its ITR for taxable year 1999.
(This is a material date because the 3-year period to assess
shall be counted from the last day prescribed by law for the
filing of the return or the actual date of filing if there is
belated filing.)
On August 26, 2002, GJM informed the RDO through a letter
that it already changed its address.
On October 18, 2002, the BIR sent a Letter of Informal
Conference (Notice of Discrepancy).
On February 12, 2003, the BIR issued a Preliminary
Assessment Notice.
On April 14, 2003, it issued an undated assessment notice.
BIR sent the Formal Assessment Notice through the
registered mail. Take note that was has been sent in the
month of February is a PAN.
On July 25, 2003, the BIR issued a Preliminary Collection
Letter requesting GJM to pay income tax deficiency for the
taxable year 1999. The said letter was addressed to GJM’s
former address in Pio Del Pilar Makati. Take note that GJM
already sent a letter informing the BIR that it transferred its
address to Cavite. Nonetheless, the BIR still sent the
collection letter to the GJM’s former address.
On August 18, 2003, although the BIR sent a final notice
before seizure to GJM’s address in Cavite. The latter claimed
that it did not receive the same.
On December 8, 2003, GJM received a warrant of distraint or
levy.
The company then filed its letter protest on January 7, 2004,
which was denied by the BIR. GJM however denies ever
having received any formal assessment notice. Hence, GJM
filed a Petition for Review before the CTA.
Question:
Will the issuance of FAN be considered as barred by
prescription?
Answer:
If we will count it from April 12, 2000, the government has
until April 15, 2003 to make an assessment against GJM.
In this particular problem, it states here that the FAN has
been sent to registered mail on April 14, 2003 (apparently it
is still within the 3-year prescriptive period). But take note
that GJM denied having received any FAN.
Now, will the allegation that the FAN has been sent suffice?
Answer:
According to the SC, when an assessment is made within the
prescriptive period, receipt by the taxpayer may or may not
be within the said period.
It is not necessary that the TP will receive the assessment
within the 3-year period. What is only essential is that the
assessment must be ISSUED to the TP within the 3-year
period to assess.
It is not necessary that the TP actually received the
assessment notice within the 3-year period. But it is
important that there is proof that the TP received the
assessment notices.
If the TP denies having received an assessment from the BIR,
it then becomes incumbent upon the BIR to prove by
competent evidence that such notice was indeed received by
the TP.
In this case, the onus probandi has shifted to the BIR to show
by competent evidence that GJM indeed received the
assessment notices in due course of mail.
It has been settled that while a mailed letter is deemed
received by the addressee in the course of mail, that is
merely a disputable presumption subject to contraversion.
The direct denial of which shifts the burden to the sender to
prove that the mailed letter was in fact received by the
addressee.
Regrettably, in this case, the BIR was not able to prove that
the assessment was indeed received by the TP. Hence, since
there was no proof that it was received by the TP, then it will
be deemed as if it has never been sent at all.
Thus, the FAN in this case is void.
Republic of the Philippines vs. GMCC United
Facts:
The material dates in this case are:
On March 28, 2003, the LOA was issued for the taxable year
1998 and 1999.
On November 17, 2003, a notice was sent to the TP.
On December 8, 2003, the BIR issued a PAN.
In this case, it was mentioned that the FAN was issued but
the case does not indicate when it was issued.
By reason of the issuance of the FAN which was received by
the TP, the TP filed a protest on November 23, 2004.
Upon receipt of the protest, the TP received a final decision
on the disputed assessment.
The date of the FDDA is February 10, 2005.
On October 7, 2005, a criminal complaint for tax evasion was
filed by the BIR. The criminal complaint for tax evasion was
dismissed.
Is the dismissal proper?
As it stands, while the dacion en pago in this case which were
not declared by the TP in the year 1998 but was only
declared in 2000 (this is the reason why there is an allegation
of tax evasion) has not been declared in the year 1998, they
had been listed in the GMCC’s 2000 financial statement.
Respondents’ act of filing and recording said transactions in
their 2000 Financial Statement bely the allegation that they
intended to evade paying their tax liability.
Petitioner’s contention that the belated filing is a mere
afterthought designed to make it appear that the non-
reporting was not deliberate, does not persuade,
considering that, the filing of the 2000 financial statement
was done prior to the issuance of LOA which authorized the
investigation of GMCC’s books of account.
As to the issue of prescriptive period:
In this particular case, a complaint of tax evasion was filed,
would that automatically mean that the 10-year extra-
ordinary period for assessment will be applied?
According to the SC, the regular period shall be applicable. In
this case, the BIR failed to convince that the TP filed a
fraudulent tax return. It is necessary that there is a proof
that there was an intent to evade the tax.
The intent to evade the tax must be established by clear
and convincing evidence.
In this case, such error stemmed from a wrong application of
the law. Therefore, it is not an indication that there was an
intent to evade payment of tax.
If there were really an intent to evade payment of tax,
respondent would not have reported and subsequently paid
the income tax. Therefore, since there is no intent to evade
the tax, the 10-year period under Section 222 will not apply.
It is not enough the fraud is alleged in the complaint, it must
be established by clear and convincing evidence.
Since the BIR failed to discharge the burden of proving fraud,
then Section 222 (A) cannot be invoked.
The 3-year period should apply in this case, and since the last
day prescribed by law for the filing of the 1999 tax return was
April 15, 1999, the government only has three years from
April 15, 1999 to issue an assessment. In this case the PAN
was issued only in the year 2003, thus any assessment made
thereto shall be void.
But take note that notwithstanding the fact that the SC made
reference to the issuance of PAN herein, you need to
consider that it is the FAN which must be issued within the
3-year period.
CIR v. Systems Tech Inc.
Facts:
In the fiscal year ending March 2003, the financial
statement was filed on August 15, 2003, this is for Income
Tax Return.
For VAT, the returns were filed on July 23, 2002, October
25, 2002, January 24, 2003, May 23, 2003.
Expanded Withholding tax were filed for the period of May
10, 2002 to April 15, 2003.
Until when can the government assess if this is the period
(August 15, 2003) = August 15, 2006.
For VAT consider each quarter, thus if you ought to compute
the period to assess for the period May 23, 2003 the
 reckoning period within which to assess will be May 23,
2003. And considering that quarterly returns shall be made
in the 25th day of the next month following the close of the
taxable quarter, the reckoning period shall be May 25, 2003.
Thus, the government has until May 25, 2006 to assess.
For the Expanded Withholding Tax, the last day prescribed
by law is April 17, 2006. Why?
The SC used April 17, 2006.
(Not thoroughly explained why)
INSTANCES WHEN THE RUNNING OF THE PRESCRIPTIVE
PERIOD IS SUSPENDED
Running of the Prescriptive Period- is governed by Section 223
of the NIRC.
Section 223 of the NIRC:
SEC. 223. Suspension of Running of Statute of Limitations. - The
running of the Statute of Limitations provided in Sections 203
and 222 on the making of assessment and the beginning of
distraint or levy a proceeding in court for collection, in respect
of any deficiency, shall be suspended for the period during
which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in
court and for sixty (60) days thereafter; when the taxpayer
requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is
being assessed or collected: Provided, that, if the taxpayer
informs the Commissioner of any change in address, the
running of the Statute of Limitations will not be suspended;
when the warrant of distraint or levy is duly served upon the
taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines.
Instances for the suspension of the prescriptive period:
1. When the CIR is prohibited from making the
assessment or beginning distraint or levy or a
proceeding in court and for 60-days thereafter
2. When the TP requests for re-investigation which is
granted by the CIR
 In order for this instance to suspend the
running of the prescriptive period, the
protest filed must be in the nature of a
request for re-investigation and it must be
granted by the CIR. Because if the TP filed a
request for reconsideration, it will NOT toll
the running of the prescriptive period.)
Likewise, if the TP filed a request for re-
investigation but it was denied, it will NOT
toll the running of the prescriptive period.
In sum, both these requisites must concur:
I. What is filed is a request for re-investigation;
II. It is granted by the CIR
3. The TP cannot be located in the address given by him
in the return filed upon which a tax is being assessed
 (but if the TP informed the CIR of the change
of his address, the period will not be
suspended)
4. A warrant of distraint or levy is duly served upon the
TP or his representative AND no property could be
located.
 Take note that the period will be tolled only
if the warrant of dsitraint is SERVED (not
issued) and there is no property that could be
located.
5. The TP is out of the Philippines.
Republic v. Hizon
Facts:
A notice of assessment was issued by the CIR on July 18,
1986.
A request for reconsideration was made on November 3,
1992.
A warrant or distraint or levy was issued on January 12,
1989.
The CIR filed a case in court on Janaury 1, 1997.
In this particular case, take note that the filing of the
protest did not suspend the running of the prescriptive
period.
Although the CIR acted on Hizon’s request for
reconsideration by eventually denying it and this has been
denied on August 11, 1994. This does not detract from the
fact that the assessment has long become final and
demandable.
It became final and demandable because the TP did not
file the protest within a period of 30-days from the receipt
of the notice of assessment.
Question now is: Did the period to collect tax prescribe?
The CIR in this particular case argued that the period was
suspended was suspended when the BIR timely served a
warrant of distraint on January 12, 1989.
SC Ruling:
Timely service of warrants of distraint suspends the
running of the prescriptive period to collect the deficiency
taxes.
Simply put:
It is necessary that the warrant of distraint or levy must
be issued and served upon the TP within the prescriptive
period.
Take note: It is equally important that the TP receives the
warrants of distraint within the prescriptive period to
collect.
It is not the same with ASSESSMENT. In assessment, it is
enough that the notice is issued within the 3-year
prescriptive period to assess. Even if the TP receives the
same beyond such period, the assessment remains to be
valid.
On the other hand, if we talk about the PERIOD TO
COLLECT TAXES, it is necessary that the TP must have
received the warrant of distraint or levy within the 3-year
period to collect the tax.
Now, in this case, the assessment was issued on July 18,
1986, thus the government has until July 18, 1989 to
collect. Thus, since the warrants of distraint were received
within the 3-year period, the same shall be valid.
Now, was the filing of the case herein done within the
prescriptive period?
No. Therefore is this already barred by prescription and
should the case be dismissed?
Answer: Yes, because it is already barred by prescription.
Take note that: the action has prescribed but without
prejudice to the disposition of the property covered by
the warrants. Thus, even if the case above was dismissed,
the warrant of distraint could still be enforced.
Can the enforcement be done beyond the 3-year period
to collect?
Answer: Yes. It can be enforced beyond the prescriptive
period. What is only required is that the TP should have
received the same within the 3-year period to collect.
In this particular case, the SC ruled that:
If the prescriptive period was suspended twice on
November 3, 1992 (assuming that this is considered as a
request for re-investigation), the 3-year period begins to
run again after the service of the warrants and under
Section 223, it will begin to run again after 60-days
thereafter.
BPI v. CIR
Facts:
The issuance of the warrant of distraint or levy was done
within the 3-year period, but the service was done beyond
the 3-year period.
Main Issue:
Whether or not the period to collect was done within the
prescriptive period.
Held:
According to the SC, the period to collect is already barred
by prescription because, while it is true that the warrant
was issued within the 3-year period, the service of the
same was done BEYOND the 3-year period. Therefore, it
is already barred by prescription.
Request for Reconsideration- Is a plea for re-evaluation of an
assessment on the basis of EXISTING records without need of
additional evidence.
Request for Investigation- Is made on the basis of newly
discovered or additional evidence which does not necessarily
take in the nature of a newly discovered evidence.
PROCESS OF ASSESSMENT
Remember:
**The issuance of PAN is MANDATORY.
**There are instances when the PAN is not required (Section
228)
**Both the PAN and the FAN must contain the facts the law,
the rules and regulations, and the jurisprudence on which the
assessments are based.
Question 1: (2014 BAR Q)
Mr. Tiaga has been a law-abiding citizen diligently paying his
income taxes. On May 05, 2014, he was surprised to receive an
assessment notice from the BIR informing him of a deficiency
tax assessment as a result of a mathematical error in the
computation of his income tax as appearing on the face of his
income tax return for the year 2011 which he filed on April 15,
2012. Mr. Tiaga believes that there was no such error in the
computation of his income tax for the year 2011. Based on the
assessment received by Mr.Tiaga, may he already file a protest
thereon?
Answer:
Yes. Mr.Tiaga may already file a protest. Among the instances
provided in Section 228 of the NIRC, where no pre-assessment
or preliminary assessment is required is when the tax liability
is arising from PURE MATHEMATICAL ERROR in the
computation of the tax. In such case, an assessment may be
issued outright.
This was what happened in this case. A Formal Letter of
Demand was immediately issued by the CIR, and this has been
validly done by the CIR. Hence, the TP is allowed to already file
his protest.
Question 2: (2019 BAR)
On October 5, 2016, the BIR sent KLM Corp., a Final
Assessment Notice, stating that after its audit pursuant to a
Letter of Authority issued therefor, KLM Corp., had deficiency
VAT and withholding taxes. Subsequently, a warrant of
distraint and/or levy was issued against KLM Corp., opposed
the actions of the BIR on the ground that it was not accorded
due process because it did not even receive a PAN after the
BIR’s investigation, which the BIR admitted.
a) Distinguish PAN from FAN
b) Are the deficiency tax assessments and warrant of distraint
and/or levy issued against KLM Corp., valid?
Answer:
A)
As to nature: PAN contains initial computation of tax liability,
while FAN contains a final assessment of tax liability.
As to what is being protested: There is no need to file a protest
to the PAN only a reply will suffice. While a protest must be
filed in order to question the FAN.
B)
The tax assessment and the warrant of distraint or levy are not
valid by reason of the government’s failure to issue a PAN.
It is well entrenched in jurisprudence, that the issuance of a
PAN is a requirement of due process. Failure to issue a PAN will
result to the nullity of the assessment. Consequently, the
warrant of distraint or levy is likewise void because a void
assessment bears no fruit.
Applying the foregoing tenets, it is clear that there was a
violation of due process clause by reason of the government’s
failure to issue the PAN. Hence, the assessment and warrant of
distraint or levy are void.
Estate of the late Juliana Diez v. Vda. De Gabriel
Facts:
During the lifetime of Vda. De Gabriel, business affairs
were managed by PhilTrust.
After her death in the month of April of 1979, PhilTrust
filed her income tax return for the year 1978. After
investigation BIR sent a notice of assessment to PhilTrust.
In 1984, CIR issued a warrant of distraint/levy which was
served upon Vda. De Gabriel’s heir.
The main issue in this case is: Whether or not the warrant
of distraint is valid?
Discussion:
Take note that there are 2 remedies to collect the tax.
Judicial Remedy or Administrative Remedy.
How will the government implement an Administrative
Remedy of collecting the tax?
Through the issuance of a warrant of distraint/levy.
Take note again that: the warrant of distraint or levy must
be issued within the prescriptive period and that it must
be preceded by a valid assessment. If the warrant of
distraint/levy is not preceded by a valid assessment, such
will be void.
In this particular case, the notice of assessment was
issued to PhilTrust but the warrant of distraint/levy was
issued to and served upon the heirs.
According to the SC, death terminates the agency;
therefore, the notice of assessment cannot be received by
PhilTrust.
Why?
Because upon the death of Vda. De Gabriel, PhilTrust is no
longer considered the agent of Vda. De Gabriel by reason
of her death.
All this being said, the service on Philtrust of the Notice of
Assessment was improperly done. As of November 18,
1982 when the Notice of Assessment was served, there
was no legal relationship between PhilTrust and the
estate. Since there is no valid notice, it could not have
become final, executory and incontestable. And for failure
to make the assessment within the 5-year period, the
claim against the petitioner is barred.
So while it is true that the release or mailing of the Notice
of Assessment is sufficient, it must be sent to the TP and
not to a disinterested party.
In this case, the assessment is void or non-existent. Thus,
while there is a rule that the TP should receive the notice,
due process requires that such notice must be actually
received by the TP.
Absent this assessment, no proceedings could be initiated
in court or administratively. Therefore, the issuance of a
warrant of distraint/levy is already time-barred.
CIR v. Menguito
(Decided during the effectivity of the OLD law meaning
the law prior to RA 8424)
Not discussed
CIR v. Metro Star Superama
(Decided during the effectivity of RA 8424)
Facts:
A LOA was issued for the taxable year 1999. This was
issued on January 26, 2001.
Thereafter, a preliminary 15-day letter was received by
the TP and the letter states the tax and the facts of post-
audit review.
After the preliminary 15-day letter, the revenue officers
issued a FAN.
A year thereafter, a Final Notice of Seizure was issued.
A warrant of distraint/levy was issued in the year 2004
and it was received by the TP on February 6, 2004.
Issue:
Will the warrant of distraint/levy be considered as valid?
Held:
Failure of the CIR to prove receipt of the assessment leads
to the conclusion that no assessment was issued.
In this case, the CIR failed to present evidence that Metro
Start received the PAN.
To proceed with the tax collection without establishing a
valid assessment is already violative of the cardinal
principle in administrative investigation that is, that the
TP should be able to present their case.
Sending of PAN is part of due process, the absence of
which renders nugatory any assessment made by the tax
authority.
Since in this case, the BIR was not able to establish that
indeed the PAN was issued and was received by the TP,
then it is deemed as if no PAN was issued at all.
Since there is no PAN issued, then the assessment is void.
The FAN is void. Consequently, the warrant of
distraint/levy is likewise void.
Question: When do we reckon the period when assessment
was made? It will be reckoned from the date when the
assessment was issued, mailed, or sent to the TP.
Question: Is assessment necessary before a TP could be
prosecuted for violation of the NIRC?
Answer:
In the landmark case of Ungab v. Cusi, the SC held that, an
assessment is not necessary for the prosecution of the TP for
tax evasion.
What is necessary is to establish a probable cause that indeed,
the TP filed a fraudulent return with the intent to evade the
tax.
Adamson v. CA
SC Held:
When fraudulent tax returns are involved, a proceeding in
court after the collection of such tax may be begun
without assessment
Question: Are the procedures outlined in Section 228 of the
NIRC retroactive?
Answer:
CIR v. Reyes, the SC held that since Section 228 is remedial in
nature, then it will have a retroactive effect.
TAX REMEDIES PROPER
Overview:
The remedies on the part of the TP may be classified into two:
1. Before payment of the tax;
2. After payment of the tax.
If the TP did not pay yet, then the TP may file a protest or may
file an application for compromise.
If the TP has already paid the tax, then the TP’s remedies are:
1. To refund;
2. To file an action to contest forfeiture of chattel when there
is already forfeiture (this action must be filed before the sale
or destruction of the property or, if after the sale, it must be
within 6-months)
But if it’s after the sale, the only remedy of the TP is to recover
the net proceeds.
3. Redemption (the real property is already levied; redemption
is only applicable to real property levied)
On the part of the GOVERNMENT:
The government may file a collection case in court or collect
through an administrative means of collecting tax.
Administrative means of collecting tax would pertain to the
issuance of a warrant of distrant/levy.
REMEDIES AVAILABLE TO TAXPAYERS
a. Before Payment:
 Protest
 Compromise
b. After Payment
 Refund
PROTEST
For Protest to be entertained, there must be compliance with
Section 6, RR 12-85 – Requirements of a valid protest
- It is mandatory that the protest contains the
following:
a. Name of the taxpayer and the address for the
immediate past 3 years
b. Nature of the request whether a request for
reconsideration or a request for reinvestigation
c. If it is in the nature of a request for reinvestigation,
the protest must specify the newly discovered
evidence, or the additional evidence which the
taxpayer intends to present.
d. Taxable periods covered
e. Assessment number
f. Date of receipt of the assessment notice
g. Itemized statement of the findings to which the
taxpayer agrees as a basis for computing the tax due,
which amount should be paid immediately upon the
filing of the protest.
- When the taxpayer agrees, but only to a specific
amount. Then he needs to pay such amount.
h. Itemized schedule of the adjustments with which the
taxpayer does not agree
i. A statement of facts and/or law in support of the
protest
 If the protest did not comply with these
requirements, then the protest is not valid and the
CIR may or may not entertain the protest.
 If no protest is filed, the assessment becomes final
and executory.
Types/Kinds of Protest:
1. Request for Reconsideration
2. Request for Reinvestigation
Request for Reconsideration
- Is a plea for re-evaluation of an assessment on the
basis of existing records without need of additional
evidence.
- It may involve both a question of fact or of law or
both.
Request for Reinvestigation
- Is a plea for re-evaluation on the basis of newly-
discovered evidence or additional evidence that a
taxpayer intends to present in the investigation.
- It may also involve a question of fact or law or both.
CIR vs Philippine Global Communication
GR No. 167146
The Supreme Court discussed the two types of Protest
Facts:
On April 15, 1991, the return was filed for taxable year 1990
On April 15, 1992, a Letter of Authority was issued to the
taxpayer
On April 22, 1992, a letter to present documents was served
upon the taxpayer
On April 21, 1994, PAN was received by the taxpayer.
On April 22, 1994, FAN was received by the taxpayer.
On May 6, 1994, a protest was filed
On October 16, 1992, a final decision on disputed assessment
was received by the taxpayer.
Is the right of the government to collect barred by
prescription?
YES. The assessment was presumably issued on April 14,
1994 since PBCom did not dispute the CIR’s claim that the
assessment was issued on this particular date. Therefore, the
BIR had until April 14, 1997 to collect. (1 year is equivalent to
12 months)
Since the Government only has until April 14, 1997, check CIR vs. Hon. Gonzales
whether the government collected within the period. Upon GR No. 177279
the perusal of the facts, there was no Warrant of Distraint
Tax assessments are presumed to be correct and made in
and/or Levy served on the respondents nor any judicial
good faith.
proceedings initiated by the BIR, the earliest attempt of the
BIR to collect the tax due based on this assessment was when
A taxpayer's failure to file a petition for review with the Court
it filed its Answer in CTA Case No. 6568 on 9 January 2003,
of Tax Appeals within the statutory period rendered the
which was several years beyond the three-year prescriptive
disputed assessment final, executory and demandable,
period. Thus, the CIR is now prescribed from collecting the
thereby precluding the taxpayer from interposing the
assessed tax.
defenses of legality or validity of the assessment. It will also
preclude the taxpayer from interposing the defense of
You cannot use the case of CIR vs. GJM, because in CIR vs
prescription of the Government's right to assess.
GJM, the taxpayer denied that it has received the FAN.

- It is not only the failure to file protest which will

In this case (PBcom), the FAN was received, only that it
make the assessment final, but the failure to file a
cannot be determined when it was issued.
petition for review before the CTA will likewise
render the disputed assessment final and
“Date of Assessment” – date when the FAN was issued.
executory.
- The taxpayer cannot raise the defense of
However, if there is no record which would show the date
prescription only as to the assessment.
when the assessment has been issued, then the date that the
taxpayer received the assessment shall be considered as the
Question:
date of issuance.
Can the taxpayer later on question the validity of the
- This can only be applied if there is no evidence
warrant of distraint/levy on the ground that it is already
showing when the assessment has been issued.
barred by prescription? - Yes. Because that does not refer to
the right to assess, but rather the right to collect.
What should be protested?
It is the Formal Letter of Demand and Assessment Notice
Will the period to collect be suspended by the filing of the
(FAN) that must be administratively protested or disputed
protest?
within 30 days, and not the PAN.
- What is filed if it refers to PAN is a reply.
No. The period is not suspended because PBcom did not file
any request for reinvestigation. In fact, PBcom even refused
to submit any new evidence. Therefore, there is no
Allied Banking Corporation vs. CIR
reinvestigation involved.
Facts:
On April 30, 2004, a Preliminary Assessment Notice (PAN) was
The main difference between these two types of protests lies
issued.
in the records or evidence to be examined by internal
PAN was received by the taxpayer on May 18, 2004.
revenue officers, whether these are existing records or newly
On May 27, 2004, the taxpayer filed a protest.
discovered or additional evidence.
On July 16, 2004, a Formal Letter of Demand with Assessment
 A re-evaluation of existing records which results
Notice (FAN) was issued.
from a request for reconsideration does not toll the
This formal letter of demand with assessment notice states
running of the prescription period for the collection
that “It is requested that the above deficiency tax be paid
of an assessed tax.
immediately upon receipt hereof, inclusive of penalties
 Reinvestigation entails reception of additional
incident to delinquency. This is our final decision based on
evidence which will take more time, and therefore
investigation. If you disagree, you may appeal the final
justifies the suspension of the period. If the request
decision within thirty (30) days from receipt hereof, otherwise
for reinvestigation is granted, it will suspend the
said deficiency tax assessment shall become final, executory
running of the prescriptive period to collect the tax,
and demandable."
including the right to assess.
On August 30, 2004, the taxpayer received this FLDw/AN.
By reason of the receipt of the FLDw/AN, the taxpayer filed a
Effect of Failure to file Protest
Petition for Review with the CTA.
Renders the assessment final and executory.
Summary of Events:
PAN  Protest  FAN  Petition For Review
- If this is the factual circumstances without reading
the contents of the Formal Assessment Notice,
FANPFR is not allowed.
- A petition for review will be dismissed because of
failure to exhaust administrative remedies.
Under Section 7 of RA 9282, the CTA has jurisdiction over
decisions of or inactions by the CIR in cases involving
disputed assessments – this assessment refers to the FAN. -
The decisions in this provision refers to the decisions on the
protest against the assessment. If the FAN is not disputed,
then you cannot speak of a “disputed assessment”. If there is
no disputed assessment, then the CTA cannot acquire
jurisdiction.
However, this case of Allied Banking Corp. vs CIR is different.
Looking into the contents of the Formal Letter of Demand
with Assessment Notice, this is considered as an exceptional
circumstance. In this case, what was protested is the PAN,
and not the FAN. If the rules are to be strictly applied, the
dismissal of the Petition for Review was proper.
But this case is an exception to the rule on Exhaustion of
Administrative Remedies – that is Estoppel on the part of the
administrative agency.
It appears from the demand letter that CIR has already made
a final decision. And the remedy is to file an appeal. The
taxpayer should not be blamed because the language used
and the tenor of the demand letter indicate that it is the final
decision of the CIR. The formal demand used the word
“appeal” instead of “protest”. Appeal refers to the remedy
before the CTA. Hence it was the CIR who caused the
confusion.
It is the FAN that must be protested to, however this is an
exceptional case.
General Rule:
Therefore, the FAN / Formal Letter of Demand that must be
administratively protested. Not the PAN
Exception:
If there is an estoppel on the part of the administrative
agency (CIR)
Such as in this case where the taxpayer was made to believe
that the formal letter of demand is the final decision.
Effect of a protest on the period to collect deficiency taxes
The prescriptive period provided by law to make a collection
by distraint or levy or by a proceeding in court is interrupted
once a taxpayer requests for reinvestigation (not
reconsideration) of the assessment.
CIR vs. Wyeth Suaco Laboratories
The CIR issued two assessment notices. The first one is dated
December 16,1974, and the second is dated December 17, 1974.
These notices were received by Wyeth on December 19, 1974.
Protests were filed on January 17, 1975 and February 8, 1975.
BIR conduct a review and reinvestigation of the assessment.
On December 10, 1979, the CIR issued a decision to reduce the
assessment.
This decision was received by the taxpayer on January 2, 1980.
By reason of the receipt of the assessment, the taxpayer filed a
Petition for Review before the CTA on January 1, 1980.
If the warrant of distraint/levy was issued on February 7, 1980,
and was received by the taxpayer on March 12, 1980, was the
collection made within the period prescribed by law to
collect the tax? Is the government’s right to collect barred by
prescription? No.
Is the assessment barred by prescription?
- It cannot be determined in the facts provided if it is
barred by prescription because the facts did not
provide what year is involved and when the return
was filed. (KAYA WAG NA PROBLEMAHIN TONG
ISSUE NA TO)
- Presume regularity
The issue in this case is the Government’s right to collect
Prescriptive Period: 3 years from the date of assessment.
Date of assessment – date when the assessment is sent to or
mailed to the taxpayer (not served) but it is necessary that
the taxpayer receives the same. – issuance
When will there be a collection?
- When there is a case filed in court or when the tax is
administratively collected
The tax will not be considered as validly collected
administratively if the warrant is not served upon the
taxpayer. – issuance is not sufficient, it should be served.
- Both the issuance and the service of the warrant
should be done within the prescriptive period.
- Distraint proceedings will not be considered as
validly begun if the warrant was not served upon
the taxpayer.
In this case, when was the assessment issued?
 - There were two assessments:
1st – when the CIR issued two notices on December
16 and 17, 1974
2nd – when the CIR issued a decision to reduce
assessment on December 10, 1979. ‘
 It should be counted from December 1974. It is the
date when the CIR issued assessment notices.
- 3 years from December 1974 is December 1977. The
Government has until December 1977 to collect.
Is the issuance of the Warrant of Distraint/Levy already
prescribed?
- In this case, there was a reinvestigation.
- The facts provide that what was filed by Wyeth was
a “protest.” Obviously, it is in the nature of a request
for reinvestigation because the BIR conducted a
reinvestigation. (Was the request for reinvestigation
granted? Yes. The fact that the BIR conducted a
reinvestigation.)
Did the filing of the request for reinvestigation toll the
running of the prescriptive Period?
- YES
How to count the 3 year/5 year (in this case) period to collect
When was the assessment issued? – Presumably on
December 17, 1974
Count until the date when the BIR conducted a
reinvestigation – February 8, 1975
 From December 1974 to February 1975 = 2 months
(3 years/5 years minus 2 months. You stop counting upon
the grant of the reinvestigation)
Mere act of filing a request for reinvestigation will not toll the
prescriptive period. The period will be tolled if the
reinvestigation is granted.
The prescriptive period will start to run again when a new
assessment is issued.
New assessment was issued on – December 10, 1979
Warrant of distraint/levy was issued on – February 1980
 From December 1979 to February 1980 = 2 months
Supreme Court Ruling:
Although the protests letters were not categorically
denominated as request for “reinvestigation” or
“reconsideration”, BIR treated them as request for
reinvestigation when it conducted as review of the
assessments. Hence the 5-year period to collect the tax was
interrupted.
The original assessments were subject of reinvestigation.
Therefore, the prescriptive period was interrupted.
This period started to run again when the BIR served the final
assessment on January 2, 1980. Since the warrant of
distraint/levy were served to Wyeth on March 12, 1980, only
about 4 months of the 5 year prescriptive period was used:
From December 1974 to February 1975 = 2 months
From December 1979 to February 1980 = 2 months
Failure of the BIR to act within the 180-day period
Upon the submission of relevant documents or after the
submission of a request for reinvestigation, the CIR has a
period of 180 days to act on the protest.
If the protest or administrative appeal is not acted upon by
the Commissioner within one hundred eighty (180) days
counted from the date of filing of the protest, the taxpayer
may either:
1. Appeal to the CTA within thirty (30) days from after the
expiration of the one hundred eighty (180)-day period; or
2. Await the final decision of the Commissioner on the
disputed assessment and appeal such final decision to the
CTA within thirty (30) days after the receipt of a
copy of such decision. (RR 13-18)
Lascona vs CIR
There are actually 2 options that the taxpayer could adopt in
cases of protest.
Facts:
On March 27, 1998, an assessment notice was issued.
On April 20, 1998, the taxpayer filed a protest.
In a letter dated March 3, 1999, the protest was denied.
On April 12, 1999, the taxpayer filed an appeal before the CTA.
CIR argued that Lascona’s failure to timely file an appeal after
the lapse of the 180-day period render the assessment final.
According to the CIR, Lascona should have filed an appeal
within 30 days after the lapse of the 180-day period.
The CTA, in its Decision, nullified the assessment because the
taxpayer has two options, either to appeal to the CTA within
30 days after the lapse of the 180-day period or to wait until
the CIR decides.
Was the CTA correct?
Yes.
The taxpayer has two options: (1) File a petition for review
with the Court of Tax Appeals within 30 days
after the expiration of the 180-day period; or (2) Await the
final decision of the Commissioner on the disputed
assessments and appeal such final decision to the Court of
Tax Appeals within 30 days after receipt of a copy of such
decision.
Same with Section 112, the taxpayer needs to wait for the
decision of the CIR before it can be elevated to the CTA.
Difference of Section 228 and 112:
Under Section 228, the taxpayer has the option to treat the
lapse of the 180-day period as an implied denial.
Under Section 112, the taxpayer has no option to treat the
inaction as an implied denial, because it is necessary that the
CIR must issue a decision before the taxpayer can file an
appeal before the CTA
---
In arguing that the assessment became final and executory by
reason of the failure to file an appeal within 30 days after the
180-day period, the CIR in effect limited the remedy of the
taxpayer to just one option – that is to appeal the inaction.
- Such argument is erroneous
The word “decisions” does not signify the assessment itself. A
taxpayer cannot be prejudiced if he chooses one option over
the other.
These options are mutually exclusive and resort to one bars
the application of the other.
---
In this case, Lascona chose the second option. It opted to
await the final decision of the Commissioner on the protested
assessment. It then has the right to appeal such final decision
to the Court by filing a petition for review within thirty days
after receipt of a copy of such decision or ruling, even after
the expiration of the 180-day period fixed by law for the
Commissioner of Internal Revenue to act on the disputed
assessments. Thus, Lascona, when it filed an appeal on April
12, 1999 before the CTA, after its receipt of the Letter18
dated March 3, 1999 on March 12, 1999, the appeal was
timely made as it was filed within 30 days after receipt of the
copy of the decision.
RCBC vs CIR
On July 5, 2001, the taxpayer received an assessment (formal
letter of demand)
On July 20, 2001, the taxpayer filed a protest.
On April 30, 2002, a petition for review with the CTA for the
cancellation of assessment was filed.
The petition for review was dismissed because the petition
was filed beyond the prescriptive period. And no appeal to
the CTA en banc can be filed if there is a final assessment.
Take note: The CTA cannot acquire jurisdiction over final
assessment, because it can only acquire jurisdiction over
decisions of or inaction by the CIR involving disputed
assessments.
What makes it different from the case of Lascona?
In Lascona, the taxpayer opts to wait for the decision of the
CIR before it appealed.
In this case of RCBC, RCBC did not wait for the issuance of the
decision on the protest. There was no issuance of final
decision on disputed assessment.
According to the Supreme Court, in case the Commissioner
failed to act on the disputed assessment within the 180-day
period from date of submission of documents, a taxpayer can
either: 1) file a petition for review with the Court of Tax
Appeals within 30 days after the expiration of the 180-day
period; or 2) await the final decision of the Commissioner on
the disputed assessments and appeal such final decision to
the Court of Tax Appeals within 30 days after receipt of a
copy of such decision. However, these options are
mutually exclusive, and resort to one bars
the application of the other.
In the instant case, RCBC chose the first option which is to file
a petition for review before the Court of Tax Appeals, and
consider the lapse of the 180-day period as an implied denial.
If it is resorted to by the taxpayer, it is necessary that the
petition for review must be filed within 30 days after the
lapse of the 180-day period.
Unfortunately, the petition for review was filed out of time. It
was filed more than 30 days after the lapse of the 180-day
period. And therefore, the petition for review must be
dismissed.
Administrative Actions taken during the 180-day period
Prior to the decision on a disputed assessment, there may still
be exchanges between the commissioner of internal revenue
(CIR) and the taxpayer. The former may ask clarificatory
questions or require the latter to submit additional evidence.
However, the CIR's position regarding the disputed
assessment must be indicated in the final decision. It is this
decision that is properly appealable to the CTA for review.
(CIR v. ICC, 2011)
REMEMBER: The Commissioner of Internal Revenue should
always indicate to the taxpayer in clear and unequivocal
language whenever his action on an assessment questioned
by a taxpayer constitutes his final determination on the
disputed assessment. On the basis of this statement
indubitably showing that the Commissioner's communicated
action is his final decision on the contested assessment, the
aggrieved taxpayer would then be able to take recourse to
the tax court at the opportune time.
CIR v. Union Shipping
Facts:
The material dates are:
A LOA dated December 27, 1974 was received by the TP
on January 4, 1975.
The TP filed a protest on January 10, 1975. This protest
was received by the CIR on January 13, 1975.
Instead of acting on the protest, and instead of issuing a
final decision on disputed assessment, the CIR issued a
warrant of distraint/levy. This was issued on November
25, 1976.
On November 29, 1976, the CIR received a reiteration on
the request for reinvestigation from the TP.
The CIR instead of replying to the letter, filed a collection
suit, and the summons were served on December 28,
1978. This time, the TP filed a petition for review before
the CTA on January 1979.
The CIR argued that the period to appeal to the CTA
commences to run from the receipt of the warrant of
distraint/levy. Therefore, the petition for review should
be dismissed because the warrant of distraint/levy was
served upon the taxpayer on November 25, 1976 and yet
the TP did not file any petition for review before the CTA
within 30-days upon the receipt of the warrant of
distraint/levy.
Held:
The CIR should always indicate to the TP in a clear and
unequivocal language what constitutes his final
determination of the disputed assessment.
Since the CIR, not having clearly signified his final action
on the disputed assessment, legally, the period to appeal
has not commenced to run.
SC held that, the period to appeal has not commenced to
run in this case because there is no categorical language
as to what is the final decision of the CIR.
Since the final action with respect to collection is the filing
of a case in court, the protest is just deemed denied when
the CIR filed a collection case in court, and the 30-day
period shall be counted from December 28, 1978 which is
the date when the summons was served upon the TP.
Advertising Associates
SC HELD:
What constitutes a Final Decision of the BIR is that
contained in the letter of the CIR and not the warrant of
distraint/levy.
CIR v. Isabela Cultural Corporation
Facts:
In this case, the assessment was issued on February 9,
1990, which was received on February 13, 1990.
A motion for reconsideration was filed on March 23, 1990.
Additional documents were submitted on April 18,1990.
Instead of acting on the protest filed, the CIR issued a Final
Notice Before Seizure, and this was issued on November
10, 1994. But it was received by the TP on February 9,
1995.
Since the TP received a final notice before seizure, the TP
filed a petition for review before the CTA on March 9,
1995.
The CIR argued that, there was yet no final decision on
disputed assessment. Thus, the filing of a petition for
review before the CTA is premature.
Question: Should the petition for review be dismissed?
SC HELD:
The TP would not be groping in the dark as to what really
constitutes the decision. In this particular case, where it
has been stated in the Final Notice Before Seizure that,
that is already the final decision of the CIR, then the TP
could actually treat it as the decision of the CIR on the
disputed assessment.
The TP cannot therefore be blamed for treating the Final
Notice before Seizure as the final decision of the CIR.
 Protector’s Services v. CA
Facts:
This case involves a situation where the TP received the
BIR assessment on December 10, 1987 but the TP filed a
protest on January 12, 1988.
Should the CTA dismiss the petition?
Answer:
Yes. The protest was filed out of time. Since the protest
was filed out of time, the CTA has no jurisdiction because
there is no disputed assessment.
What is required is that there must be a protest filed. The
CTA can only acquire jurisdiction over cases involving
disputed assessment.
How is should we count the period to file the protest?
The TP received the BIR assessment on December 10,
1987.
How many days are there in December? 31.
Thus;
31
-10
21 days
Now, the TP filed a protest on January 12, 1988.
Add: 12
33 days. The TP is 3 days late. Thus, the protest was filed
beyond the 30-day period to protest. Therefore, the
assessment herein is final and executory. Consequently,
the CTA cannot acquire jurisdiction over the petition for
review because there is no longer a disputed assessment
to speak of.
REMEDIES FROM A DENIAL OF THE PROTEST
Under RR. 18-2013, the Secretary of Finance provided two (2)
possible remedies in favor of the TP in cases when there is a
final decision on disputed assessment.
The two remedies are:
I. Administrative Remedy otherwise called as Administrative
Appeal which is the filing of an appeal before the CIR
II. Filing of a Petition for Review before the CTA (Judicial
Appeal)
Note:
The administrative appeal shall apply ONLY when there is a
Final Decision on disputed assessment issued by the Regional
Director. If there exists an inaction, the administrative appeal
will not apply.
Administrative Appeal is only applicable if there is a decision.
If there is an inaction, the remedy shall always be the filing of
a Petition for Review before the CTA.
CIR v. Liquigaz Ph Corporation
SC HELD:
The final decision on disputed assessment must comply
with the requirements under RR. 18-2003.
Under RR. 18-2003, the Final Decision on disputed
assessment must contain the:
I. Facts;
II. The law;
III. The rules and regulations; and
IV. The jurisprudence
on which the decision is based.
If the Final Decision on disputed assessment did not
comply with the requirements above, the FDDA is void. If
the FDDA is void, then there is nothing to appeal.
Question: Will it result to the nullity of the assessment?
Answer: No. The assessment remains to be valid if it is
valid. What is only considered void is the FDDA.
What will only be affected are the proceedings after the
FDDA. Any proceedings after a void VDDA shall likewise
be void.
APPEAL TO THE CTA
JURISDICTION OF THE CTA
Memorize
EXCLUSIVE APPELLATE JURISDICTION:
1. Decisions of the CIR in cases involving DROP cases;
2. Inaction by the CIR in cases involving DROP cases, where the
NIRC provides a specific period of action, in which case the
inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the RTC in local tax cases
originally decided or resolved by them in the exercise of their
original or appellate jurisdiction;
4. Decisions of the COC in cases involving liability for customs
duties, fees or other money charges, seizure, detention or
release of property affected, fines, forfeitures or other
penalties in relation thereto, or other matters arising under the
Customs Law or other laws administered by the BOC;
5. Decisions of the CBAA in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation
of real property originally decided by the provincial or city
board of assessment appeals;
6. Decisions of the SOF on customs cases elevated to him
automatically for review from decisions of the
COC which are adverse to the Government under Section 2315
of the Tariff and Customs Code;
7. Decisions of the Sec of DTI, in the case of nonagricultural
product, commodity or article, and the Secretary of Agriculture
in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301
and 302, respectively, of the Tariff and Customs Code, and
safeguard measures under Republic Act No. 8800, where
either party may appeal the decision to impose or not to
impose said duties.
JURISDICTION OVER CASES INVOLVING CRIMINAL OFFENSES
1. Exclusive original jurisdiction over all criminal offenses
arising from violations of the National Internal Revenue Code
or Tariff and Customs Code and other laws administered by the
Bureau of Internal Revenue or the Bureau of Customs:
Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount o taxes and fees,
exclusive of charges and penalties, claimed is less than One
million pesos (P1,000,000.00) or where there is no specified
amount claimed shall be tried by the regular Courts and the
jurisdiction of the CTA shall be appellate. Any provision of law
or the Rules of Court to the contrary notwithstanding, the
criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times
be simultaneously instituted with, and jointly determined in
the same proceeding by the CTA, the filing of the criminal
action being deemed to necessarily carry with it the filing of
the civil action, and no right to reserve the filling of such civil
action separately from the criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of
the Regional Trial Courts in tax cases originally decided by
them, in their respected territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or
orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
c.1. Exclusive original jurisdiction in tax collection cases
involving final and executory assessments for taxes, fees,
charges and penalties: Provided, however, That collection
cases where the principal amount of taxes and fees, exclusive
of charges and penalties, claimed is less than One million pesos
(P1,000,000.00) shall be tried by the proper Municipal Trial
Court, Metropolitan Trial Court and Regional Trial Court.
c.2. Exclusive appellate jurisdiction in tax collection cases:
 Over appeals from the judgments, resolutions or
orders of the Regional Trial Courts in tax collection
cases originally decided by them, in their respective
territorial jurisdiction.
 Over petitions for review of the judgments,
resolutions or orders of the Regional Trial Courts in
the Exercise of their appellate jurisdiction over tax
collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective
jurisdiction.
Take note: If we talk about appeals to the CTA involving
decision of the CIR, it will not be directed to the CTA En Banc,
it will first be directed to the CTA Division.
Fishwealth Canning Corporation v. CIR
Facts:
There was a LOA issued. When the LOA was issued, the TP
settled its obligations but it requested for a request for
reinvestigation.
The FAN was issued on August 6, 2003, the TP filed a
protest on September 23, 2003.
The FDDA was issued on August 2, 2005.
However, this FDDA was received by the TP on August 04,
2005.
Instead of filing a petition for review before the CTA, the
TP filed a Letter of Reconsideration. This letter was filed
before the CIR.
The CIR ignored the letter of reconsideration.
On September 6, 2005, a Preliminary Collection Letter
was issued.
Upon receipt of such, the TP filed a petition for review
before the CTA.

Question: Was the petition for review filed within the
30-day period?
Answer:
No. The reckoning period within which to file the petition
is the date when the TP received the FDDA. The TP should
have filed the petition for review within 30-days from
August 04,2005.
Commissioner of Customs v. Marina Sales
SC:
The filing of a Motion for Reconsideration or Motion for
New Trial is mandatory before the filing of an appeal to
the CTA En Banc. If the TP fails to file either before the CTA
Division, the petition for review before the CTA EN Banc
shall be dismissed.
Reminder:
FDDA
If FDDA is issued by the CIR:
Remedy is to file a Petition for Review before the CTA
Division.
A MNT or MR must be filed before the CTA Division
If not filed, the Petition for Review filed before the CTA En
Banc will be dismissed.
From CTA En Banc
Supreme Court
If FDDA is issued by the Regional Director:
TP can file an administrative appeal before the CIR
Commissioner will have 180 days to act on it
CTA Division via Petition for Review
CTA En Banc ( MNT OR MR must be filed first before CTA
Division)
Supreme Court
REFUND
Section 229
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. –
no suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected
without authority, of any sum alleged to have been
excessively or in any manner wrongfully collected without
authority, or of any sum alleged to have been excessively or
in any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.
 Refunds whether under Section 112 or 229 must be
strictly construed against the taxpayer. Refunds are
similar to tax exemptions. Therefore the principle of
strictissimi juris shall apply.
- all doubts or ambiguities dealing with provisions and the
grant of tax exemption and refund shall be strictly
construed against the taxpayer.
- The taxpayer has the burden of proving the both factual
and legal basis for the refund.
- The burden to prove the refund is never shifted to the
Government.

Grounds for the claim of refund
1. Overpayment
2. Erroneous payment
3. Illegal payment
4. Payment of penalty not authorized under the law
If the grant of refund has been based on any of these
grounds, then the refund is valid.
Question: Can there be an overpayment/illegal if assuming
that at the time that the tax was paid there was a basis for
payment?
 There can be no refund if there is a legal basis for the
payment of the tax because refund can only be done
if there is an overpayment, illegal payment,
erroneous payment or payment of penalty not
authorized under the law.
Engtek Phils vs CIR (CTA Case No. 6644, 26)
Facts:
The board of directors declared dividends. The dividend
declaration was recorded of the books of the corporation
(Engtek Phils). However, prior to the date of distribution
(the dividend was already declared and recorded but not
yet distributed) Engtek Phils remitted the final withholding
tax with respect to the dividend income Thereafter they
revoked the declaration.
The revocation of the declaration was done after the
payment of the tax. Engtek Phils, as a withholding agent,
filed a claim for refund of the taxes that have been
remitted to the Government.
CTA ruling:
The refund should be denied because at the time of the
remittance (payment of the tax) to the Government, there
was a legal basis for the payment thereof.
Tax on dividends accrue upon the declaration and
recording of the dividend.
In this case, both are present. At the time of the payment
of the tax, the payment is a valid payment. There exists no
overpayment; no illegal payment because there is a legal
basis for the payment; no erroneous payment; and there is
no payment of penalty not authorized under the law.
Therefore, the claim for refund shall be denied.
Procedure in filing a claim for refund
Section 204 (C)
No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a
claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a
written claim for credit or refund.
 It is mandatory that the taxpayer must first file a
written claim for refund before the Commissioner.
General Rule:
The taxpayer must first file a written claim for refund before
the Commissioner.- ADMINISTRATIVE CLAIM FOR REFUND
If there is no written claim for refund filed before the
commissioner, he CTA can dismiss the case for failure to
exhaust the administrative remedies.
Exception:
If the mathematical error resulting to the overpayment of the
tax is clearly shown on the face of the return, there is no need
to file a written claim for refund before the CIR.
CIR vs. Acosta (G.R No. 154068)
The filing of an Administrative Claim for Refund is
mandatory and jurisdictional.
The taxable period involved is a taxable period prior to RA
8424. The taxable period in this case is 1996, RA 8424 was
enacted and made effective on January 1, 1998. Therefore
in this case, what is applicable is the law prior to RA 8424.
Under the NIRC, file a written claim for refund, except
when there is a mathematical error on the face of the
return. Prior to RA 8424, there exists no exemption, it is
mandatory to file a written claim for refund.
Facts:
Acosta filed a return for the year 1997.
In the year 1998, Acosta decided to file an amended
return. In the amended return, the overpayment is clearly
shown on the face of the return.
Acosta filed a claim for refund directly with the CTA.
CTA dismissed the claim for refund on the ground that
there was no written claim for refund filed by the
petitioner.
Acosta claimed that there is no need to file a claim for
refund because the mathematical error is clearly shown on
the face of the return.
Supreme Court Ruling:
The applicable law is the law prior to RA 8424. Therefore,
the filing of the written claim for refund is mandatory and
jurisdictional.
Acosta cannot use Section 204 (C) of the NIRC, because
such provision does not provide for any retroactive
application. Laws must be applied prospectively.
Therefore, the provision related to the exception shall
apply only if the claim for refund will be filed after the
effectivity of RA 8424.
 In this case, the taxable period involved covers a taxable
period prior to the effectivity of RA 8424.
Reckoning date:
The taxable period involved.
Coverage of NIRC:
Taxable years 1998 onwards.
Documentary Proof of a claim for refund
If a taxpayer will file a claim for refund on the ground of
overpayment by reason of the fact that there were creditable
withholding taxes withheld from payments to the taxpayer,
and the taxpayer does need to file or pay any taxes at all, the
evidentiary value of BIR Form 2307 shall be needed.
 The probative value of BIR Form 2307, which is
basically a statement showing the amount paid for
the subject transaction and the amount of tax
withheld therefrom, is to establish only the fact of
withholding of the claimed creditable withholding
tax.
 There is nothing in BIR Form No. 2307 which would
establish either utilization or non-utilization, as the
case may be, of the creditable withholding tax.
A taxpayer can be subjected to creditable withholding tax.
- Creditable withholding tax – tax withheld from the
income payments to be made to the taxpayer.
For example:
Lawyer A has a retainer’s fee of Php100,000 (on a monthly
basis)
The creditable withholding tax for this particular income shall
be at the rate of 10%.
His gross receipts would be Php720k & below (yearly income)
- If more than 720k – creditable withholding tax is 15%
(If he is registered under 8%, the tax rate is 5% as long as
there is a sworn declaration submitted to the withholding
agent which the withholding agent will submit to the BIR.)
Assume that he is not registered under 8%.
In the Php100k retainer’s fee – he will only get 90% of
Php100k because his client needs to withhold 10% (Php10k).
- This 10% is the creditable withholding tax
- Lawyer A will only get Php90,000
Who shouldered the burden of the tax? – Lawyer A
The only job his client is to be the collector of the government
– withholding agent. The client will remit the amount of
Php10,000 to the BIR within 10 days from the close of the
taxable month. This shall be done on a monthly basis.
100,000/month x 12months = 1.2M
Tax withheld is 10,000 x 12months = 120,000
At the end of the year 1.2M less expenses in the amount of
1M
= Net income: 200,000
- Will this be subject to tax? NO. It is EXEMPT.
- Under Section 24 (A), net income in the amount of
Php250,000 or below will not be subject to tax
The tax due should be 0.
But Lawyer A already made advance payments is the amount
of Php120,000 (creditable withholding tax)
Lawyer A has 2 options, either:
1. Carry it over to the next succeeding taxable year and
use it as payment of his next tax liability; or
2. File a claim for refund or an application for the
issuance of a tax credit certificate.
Refund also covers the application for the issuance of a tax
credit certificate.
- The taxpayer needs to specify his/its request.
CIR vs. PNB
CWTx = 10M
But it has no tax due because of losses. If there are losses,
there is net income tax. Income tax liability will only result
therefrom if there exists an income.
It filed a claim for refund of the amount of 10M CWTx.
Corporations and individual taxpayers who are engaged in
business must file quarterly returns. (1Q, 2Q, 3Q, Annual)
There is no 4th Quarter Return in case of income tax.
Case of..
1Q: paid 2M
2Q: paid 2M
3Q: paid 2M
Annual Income Tax Return: 0 tax liability because it
suffered losses.
 6M total
Taxpayer can:
> Carry it over to the next succeeding taxable years, and
use it as a tax credit against the tax liabilities for the
succeeding years; or
> To file a claim for refund or the issuance of a tax credit
certificate
 Is it same with CWTx? – YES.
In this case, it is called as QUARTERLY PAYMENTS.
It is in the same nature as CWTx because both of them are
advance payments of the tax liability.
Period within which to file a claim for refund
Until when can the taxpayer file a claim for refund?
Section 229 (2nd paragraph)
In any case, 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
therefor, 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.
 The taxpayer has a period of 2 years from the date of
payment regardless of any supervening event to file a
claim for refund, or to file a case in court for the claim
for refund.
- It is definite that this 2 year period shall apply for
both ADMINISTRATIVE CLAIM FOR REFUND and
JUDICIAL CLAIM FOR REFUND.
Is there a need to wait for the decision of the CIR?
- If the period of 2 years is about to lapse, there is no
need to wait for the decision of the CIR on the
Administrative Claim for Refund.
There was an instance where the taxpayer filed a Judicial
Claim for Refund without awaiting for the decision of the CIR
on the administrative claim for refund 3 months prior to the
lapse of the 2 year period
- Supreme Court held that this is PREMATURE.
- The taxpayer should have waited for the decision of
the CIR.
If it is 1 month, the period is about to lapse, therefore the
taxpayer can already file a judicial claim for refund.
“Date of Payment”
 The date when the final adjustment return is filed
because this is the date when the tax is finally
determined.
 This is important because as to creditable
withholding taxes, the 2 year period is reckoned
from the date of payment, and not from the date
when the tax has been remitted (within the 10 day
period after the close of the taxable month)
- Creditable withholding taxes are in the nature of
provisional payments of taxes
- At the time of remittance of CWTx, the liability is not
yet determined.
- Therefore, the reckoning date of the 2 year period
will not be on the date of remittance, rather it will be
counted on the date of filing of the final adjustment
return.
 As to quarterly payments, 2 year period is reckoned
from the date of payment, and not from the date
that the taxes have been actually paid on a quarterly
basis.
- The date of filing quarterly returns will not be
material because quarterly returns are considered
provisional returns.
- The amount of tax liability indicated in these returns
are still subject to adjustments when the taxpayer
shall now file the annual income tax return or the
final adjustment return.
For example: QUARTERLY PAYMENTS
Taxpayer – X Corporation
Taxpayer will file quarterly payments within 60 days from the
close of the taxable quarter.
“Within 60 days from the close of the taxable quarter”
– date of filing of Income Tax Returns
1Q 2Q 3Q Annual Income Tax
Return
Close: March Close: June Close: Sept Paid: April 15 of
the following year
Paid: May 25 Paid: Aug. 27 Paid: Nov. 17
2M 2M 2M 0
No tax liability
Question: If the taxpayer decides to file a written claim for
refund before the CIR (administrative claim) and a judicial
claim for refund before the CTA, until when can the taxpayer
file a claim for refund before the CIR and the CTA?
- Do not count from May 25 nor August 27 nor Nov.
17 because these are provisional payments
- The 2-year period shall be counted from the date of
filing of annual income tax return or also called “final
adjustment return” because this is the date when
the taxpayer determines with finality his or her
income tax liability.
- On the assumption that the taxpayer filed it on April
15, 2021, the taxpayer can file a claim for refund
until April 15, 2023.
- April 15, 2023 is the last day for both administrative
claim and judicial claim for refund.
For example: CREDITABLE WITHHOLDING TAX REFUND OF VAT
CWTx must be paid within 10 days from the close of the
month.
Section 229 Section 112
2020 Subject Matter Involves refund of Involves refund of
For the month of January – when will this be remitted? overpaid tax, unutilized input
February 10 illegally paid tax, VAT.
For the month of February – March 10 erroneously paid
tax, or payment of
Remits every month.
penalties not
Last remittance: January 10, 2021 for the month of December
authorized under
2020
the law.
Question: Assuming there are creditable withholding taxes As to Status of Not required to be TP must be
in the amount of 10M (total amount for the entire year), until TP engaged in zero- engaged in zero-
when can the taxpayer file a claim for refund for the year rated or effectively rated or effectively
2020? zero rated zero-rated
- 2 years from date of payment
transaction transaction
- When is the date of payment? – when the payment
is determined with finality – upon the filing of the As to VAT The TP is not The TP must be
final adjustment return. registration required to be VAT VAT registered
registered
- Taxable year: 2020. Not required The INPUT VAT
- Prescribed date for the filing of the final adjustment must be
return: April 15, 2021 (Calendar year).
attributable to a
- But it was filed on April 30, 2021.
 Until when can the taxpayer file a claim for zero-rated or
refund? effectively zero-
 Until April 30, 2023. Because the 2 year period is rated transaction
reckoned from the date of the filing of the final As to The filing of a The filing of a
adjustment return.
Requirement Written Claim for Written Claim for
of Filing a Refund is Refund is
Written Claim Mandatory MANDATORY
REFUND OF FINAL TAX for Refund
As to when Filing of refund Filing of refund
Apply: the date of payment shall mean the date of remittance
of the tax. Thus, the counting of the 2-year prescriptive refund must be must be done must be done
period shall be reckoned from the date of remittance. filed within 2-years within 2-years
from the date of from the close of
Why Date of Remittance? payment the taxable
= Date of Remittance because the tax is not provisional in regardless of any quarter when the
nature. Remember that Final Tax extinguishes the TP’s supervening sales were made
liability, therefore, the date of payment shall be the date of
event.
remittance.
As to Invoicing Not required Required
Requirement
What if refund of donor’s tax? Same rule applies. Take note
however: The
Question: invoicing
requirement is not
If tax is paid on installment, until when can the TP file a claim
a mandatory
for refund?
requirement for
tax credit
Answer:
mechanism.
Last installment payment.
Take note:
The 2-year period under Section 229 applies to both
administrative claim for refund and judicial claim for
refund.
The 2-year period under Section 112 applies only to
administrative claim for refund. It is not applicable to
judicial claim for refund because Section 112 provides
that the judicial claim for refund must be filed within 30-
days from the receipt of the decision on the
Administrative Claim for Refund. It is mandatory that the
TP must receive the decision on the administrative claim
for refund first before filing a judicial claim for refund.
Hence, is it possible that the judicial claim for refund will
be filed beyond the 2-year period under Section 112 of
the NIRC?
 Yes.
Is it possible that the judicial claim for refund will be filed
beyond the 2-year period under Section 229 of the NIRC?
 No. Because under Section 229, both the
administrative and judicial claim for refund must
be filed within the 2-year period counted from
the date of payment.
Question: Can there be a refund of VAT under Section
229?
Answer: Yes. In cases of VAT registered TPs, this can only
be done upon the cessation of business or cancellation of
registration under the VAT system, and the refund is for
the unutilized input VAT counted from the date of
cessation or date of cancellation.
What if the TP did not yet cease nor cancel its business?
=The TP will carry-over the overpayment.
What if the TP is not engaged in Zero-rated or effectively
zero-rated transaction, can the TP still deduct Input VAT
or adopt tax credit mechanism?
=Yes. Provided that the TP later on ceases or cancels its
business.
CIR v. PNB
Facts:
PNB made an advance payment, without any liability
yet. Around 10M. In order for PNB just to credit the
advance payment.
For several years, PNB suffered losses. After the 3rd
year, PNB had a tax liability for around1M each year.
There is a balance of 8M.
PNB filed a claim for refund for the 8M. CIR denied
because it was beyond 2-year period.
PNB filed a PFR before the CTA.
Question: Should the PFR be dismissed on the ground
of prescription?
Held:
No, the claim for refund was not barred, because in
order for subject payment for overpayment, it
presupposes that there is a tax liability in the first
place. In this case, when PNB paid the tax of 10 million,
PNB had not incurred any liability. Hence, the 2-year
period shall not apply. What should be applied is the
10-year period under the NCC. Hence, the claim shall
prosper.
AMENDMENT OF RETURNS
In cases of amendment of returns, the 2-year period
shall still be counted from the date of payment.
Illustration:
Assuming that the TP paid on April 15, 2009 the
amount of P10 million.
The TP thereafter filed an amended return on April
15, 2010.
What is the reckoning date of the 2-year period?
Answer: It will still be counted from April 15, 2009,
thus, the TP has until April 15, 2011 to file both the
written claim for refund and judicial claim for refund.
Will the reckoning date be affected by reason of the
amended return?
 Answer: No. Because it is provided under the law that,
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:
What if this is the situation:
On April 15, 2009, the TP paid for taxable year 2008
the amount of P10 million.
The TP amended the return on April 15, 2010.
Based on the amended return, it paid additional P5
Million it appearing that, in his amended return, his
liability was in the amount of P15 Million.
The TP thereafter realized that it is exempt from tax.
Until when can the TP file both the written claim for
refund and the judicial claim for refund?
With respect to the P10 Million the TP has until April
15, 2011 to file the administrative claim for refund and
judicial claim for refund.
With respect to the additional P5 Million, the TP has
until April 15, 2012 to file the administrative for refund
or the judicial claim for refund.
Take note:
 The 2-year period applies to both the
administrative claim for refund and the judicial
claim for refund.
 Before filing a judicial claim for refund, there
has to be an action on the administrative claim
for refund by the CIR. However, if the period is
about to lapse, the TP may file a claim for
judicial claim for refund without waiting for the
decision of the CIR on the administrative claim
for refund.
 The term period is about to lapse, under
jurisprudence, would mean 3-months before
the lapse of the prescriptive period.
Remember:
Grounds for Filing of Refund under Section 229 are:
1. Overpayment;
2. Erroneous payment;
3. Illegal payment;
4. Payment of penalties not authorized under the law.
 In order for a Judicial Claim to prosper it is
mandatory that an Administrative Claim for a
refund must be filed first. Meaning, a written
claim for refund filed before the commissioner
is mandatory in order that a judicial claim for
refund will prosper.
 However, as an exception, when the return
shows overpayment on its face, the filing of an
administrative claim for refund is no longer
mandatory.
 No suit or proceeding shall be filed after the
expiration of 2-years from the date of payment
regardless of any supervening cause that may
arise after payment.
Section 52(c) and Section 56(a)
Section 52 (c) deals with the requirement of filing an
annual income tax return within 30-days after the
adoption by a corporation of a plan for its dissolution or
30-days from notice of involuntary dissolution or
reorganization.
Take note that: This section is applicable only in cases of
taxpayers contemplating dissolution.
If a corporation decided to dissolve its business
operations, then this corporation must file within 30-
days after the adoption of a plan for its dissolution a
correct return to the CIR.
 BPI vs. CIR
Facts:
BPI and Family Bank merged.
On June 30, 1985, Family Bank ceased its business
operations.
On July 1, 1985, SEC approved the merger.
On April 15, 1986, Family Bank filed its Final
Adjustment Return.
Take note: Family Bank should have filed the return
within 30-days from its plan for its dissolution. But
instead of filing within 30-days from June 30, 1985,
it filed the annual income tax return on April 15,
1986.
On December 29, 1987, BPI filed a refund before
the CTA.
Question: Will the refund prosper?
Held:
The 2-year period must be counted from June 30,
1985, that is 30-days after the approval of the SEC
of its plan of dissolution.
June 30, 1985 is considered the date of payment by
FBDC of the taxes withheld on the earned income.
Therefore, BPI has until June 30, 1987 to file a
written claim for refund and a judicial claim for
refund.
BPI filed the refund on December 29, 1987.
Therefore, it is already barred by prescription.
The reason why it is reckoned from June 30, 1987 is
because the corporate life is shortened by reason
of the dissolution.
Who has the personality to claim for a refund?
=Statutory taxpayer.
CIR v. Proctor & Gamble
Held: A person liable for tax has been held to be a
person subject to tax or properly considered a
taxpayer. Such person should be regarded as the
party in interest or person having sufficient legal
interest to bring a suit for refund of taxes he believes
were illegally collected.
Claim for Refund under Section 112
Proper party to claim a refund= could either be the
purchaser or the taxpayer in cases when the taxpayer is
engaged in zero-rated or effectively zero-rated
transaction.
When will the purchaser have a personality to file a
claim for refund?
= When the purchaser can establish that it is exempt
from both direct and indirect tax.
May a withholding agent be deemed as a taxpayer for
it to avail of the tax amnesty?
=The withholding agent does not have a personality as a
taxpayer because it is merely an agent or collector of
the government. Not being a taxpayer, it cannot avail of
the tax amnesty.
Is it possible that the tax amnesty may cover the
liability of a withholding agent?
=Yes. As a general rule, tax amnesty laws do not cover
liabilities of withholding agents. Exception: But if it is
provided under the provisions of the law that it is
covered.
Bottomline: If there is an amnesty made in favor of the
taxpayer, such amnesty does not extend to the
withholding agents.
CIR v. SMART
Held:
A withholding agent may file a claim for refund.
Although such relation between the taxpayer and
the withholding agent is a factor that increases the
latter’s legal interest to file a claim for refund, such
is not required for the withholding agent to file a
claim for refund.
The reasons behind these are:
1. The withholding agent is liable because he is
personally liable. Therefore, since the withholding
agent is personally liable, then the withholding
agent may file a claim for refund.
2. The authority to file for the taxpayer and to remit
the tax withheld to the government impliedly
includes the authority to file a claim for refund.
This particular case highlights the legal basis in
concluding that the withholding agent may file a
claim for refund. While the withholding agent has
the right to recover the tax he has the obligation to
remit the same to the taxpayer.
SILKAIR. CIR
Facts:
Silkair is an entity which purchased petroleum
products from Petron to be used for the former’s
international flights.
Silkair is a foreign corporation with PH
representative.
Based on the invoices, excise tax was added to the
amount paid on its purchases.
Silkair contends that it is exempt from the tax and
its seeks for a refund.
Petron shifted the excise tax to silkair. Silkair paid
the same.
Silkair filed a written claim for refund.
Question: Is Silkair the proper party to file a claim
for refund?
Held:
In the refund of indirect taxes, the statutory TP is
the proper party who can claim the refund.
Section 204 is explicit. The refund must be filed by
the taxpayer.
In this particular case, Silkair is neither the person
liable for tax nor the person subject to tax. There is
no legal duty on the part of Silkair to pay the excise
tax. Therefore, since Silkair is not the statutory
taxpayer, it has not personality to file a claim for
refund.
Take note that: Excise Tax is an indirect tax where
the burden can be shifted to the consumer but the
tax liability remains to be with the manufacturer.
Petron as the manufacturer and producer, is the
person liable for the payment of excise tax. It is the
taxpayer that is primarily, directly, and legally liable
to pay the tax.
Although Silkair ultimately bears the burden, it does
not transfer the liability to silkair. It does not
likewise transform silkair’s status into a statutory
taxpayer.
CIR v. Phil. Asoc. Smelting and Refining
Corporation
Held:
A purchaser has the personality to file a claim for
refund provided that it can prove that it is both
exempt from both direct and indirect tax.
Chevron v. CIR
Doctrine:
Excise tax on petroleum products is essentially a tax
on property, the direct liability for which pertains to
the statutory TP (i.e., manufacturer, producer or
importer). Any excise tax paid by the statutory TP on
petroleum products sold to any of the entities or
agencies named in Section 135 of the NIRC exempt
from excise tax is deemed illegal or erroneous, and
should be credited or refunded to the payor
pursuant to Section 204 of the NIRC. This is because
the exemption granted under Section 135 of the
NIRC must be construed in favor of the property
itself, that is, the petroleum products.
Facts:
Chevron sold and delivered petroleum products to
CDC. Chevron did not pass on to CDC the excise taxes
paid on the importation of the petroleum products
sold to CDC. Hence, it filed an administrative claim
for tax refund or issuance of tax credit certificate.
Issue:
Whether Chevron was entitled to the tax refund or
the tax credit for the excise taxes paid on the
importation of petroleum products that it had sold
to CDC.
Held:
Yes, the excise taxes that Chevron paid on its
importation of petroleum products subsequently
sold to CDC were illegal and erroneous, and should
be credited or refunded to Chevron in accordance
with Section 204 of the NIRC.
With respect to imported things, Section 131 of the
NIRC declares that excise taxes on imported things
shall be paid by the owner or importer. For this
purpose, the statutory taxpayer is the importer of
the things subject to excise tax. Chevron, being the
statutory TP, paid the excise taxes on its importation
of the petroleum products.
Pursuant to Section 135(c), petroleum products sold
to entities that are by law exempt from direct and
indirect taxes are exempt from excise tax. Section
135(c) should thus be construed as an exemption in
favor of the petroleum products on which the excise
tax was levied in the first place. The exemption
cannot be granted to the buyers – that is, the entities
that are by law exempt from direct and indirect taxes
–because they are not under any legal duty to pay
the excise tax.
CDC was created to be the implementing and
operating arm of the Bases Conversion and
Development Authority to manage the Clark Special
Economic Zone (CSEZ) As a duly-registered
enterprise in the CSEZ, CDC has been exempt from
paying direct and indirect taxes pursuant to Section
2421 of Republic Act No. 7916 and RA 9400.
Inasmuch as its liability for the payment of the excise
taxes accrued immediately upon importation,
Chevron was bound to pay, and actually paid such
taxes. But the status of the petroleum products as
exempt from the excise taxes would be confirmed
only upon their sale to CDC in 2007. Before then,
Chevron did not have any legal basis to claim the tax
refund or the tax credit as to the petroleum
products.
Consequently, the paymentof the excise taxes by
Chevron upon its importation of petroleum products
was deemed illegal and erroneous upon the sale of
the petroleum products to CDC.
Philex Mining v. CIR
Doctrine of Equitable Recoupment
= States that a claim for refund which is already
barred by prescription can be used to settle existing
tax liabilities.
Take note that: Under existing laws, a claim for
refund a claim for refund that is already barred by
prescription can no longer be used to settle existing
liabilities. Therefore, the doctrine of equitable
recoupment is not applicable in the Philippine
setting.
Facts:
Philex has a claim for refund of taxes. It received an
assessment. Philex then wanted to set-off the tax
liability from the assessment and its claim for refund
of taxes.
Held:
The concept of set-off of taxes does not apply in the
Philippine setting because the government and the
taxpayer are not debtors and creditors of each
other.
General rule: There is no set-off or compensation.
Exception: If the liabilities arose from the same
transaction.
SEC. 76. - Final Adjustment Return. - Every
corporation liable to tax under Section 27 shall file a
final adjustment return covering the total taxable
income for the preceding calendar or fiscal year. If
the sum of the quarterly tax payments made during
the said taxable year is not equal to the total tax due
on the entire taxable income of that year, the
corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount
paid, as the case may be.
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 suceeding taxable
years. Once the option to carry-over and apply the
excess quarterly income tax against income tax due
for the taxable quarters of the succeeding taxable
years has been made, such option shall be
considered irrevocable for that taxable period and
no application for cash refund or issuance of a tax
credit certificate shall be allowed therefor.
Irrevocability Rule states that:
When option to carry-over is made, such option is
irrevocable for that taxable period and no application for
refund or issuance of tax credit certificate shall be
allowed.
The irrevocability rule only applies when the taxpayer
chooses the carry-over option.
The irrevocability pertains to the taxable period.
Definition of the phrase “that taxable period”
= it would mean the taxable period when the tax credit
has been acquired.
CISTRA v. CIR
Facts:
On April 16, 2001, an annual income tax return has
been filed for taxable year 2000.
Creditable Withholding Taxes of more than P4.7
Million had been withheld.
During the year 2000, net losses were incurred.
Excess payment was carried over to the next
succeeding taxable year.
In the 2001 ITR, which of course if filed in the year
2002, the TP indicated the option for the issuance
of a tax credit certificate.
On August 09, 2002, the TP filed a claim for refund
or issuance of a tax credit certificate for the
unutilized creditable income tax for taxable year
2000 and 2001.
Issue:
Whether the TP is already barred from filing an
administrative claim for refund under Section 229.
Discussion:
If you may note, with respect to taxable year 2000,
the TP has already made an option with respect to
the tax credits that it had acquired for the year
2000. The TP acquired tax credits for the year 2000
in the amount of P4.7 Million.
Obviously, it was carried over, the facts state that
the excess payment was carried over. However, in
the year 2001, the TP again acquired creditable
withholding taxes (meaning tax credits) for the year
2001, and the TP filed a claim for refund for the
taxable year 2000 and 2001.
Will the revocability rule apply in this case?
Applying Section 76(c) of the NIRC, the TP has two
options, either:
1. To carry over; or
2. To apply for refund or issuance of a tax credit
certificate.
In exercising the option, the corporation must
signify in its Formal Adjustment Return, that it is
indeed exercising the option to either carry it over
or to apply for a refund or tax credit certificate.
How will the corporation do this?
=By marking the option box for either carry-over or
refund.
The irrevocability rule prevents the taxpayer from
claiming twice, the quarterly taxes paid.
In this case, the TP has already made an option for
year 2000 when it carried over the tax credits. Thus,
carry over option was already chosen for the year
2000.
Therefore, if we talk about the tax credits acquired
in the year 2000 in the amount of P4.7 million, the
refund can no longer be made by reason of the
irrevocability rule.
Question: With respect to 2001, can there be a
refund of the tax credits acquired in 2001?
Answer:
Yes, because the TP had made the option to file an
application for refund with respect to the tax
credits acquired in the year 2000.
The option to carry over was made only with
respect to the tax credit acquired in the year 2000.
Obviously, the phrase “that taxable period” refers
to the taxable period when the tax credit was
acquired.
CIR v. BPI
Facts:
A formal adjustment return was filed on April 15,
1999 for taxable year 1998.
First to third quarters= payments were made in the
amount of P563 Million.
There was likewise expanded withholding tax that
was reduced against its income in the amount of
P7.68 million.
Likewise, it likewise had foreign tax credits in the
amount of $151, 467.
There was an amount carried over from the year
1997 in the amount of P59.4 Million.
Total Tax Credits amounted to P600+ million.
Question: Can the TP file a claim for refund?
Answer:
Yes.
However, did the TP already opted to carry over
the tax credits? Because if it did, then the answer
would be no.
Continuation of Facts:
During taxable year 1999, the TP still suffered
losses.
During taxable year 2000, the TP suffered losses.
Finally, on April 3, 2001, the TP filed a claim for
refund.
Question: Can the TP file a claim for refund for
taxable year 1998 if the TP reflected the tax credits
it acquired in the year 1998 in the ITR for the year
1999.
Held:
The option to carry over was made on the credits
acquired in the year 1998. If the tax credits in the
year 1998 were reflected in the year 1999 return,
and the same was reflected in the 2000 return, it’s
obvious that the act of indicating the tax credits
apart in 1998 in both returns shall mean that the TP
had opted to carry over the tax credits. This option
to carry over its 1998 tax credits is irrevocable. It
cannot later on opt to apply for a refund of the very
same 1998 excess credits.
The failure of the TP to make an appropriate
marking of its option in the income tax return does
not automatically mean that the TP has opted for a
refund or tax credit certificate.
The chosen option of the TP can be determined
from the act of the TP. In this case, even if the TP
did not tick the box for either refund or tax credit,
what he did was to reflect the tax credits in the
1999 return and the 2000 return.
Asiaworld Property v. CIR
Facts:
For the taxable year 2001, the ITR was filed on April
5, 2002. In the said return, the TP declared MCIT
but with a refundable income tax payments for
prior year excess credits and creditable withholding
taxes for the quarters.
On April 9, 2002, a request for refund representing
excess creditable withholding taxes for taxable year
2001 was filed.
On April 12, 2002, TP filed a petition for review
before the CTA.
Question: Can the TP still claim for refund?
Answer:
No, because the TP opted already to carry over. If
the TP indicates in the ITR that there are prior years
excess credit, it would mean that the TP opted to
carry over.
Thus, since the TP already opted for a carry over, it
can no longer claim for a refund.
What if the TP did not indicate his option in the return
and was not even indicated as prior years excess credit
and the subsequent action of the TP was to file a
written claim for refund?
Illustration:
For taxable year 2010, the TP has excess credit
amounting to P2 Million.
In its tax return for taxable year 2010, the TP did not
indicate his option.
In the next taxable year, in said return, the TP indicated
in its return that its prior years excess credit in the
amount of 0.
Question: If the TP filed an administrative claim for
refund in the year 2012 for the tax credits acquired in the
year 2010, will it prosper?
Answer:
Yes. Since the TP did not reflect any prior years excess
credit, the TP is not yet barred from filing an
administrative claim for refund.
Rhombus v. CIR
Facts:
ITR was filed for taxable year 2005. The TP ticked
the box for “to be refunded”.
During the first quarter of 2006, the TP indicated
prior years excess credits in the amount of P1.5
Million.
2nd Quarter of 2006, the TP likewise indicated the
same prior years excess credits.
3rd Quarter of 2006, the TP likewise indicated the
same.
The TP then filed an annual ITR and the TP reflected
prior years excess credits of 0.
The TP filed a petition for review pending the
decision of the administrative claim for refund.
Question:
Is the TP barred by the irrevocability rule?
Held:
SC held that it is clear in the return for taxable year
2005, that the TP chose to file a refund because he
ticked the box for “to be refunded”. The fact that
the prior years excess credit were included in the
quarterly returns did not reverse such option.
University Physicians v. CIR
Facts:
On April 16, 2007, an Annual ITR was filed for taxable
year 2006.
There was an over payment in the amount of P5.1
Million. The TP thereafter ticked the box “for
refund”
On November 4, 2007, an annual ITR was filed for
the short period because they changed their taxable
year to fiscal year.
When the TP filed an annual ITR for the short period,
the TP reflected the overpayment of P5.1 Million.
The TP amended the annual ITR for the short period,
instead of declaring an overpayment in the amount
of P5.1 Million, the TP declared an overpayment of
P2.2 Million.
On October 10, 2008, the TP filed a claim for refund
in the amount of P2.9 Million which is the excess
payment made for year 2006.
Question:
Should irrevocability rule apply?
Held:
The SC held that the refund option is not irrevocable.
The irrevocability rule applies only when the TP
chooses the carry-over option.
In this case, when the TP changed its option from
refund to carry-over, such option became
irrevocable. Thus, the application for refund must be
denied.
EFFECT OF AN EXISTING TAX LIABILITY ON A PENDING
CLAIM FOR REFUND
CIR vs. CA and CitiTrust
Facts:
Citibank filed a claim for refund which was granted
by the CTA.
The CIR questioned the grant of the refund on the
ground that:
1. There exist an assessment with the same taxable
period (1984), thus, the pending assessment lends
doubt as to the accuracy of the claim for refund.
Question: Will the assessment affect the refund?
Held:
The pending assessment will affect the refund of
the taxes because an assessment gives doubt as to
the accuracy of the data indicated in the return.
Since it gives a doubt as to the accuracy of the data
 indicated in the return, then the ITR cannot be used
as a basis in the grant of refund.
The SC then remanded the case to the CTA in order
for the SC to determine whether there is a ground
for the grant of refund based on other documents
other than the return.
Bottomline:
If there is a pending assessment, then the pending
assessment will affect the accuracy of the return
upon which the refund is based.
Continuation of Facts:
After it was remanded to the CTA, CitiBank paid the
pending assessment and then filed/manifested
before the CTA that it had paid the assessment and
requested for a refund. Since the assessment was
already paid, the refund was thereafter granted by
the CTA.
CIR thereafter issued an assessment for the taxable
year 1985. The case went on to the SC.
Before the SC, CIR argued that the refund will still
not be granted because there is another
assessment.
Held:
The SC held that, the 1985 assessment will no
longer affect the pending case for refund because
its speaks of another taxable period.
PERIOD OF VALIDITY OF A TAX REFUND
SEC. 230. Forfeiture of Cash Refund and of Tax Credit. –
(A) Forfeiture of Refund. - A refund check or warrant
issued in accordance with the pertinent provisions of this
Code, which shall remain unclaimed or uncashed within
five (5) years from the date the said warrant or check was
mailed or delivered, shall be forfeited in favor of the
Government and the amount thereof shall revert to the
general fund.
(B) Forfeiture of Tax Credit. - A tax credit certificate
issued in accordance with the pertinent provisions of this
Code, which shall remain unutilized after five (5) years
from the date of issue, shall, unless revalidated, be
considered invalid, and shall not be allowed as payment
for internal revenue tax liabilities of the taxpayer, and the
amount covered by the certificate shall revert to the
general fund.
(C)Transitory Provision. - For purposes of the preceding
Subsection, a tax credit certificate issued by the
Commissioner or his duly authorized representative prior
to January 1, 1998, which remains unutilized or has a
creditable balance as of said date, shall be presented for
revalidation with the Commissioner or his duly authorized
representative or on before June 30, 1998.
Discussion:
 When the government grants an application for
refund the government will issue a check.
 The TP has period of 5 years to use it all up. If not,
the refund is forfeited in favor of the
government.
What if the TP applied for the issuance of a tax credit
certificate?
=The tax credit certificate must be re-validated within 5
years, otherwise, the same will be forfeited in favor of
the government.
NATURE OF A TAX CREDIT CERTIFICATE
A Tax Credit Certificate is a proprietary right of the TP
because once the government issues the same, there
already is stamp of validity that indeed the government
owes the TP a certain amount of money.
Therefore, it may be utilized to pay off other existing
liabilities or it may be transferred to another individual.
PILIPINAS SHELL V. CIR
Facts:
Pilipinas Shell bought tax credit certificates from
pioneer enterprises.
Pilipinas Shell now used the tax credit certificate to
pay off its liabilities.
When Pilipinas Shell used this tax credit certificates,
BIR refused to recognize the same. The CIR argued
that the tax credit certificates are not valid because
they are subject to a suspensive condition and they
will only be valid upon the fulfillment of the
suspensive condition. The suspensive condition is a
post-audit. The CIR argued that if the tax credit
certificate is already issued, the same must be
subjected to a post-audit.
BIR now assessed deficiency taxes against Pilipinas
Shell.
Held:
1. The SC held that the tax credit certificates are valid
from the moment that they are issued. The BIR
cannot argue that there exists a suspensive
condition, that is, the post-audit requirement,
because such condition is not indicated in the face of
the tax credit certificate.
If the CIR really intended to really make it as a
suspensive condition, then such condition should
have been indicated on the face of the tax credit
certificate. Since there is no condition of some sort,
then the CIR cannot impose an additional condition
after the issuance of the TCC.
2. Further, a TCC is a document evidencing
proprietary right of the TP over an overpayment of
tax or over an amount that the government owes
the TP. Once it is issued, then it is protected by the
due process clause of the constitution.
3. Since it is considered a property right of a TP, then
we apply the principle that if it has been sold to a
purchaser in good faith and for value, then the rights
of the purchaser in good faith and for value must
likewise be protected.
In this case, Pilipinas Shell is considered a purchaser
in good faith and for value. Therefore, it should be
able to validly and legally use the TCC in the payment
of its taxes.
Bottomline:
The TCC is transmissible because it is a proprietary
right.
VDA De San Agustin v. CIR
Facts:
An assessment was issued against the TP and the
same was later on paid under protest by the TP.
TP then filed a refund with respect to the taxes it
had paid under protest.
CIR prayed for the dismissal of the petition for
review on the ground that there was no written
claim for refund filed before the CIR.
Held:
The filing of an application for refund is considered
as a futile effort on the part of the TP because of
the denial of the protest. There is no need to file a
written claim for refund because in this particular
case, the filing of the judicial claim for refund was
preceded by the filing of a protest which was
denied by the CIR,
The filing of a written claim for refund will be
considered a useless remedy because the protest
has already been denied.
This case further amplifies the concept that refund
and protest are mutually exclusive remedies
although if a protest has already been filed and was
denied by the CIR then there is no need to file
written claim for refund before the CIR because
such will be considered a useless remedy.
 IS THE TAXPAYER ENTITLED TO CLAIM INTEREST ON
THE REFUNDED TAX?
=Yes. Any excess of the taxes withheld over the tax due
from the taxpayer shall be returned or credited within
three (3) months from the fifteenth (15th) day of April.
Refunds or credits made after such time shall earn
interest at the rate of six percent (6%) per annum,
starting after the lapse of the three-month period to the
date the refund of credit is made.
OTHER REMEDIES AVAILABLE TO THE TP
It would include the following:
1. Action to Contest Forfeiture of Chattel (Sec. 231)
2. Redemption of Property (Sec. 214)
3. Availment of Tax Amnesty
Action to Contest Forfeiture
Applicability: This particular action shall be made
available to the TP if there exist a seizure of property
under claim of forfeiture.
Who will contest? The owner.
When will it be filed? At any time before the sale or
destruction of the property or it can also be filed after
the sale and must be filed within 6 months from the sale
or destruction of the property.
If the action to contest forfeiture is made before the sale,
the prayer should be to enjoin the sale.
If the action to contest forfeiture is made after the sale,
the prayer should be to recover the net proceeds realized
at the sale.
Redemption
When filed? It must be filed within 1-year within the
date of sale.
Within the 1-year period, the owner shall have
possession of the property and shall be entitled to the
rents and income earned from the property.
After the 1-year period, there will now be consolidation
of ownership, thus possession shall now be turned over
to whoever is the highest bidder during the auction
sale.
Availment of Tax Amnesty
Tax Amnesty- a situation where there already is an
accrued tax liability and the liability has been or will be
condoned by the government.
Tax Exemption- a situation where there is no accrual of
liability yet.
LG Electronics v. CIR
= The Tax Amnesty Law does not cover withholding
taxes. Thus, the liability of withholding agents is not
covered by the Tax Amnesty Law.
REMEDIES AVAILABLE TO THE GOVERNMENT
1. Assessment
2. Collection
It could either be through administrative means or
judicial means.
If ADMINISTRATIVE = the CIR issues warrant of
distraint/levy or warrant of garnishment. However, in
adopting this particular procedure, the warrant of
distraint/levy must be preceded by a valid assessment. If
the assessment is void, then the succeeding warrants
shall likewise be void based on the principle that a void
assessment bears no fruit.
If JUDICIAL= simply involves the filing of a case in court.
When the government collects taxes, the TP cannot pray
for the issuance of a writ of injunction in order to restrain
the collection of taxes and this is by virtue of Section 218
of the NIRC.
Section 218 of the NIRC states 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 NIRC.
Thus, even if the TP filed a petition for review before the
CTA it will not enjoin the collection of the tax.
The TP cannot likewise file a petition for injunction
before the RTC in order to restrain the collection of any
national internal revenue taxes.
Section 218 does not apply to LOCAL TAXES and REAL
PROPERTY TAXES
Section 218 does not apply to local taxes and real
property taxes because the Local Government Code
does not contain a provision similar to Section 218 of
the NIRC.
Therefore, the rule that there shall be no injunction in
order to restrain the collection of taxes shall apply ONLY
TO NATIONAL INTERNAL REVENUE TAXES.
What is the remedy of the TP in order to ensure that the
government will not collect any taxes first pending the
ruling on the petition for review filed by the TP before the
CTA?
General Rule:
Under RA 9282, it provides that, no appeal shall suspend
the payment, levy, distraint, or any sale of any property
of the TP for the satisfaction of the TP’s tax liability.
Exception:
When in the opinion of the CTA, the collection of the tax
may jeopardize the interest of the government and/or
the TP, then the CTA, at any stage of the proceeding may
suspend the collection of the tax and require the TP
either to:
1. deposit amount claimed; or
2. file a surety bond for not more than double the
amount of the tax being collected by the government.
The deposit of the amount must be done with the CTA
and the filing of the surety bond must be done with the
CTA.
Remember:
GR: The appeal filed before the CTA will not suspend the
collection of the tax.
Exception: When the CTA in its opinion will suspend the
collection of tax because it thinks that the collection of
tax will jeopardize the interest of the government or the
taxpayer.
However, in the suspension of the collection of taxes, the
CTA may require the TP to either deposit the amount
claimed provided that the amount to be deposited will
not be double the amount of the tax being collected or
to file a surety bond not double the amount of the tax
being collected.
TRIDHARMA v. CTA
Facts:
Tridharma filed a petition for review with motion to
suspend the collection of taxes.
The CTA Division granted the motion to suspend with
a condition that Tridharma deposits with the court an
acceptable surety bond equivalent to 150% of the
assessment or in the amount of P6 Billion within 15
days from notice.
Tridharma filed a motion for partial reconsideration
with the CTA asking for the reduction of the bond and
the CTA reduced it to P4 Billion.
Tridharma questioned the bond and filed an appeal
before the SC.
Held:
Clearly under the law, the CTA may suspend the
collection of taxes provided that the TP either deposits
the amount claimed or file a surety bond.
The surety bond amounting to P4 Billion imposed by
the CTA is considered as an act that is gravely in abuse
of its discretion. While it is true that the surety bond
amounting to P4 Billion is within the parameter set or
delineated under RA 9282, the CTA still committed
grave abuse of discretion because it fixed the amount
of the bond at nearly 5 times the net worth of
Tridharma WITHOUT conducting a Preliminary
Hearing to ascertain whether there were grounds to
suspend the collection of the deficiency assessment.
Here, the main error of the CTA is that they failed to
conduct a preliminary hearing. There must first be a
preliminary hearing before the CTA imposed a bond. It
should have determined first whether there were
grounds to suspend the collection of the deficiency
assessment, to wit, on the ground that the collection
would jeopardize the interest of the TP.
In fact, although the amount of P4 Billion was its self
the amount of the assessment, it behooved the CTA
division to consider other factors recognized by the
law itself towards suspending the collection of the
assessment, like whether or not the collection of the
assessment would jeopardize the interest of the
government or the TP, or whether the means adopted
by the CIR in determining the tax liability was legal and
valid.
Simply prescribing the high amount of bond in this
case would practically deny Tridharma the meaningful
opportunity to contest the validity of the assessments
and would likely even impoverish Tridharma so as to
force it out of business.
Pacquiao vs. CTA
Facts:
Pacquiao filed a petition before the CTA and
contended that the assessment of the CIR was
defective because it was predicated on its mere
allegation that they were guilty of fraud.
They likewise alleged that Jinky Pacquiao was denied
due process because she did not receive the notices.
By reason of the denial of the CIR of the request to
defer the collection of the taxes, Pacquiao filed an
urgent motion for the CTA to lift the warrants of
distraint/levy and garnishment issued by the CIR and
to enjoin the CIR from collecting the assessed
deficiency taxes pending the resolution of their
appeal.
Pacquiao likewise argued that the posting of bond
must be dispensed with because the assessments are
highly questionable.
Held:
The CTA has ample authority to issue injunctive writs
to restrain the collection of tax and even to dispense
with the requirement that a certain amount must be
deposited with the CTA. This requirement may be
dispensed with whenever the method employed by
the CIR in the collection of the taxes jeopardizes the
interest of the TP for being patently in violation of the
law.
In this particular case, it is clear that the authority of
the courts to issue injunctive writs to restrain the
collection of tax and to dispense with the deposit of
the amount claimed is not simply confined to cases
where prescription has set in. It may likewise apply
when the method employed by the CIR in the
collection of the tax is not sanctioned by law.
The purpose of this law is to prevent not only to
prevent jeopardizing the interest of the TP but more
importantly, to prevent the absurd situation wherein
the court would declare that the collection by
summary methods of distraint or levy was violative of
the law and in the same breadth require the TP to
deposit or file a bond as a pre-requisite for the
issuance of a writ of injunction.
Hence, the SC in this case remanded the case to the
CTA in order for the latter to conduct a preliminary
hearing in order to determine whether or not the
method employed by the CIR is in patent violation of
the law.

CIR vs. Hambrecht
Facts:
The subject assessment notice was sent by registered
mail and was sent on January 8, 1993 to the former
place of business of the TP.
The TP did not file a protest. Therefore, the
assessment became final and executory.
However, the CIR did not issue a warrant within the
prescribed period to collect the tax.
The CTA held that the CIR failed to collect the tax
within the prescriptive period and therefore the CTA
directed the cancellation and withdrawal of the
assessment notice.
The CIR argued that the CTA has no jurisdiction over
the case because the CTA will only have jurisdiction
over disputed assessment. Since this case involves an
assessment which has already become final and
executory then, the CTA cannot acquire jurisdiction
over the case.
Held:
The appellate jurisdiction of the CTA is not limited to
cases which involves the decisions of the CIR on
matters relating to assessments or refunds. The 2nd
part of the provision covers other cases that arise out
of the NIRC or related laws administered by the BIR.
In this particular case, the issue at hand is no longer
whether or not the BIR assessed the taxes within the
prescriptive period but the issue now is whether or not
the BIR’s right to collect the taxes had already
prescribed. This is now falling within the provision of
the Tax Code. Therefore, the issue of prescription of
the BIR’s right to collect taxes may be considered as
covered by the term “other matters over which the
CTA has appellate jurisdiction”.
The fact that an assessment has become final for
failure of the TP to file a protest within the allowable
time only means that the validity or correctness of the
assessment may no longer be questioned on appeal.
However, in this case, the issue is now about the
collection. The validity of the assessment is a separate
issue from the issue of whether the right of the CIR to
collect tax has already prescribed. And this issue of
prescription being a matter over which the CTA has
appellate jurisdiction, is well within the jurisdiction of
the CTA.
CIR v. Unites Salvage
= The government has a period of 3 years from the date
of assessment to collect the taxes in cases of taxes falling
under Section 203 of the NIRC.
TAX LIEN
Tax Lien- refers to the provision of law which states that
the unpaid tax shall constitute a lien on the properties of
the taxpayer notwithstanding the fact that the property
is not subject to the tax.
SEC. 219. Nature and Extent of Tax Lien. - If any person,
corporation, partnership, joint-account (cuentas en
participacion), association or insurance company liable
to pay an internal revenue tax, neglects or refuses to pay
the same after demand, the amount shall be a lien in
favor of the Government of the Philippines from the time
when the assessment was made by the Commissioner
until paid, with interests, penalties, and costs that may
accrue in addition thereto upon all property and rights to
property belonging to the taxpayer:
Provided, That this lien shall not be valid against any
mortgagee, purchaser or judgment creditor until notice
of such lien shall be filed by the Commissioner in the
office of the Register of Deeds of the province or city
where the property of the taxpayer is situated or located.
Discussion
In order to effectuate this particular lien, it is
necessary that the notice should have been filed by the
Commissioner in the office of the Register of Deeds.
Otherwise, it will not bind any mortgagee, purchaser, or
judgment creditor.
CIR v. NLRC
Facts:
The CIR sent letters of demand to pay deficiency taxes.
MCP did not file any protest. By reason of the finality
of the assessments, two warrants of distraint/levy
both dated January 23, 1985 were served on Janaury
28, 1985 upon the accountant of MCP.
On April 16, 1985, a receipt of goods (constructive
distraint), articles, and things seized under authority of
the NIRC was executed covering among others the 6
barges, identified as MCP 1, 2, 3, 4, 5, and 6. The
receipt is required by the Tax Code as proof of the
constructive distraint of property.
(If TP already received such receipt, the TP is barred
from disposing the property subject of the receipt.
Technically, notwithstanding the fact that the TP’s
property is still in the possession of the TP, the TP can
no longer dispose of the same by reason of the
constructive distraint. Upon the service of the receipt
of goods, it is the undertaking by the TP or any person
in possession of the property covered, that he will
preserve the property and deliver it upon order of the
court or upon the order of the CIR.)
The receipt in this particular case was not signed by
MCP because the persons who were taking custody of
the barges refuse to receive them.
On July 20, 1985, 4 of the 6 barges were placed under
constructive distraint and were levied upon the
execution of the deputy sheriff of Manila to satisfy the
unpaid wages and other benefits of the employees.
On August 12, 1985, the 4 barges were sold at a public
auction. On September 4, 1985, the CIR asked the
labor arbiter to annul the sale or to remit the proceeds
to the BIR because according to the BIR, they served
the receipt first prior to the constructive distraint for
the payment of wages.
In an order dated September 30, 1985, the labor
arbiter denied the motion of the CIR stating that the
claims of the employees enjoy preference and that the
receipt of the property distraint has not been signed
by the TP, therefore, the receipt is not valid. He further
held, that taxes are absolutely preferred claims only
with respect to movables or immovable properties on
which they are due. Since the taxes sought to be
collected in this case are not due on the barges in
question, the government’s claim cannot prevail over
the claims of the employees.
Held:
While the CIR admitted that the receipt of the
property distraint had not been signed by the TP or the
person in possession of the TP’s property, such is not
a ground in order to conclude that there was no
proper distraint. The TP was not aware, however, of
the fact, that the receipt had been acknowledged by
the coast guard which had the barges in its possession.
Subsequently, the CIR issued a notice of seizure of
personal property stating that the goods and chattels
listed including the barges, had already been
distrained by the CIR and this notice was received by a
representative of MCP.
All this being said, the distraint is valid.
The unpaid taxes constitute a claim of unpaid internal
revenue taxes which gives rise to a tax lien upon all
properties and assets of the TP whether movable or
immovable.
Article 110 of the Labor Code, applies only in cases of
bankruptcy or judicial liquidation of the employer.
This case does not involve liquidation of the
employer’s business. Therefore, NLRC was ordered to
remit the proceeds of the auction sale to the BIR to be
applied as part payment of MCP’s tax liability.
DISTRAINT
2 Types:
1. Actual- Governed by Section 207(a) of the NIRC. It is
provided therein that, the RDO shall seize and distraint
any goods or chattels or effects if the amount of basic tax
due is P1 Million or less.
If the amount is more than P1 Million, the CIR shall seize
and distraint any goods,chattels, or effects.
2. Constructive- Governed by Section 206 of the NIRC.
SEC. 206. Constructive Distraint of the Property of A
Taxpayer. - To safeguard the interest of the
Government, the Commissioner may place under
constructive distraint the property of a delinquent
taxpayer or any taxpayer who, in his opinion, is retiring
from any business subject to tax, or is intending to leave
the Philippines or to remove his property therefrom or to
hide or conceal his property or to perform any act
tending to obstruct the proceedings for collecting the tax
due or which may be due from him.
The constructive distraint of personal property shall be
affected by requiring the taxpayer or any person having
possession or control of such property to sign a receipt
covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to
dispose of the same ;in any manner whatever, without
the express authority of the Commissioner.
In case the taxpayer or the person having the possession
and control of the property sought to be placed under
constructive distraint refuses or fails to sign the receipt
herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of
such property and, in the presence of two (2) witnesses,
leave a copy thereof in the premises where the property
distrained is located, after which the said property shall
be deemed to have been placed under constructive
distraint.
Discussion
This constructive distraint shall apply to a case involving
a delinquent taxpayer or any TP who, in his opinion, is
retiring from any business subject to tax or is intending
to leave the Philippines, or is planning to remove his
property therefrom, or to hide or conceal his property,
or to perform any act tending to obstruct the
proceedings for collecting the tax or which may be due
from him.
A person having possession or control of such property
is required to sign the receipt covering the property
distrained and obligate himself to preserve the same
intact and unaltered, and not to dispose the same in any
manner without the express authority of the CIR.
In cases of refusal to sign the receipt, the Revenue
Officer effecting the constructive distraint shall proceed
to prepare a list of such property and in the presence
two witnesses, leave a copy thereof in the premises
where the property distrained is located.
LEVY
Involves a real property. It is effectuated by preparing a
duly authenticated certificate showing the name of the
TP and the amounts of the tax and penalty due from
him. Said certificate shall operate with force of a legal
execution throughout the Philippines.
It shall be effected by writing upon such certificate the
description of the property upon which levy is made
and there should be a written notice of the levy which
shall be mailed to or served upon the Register of Deeds
of the province or city where the property is located
and upon the delinquent TP or in the absence of the TP,
to his duly authorized agent.
GARNISHMENT
Governed by Section 208 of the NIRC.
It shall involve stocks and other securities which must be
distrained by serving a copy of the warrant of distraint
upon the TP or upon the president, manager, treasurer,
or other responsible officer of the corporation which
issued the said stocks or securities.
Illustration:
A is the TP, and he bought shares of stock of San Miguel
Corporation. To effect the garnishment, the revenue
officers will go to San Miguel Corporation and will serve
thereto the copy of warrant of distraint.
Debts and credit shall be distrained by leaving with the
person owing the debt or having in his possession or his
agent under his control such credits a copy of the warrant
of distraint. The warrant of distraint shall be sufficient
authority to the person owning the debts or having in his
possession or under his control any credits belonging to
the TP to pay to the commissioner the amount of debts
or credits.
Bank accounts are likewise covered by garnishment. It
shall be garnished by serving a warrant of garnishment
upon the TP and upon the president, manager, treasurer,
or other responsible officer of the bank.
JUDICIAL REMEDIES
Remember Section 203 and Section 222 of the NIRC.
Section 203 involves the regular period to assess and
collect taxes.
Section 222 deals with the extraordinary period to
assess and collect taxes.
Section 220 provides that: Civil and Criminal actions and
proceedings shall be brought in the name of the
government of the Philippines and shall be conducted by
the officers of the BIR. But, no civil or criminal action for
recovery of taxes or the enforcement of any fine,
penalty, or forfeiture, shall be filed in court without the
approval of the CIR.
Under existing revenue regulations, the CIR had issued
administrative issuances wherein the CIR empowers his
subordinate officials to file the necessary case against the
TP. Under the case of Republic v. Hizon, such delegation
is allowed and is valid because the filing of a case or the
signing of a certificate of non-forum shopping and
verification are acts which are considered as delegable.
However, in the case of CIR v. La Suerte Cigar, the SC held
that, in cases of appeal of tax cases, such appeal must be
brought by the office of the Solicitor General.
The participation of the office of the Solicitor General is
required, notwithstanding the fact that, the case has
already been filed by the legal officers of the BIR.
SC held in this case that, the conduct of a particular case
by the legal officers of the BIR will only apply in cases of
initiatory cases. If it does not involve initiatory cases, but
rather involves an appeal case, the appeal must be
brought by the Office of the Solicitor General and this is
mandatory.
WHERE CASES SHOULD BE FILED
Section 2, Rule 4 of AM No. 5-11-07-CTA:
SEC. 2. Cases within the jurisdiction of the Court en
banc. – The Court en banc shall exercise exclusive
appellate jurisdiction to review by appeal the following:
(a) Decisions or resolutions on motions for
reconsideration or new trial of the Court in
Divisions in the exercise of its exclusive
appellate jurisdiction over:
(1) Cases arising from administrative
agencies – Bureau of Internal Revenue,
Bureau of Customs, Department of
Finance, Department of Trade and
Industry, Department of Agriculture;
(2) Local tax cases decided by the
Regional Trial Courts in the exercise of
their original jurisdiction; and
(3) Tax collection cases decided by the
Regional Trial Courts in the exercise of
their original jurisdiction involving final
and executory assessments for taxes,
fees, charges and penalties, where the
principal amount of taxes and penalties
claimed is less than one million pesos;
(b) Decisions, resolutions or orders of the
Regional Trial Courts in local tax cases decided
or resolved by them in the exercise of their
appellate jurisdiction;
(c) Decisions, resolutions or orders of the
Regional Trial Courts in tax collection cases
decided or resolved by them in the exercise of
their appellate jurisdiction;
(d) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court in
Division in the exercise of its exclusive original
jurisdiction over tax collection cases;
(e) Decisions of the Central Board of
Assessment Appeals (CBAA) in the exercise of
its appellate jurisdiction over cases involving the
assessment and taxation of real property
originally decided by the provincial or city board
of assessment appeals;
(f) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court in
Division in the exercise of its exclusive original
jurisdiction over cases involving criminal
 offenses arising from violations of the National
Internal Revenue Code or the Tariff and
Customs Code and other laws administered by
the Bureau of Internal Revenue or Bureau of
Customs;
(g) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court in
Division in the exercise of its exclusive appellate
jurisdiction over criminal offenses mentioned in
the preceding subparagraph; and
(h) Decisions, resolutions or orders of the
Regional trial Courts in the exercise of their
appellate jurisdiction over criminal offenses
mentioned in subparagraph (f).
Discussion:
Section 2(a)(1)(2)(3): The Court in Division will exercise
original jurisdiction over cases involving administrative
agencies such as the BIR, BOC, DOF, DTI, or DOA. It will
also involve local tax cases decided by the RTC. It will
also include tax collection cases decided by the RTC in
the exercise of their original jurisdiction involving final
and executory assessments for taxes, fees, charges, and
penalties, where the principal amount of taxes and
penalties claimed is less than P1 Million.
SEC. 3. Cases within the jurisdiction of the Court in
Divisions. – The Court in Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to
review by appeal the following:
(1) Decisions of the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of
internal revenue taxes, fees or other
charges, penalties in relation thereto, or
other matters arising under the
National Internal Revenue Code or
other laws administered by the Bureau
of Internal Revenue;
Discussion: Eto ung Section 228 of the
NIRC. Punta muna CIR since it involves
disputed assessments. After CIR, punta
CTA Division, then punta CTA En Banc.
(2) Inaction by the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of
internal revenue taxes, fees or other
charges, penalties in relation thereto, or
other matters arising under the
National Internal Revenue Code or
other laws administered by the Bureau
of Internal Revenue, where the National
Internal Revenue Code or other
applicable law provides a specific period
for action: Provided, that in case of
disputed assessments, the inaction of
the Commissioner of Internal Revenue
within the one hundred eighty day-
period under Section 228 of the
National Internal revenue Code shall be
deemed a denial for purposes of
allowing the taxpayer to appeal his case
to the Court and does not necessarily
constitute a formal decision of the
Commissioner of Internal Revenue on
the tax case; Provided, further, that
should the taxpayer opt to await the
final decision of the Commissioner of
Internal Revenue on the disputed
assessments beyond the one hundred
eighty day-period abovementioned, the
taxpayer may appeal such final decision
to the Court under Section 3(a), Rule 8
of these Rules; and Provided, still
further, that in the case of claims for
refund of taxes erroneously or illegally
collected, the taxpayer must file a
petition for review with the Court prior
to the expiration of the two-year period
under Section 229 of the National
Internal Revenue Code;
(3) Decisions, resolutions or orders of
the Regional Trial Courts in local tax
cases decided or resolved by them in
the exercise of their original
jurisdiction;
Discussion: If the decisions, resolutions
or orders of the RTC in local tax cases
were decided in the exercise of its
appellate jurisdiction, hindi na yan
dadaan sa CTA division, deretcho na sa
CTA En Banc.
 (4) Decisions of the Commissioner of
Customs in cases involving liability for
customs duties, fees or other money
charges, seizure, detention or release of
property affected, fines, forfeitures of
other penalties in relation thereto, or
other matters arising under the
Customs Law or other laws
administered by the Bureau of Customs;
(5) Decisions of the Secretary of Finance
on customs cases elevated to him
automatically for review from decisions
of the Commissioner of Customs
adverse to the Government under
Section 2315 of the Tariff and Customs
Code; and
Discussion: Automatic review only
happens when the Commissioner of
Customs decided against the
government.
(6) Decisions of the Secretary of Trade
and Industry, in the case of
nonagricultural product, commodity or
article, and the Secretary of Agriculture,
in the case of agricultural product,
commodity or article, involving
dumping and countervailing duties
under Section 301 and 302,
respectively, of the Tariff and Customs
Code, and safeguard measures under
Republic Act No. 8800, where either
party may appeal the decision to
impose or not to impose said duties;
(b) Exclusive jurisdiction over cases involving criminal
offenses, to wit:
(1) Original jurisdiction over all criminal
offenses arising from violations of the National
internal Revenue Code or Tariff and Customs
Code and other laws administered by the
Bureau of Internal Revenue of the Bureau of
Customs, where the principal amount of taxes
and fees, exclusive of charges and penalties,
claimed is one million pesos or more; and
Discussion: Pag criminal case involving tax na P1
Million or more, Original Jurisdiction ay CTA
DIVISION.
(2) Appellate jurisdiction over appeals from the
judgments, resolutions or orders of the Regional
Trial Courts in their original jurisdiction in
criminal offenses arising from violations of the
National Internal Revenue Code or Tariff and
Customs Code and other laws administered by
the Bureau of Internal Revenue or Bureau of
Customs, where the principal amount of taxes
and fees, exclusive of charges and penalties,
claimed is less than one million pesos or where
there is no specified amount claimed;
Discussion: If the amount being collected is less
than P1 Million or no specified amount is claim,
then the RTC shall acquire jurisdiction. Provided
further that, the imposable penalty is more than
6 years. Pag imposable penalty is less than 6
years or less, then the MTC acquired original
jurisdiction.
Take note that: The criminal action and the
corresponding civil action for the recovery of
the civil liability for taxes and penalties shall at
all times be simultaneously instituted with or
jointly determined in the same proceeding by
the CTA.
The filing of the criminal action being deemed
to necessarily carry with it the filing of the civil
action and there is no right to reserve the filing
of such civil action separately from the criminal
action.
In sum, no right to reserve the filing of the civil
action separately from the criminal action will
be recognized.
Gao v. CIR: Sa case na to, talagang pinagsasama
na nila yung criminal case and civil case kasi
deemed instituted na sya. Hindi pwde ang
reservation of the filing of the civil action.
(c) Exclusive jurisdiction over tax collections cases, to
wit:
(1) Original jurisdiction in tax collection cases
involving final and executory assessments for
taxes, fees, charges and penalties, where the
principal amount of taxes and fees, exclusive of
 charges and penalties, claimed is one million
pesos or more; and
(2) Appellate jurisdiction over appeals from the
judgments, resolutions or orders of the Regional
Trial Courts in tax collection cases originally
decided by them within their respective
territorial jurisdiction.
Discussion:
CTA Division acquired original jurisdiction in tax
collection cases involving final and executory
assessments for taxes, fees, charges and penalties,
where the principal amount of taxes and fees, exclusive
of charges and penalties, claimed is one million pesos
or more.
If the amount claimed is less than P1 Million,
jurisdiction shall be vested with the RTC in the exercise
of its original jurisdiction. Then RTC to CTA Division.
What if the amount claimed is P200,000? =Jurisdiction
vests with the MTC. From MTC next is RTC. From RTC
deretcho na CTA En Banc kasi ang CTA Division
magkakaroon lng ng jurisdiction if the judgment was
issued by the RTC in its original jurisdiction.
CIR v. Kepko
Facts:
Kepko filed an administrative claim for refund
and judicial claim for refund. The CTA division
granted the refund. There being no motion
for reconsideration filed by the CIR, the
decision became final and executory.
Subsequently, a corresponding entry of
judgment was issued on October 10, 2009.
On February 16, 2010, the Court issued a writ
of execution. The CIR alleged that the it only
learned of the decision in the subsequent
issuance of the writ on March 7, 2011.
Consequently, the office of the Deputy
Commissioner for legal inspection group
received a memorandum from the appellate
division of the national office recommending
the issuance of a tax credit certificate in the
amount of P443 Million in favor of Kepko.
After learning about the memorandum for
the issuance of a tax credit certificate the CIR
filed a petition for the annulment of
judgment with the CTA En Banc.
Issue:
Whether CTA En Banc has jurisdiction to take
cognizance of the petition for annulment of
judgment filed by the CIR.
Held:
The SC held that, the annulment of judgment
involves exercise of original jurisdiction as
expressly conferred by BP Blg. 129.
It implies power by a superior court over a
subordinate one wherein the appellate court
may annul the decision of the RTC or the
latter court may annul a decision of the MTC.
However, the law is silent when it comes to a
situation similar to this particular case
wherein the CTA is called upon to annul its
own judgment.
SC held that CTA divisions are not considered
as separate and distinct courts but are
divisions of one and the same court. There is
no hierarchy of courts within the SC and the
CA for they each remain as one court
notwithstanding that they work in divisions.
Thus, it appears contrary to this features that
a collegial court siting en banc may be called
upon to annul a decision of one of its
divisions.
The silence of the rules may be attributed to
the need to preserve the principle that, there
can be no hierarchy within a collegial court
between its divisions and the en banc.
Further, a court’s judgment, once final and
executory is immutable.
Thus, in this particular case, the CTA En Banc,
cannot annul the judgment of the CTA
Division.
What remained as a remedy for the
petitioner in this case was to file a petition
for certiorari under Rule 65, which could have
been filed as an original action before the SC
and not before the CTA En Banc.
 JURISDICTION OF THE SECRETARY OF JUSTICE
INVOLVING BIR AND OTHER GOVERNMENT
AGENCIES
PSALM v. CIR
The Secretary of Justice has a jurisdiction where two
government agencies are in dispute.
PRESCRIPTION OF CRIMINAL ACTIONS
SEC. 281. Prescription for Violations of any Provision of
this Code. - All violations of any provision of this Code
shall prescribe after five (5) years.
Prescription shall begin to run from the day of the
commission of the violation of the law, and if the same
be not known at the time, from the discovery thereof and
the institution of judicial proceedings for its investigation
and punishment.
The prescription shall be interrupted when proceedings
are instituted against the guilty persons and shall begin
to run again if the proceedings are dismissed for reasons
not constituting jeopardy.
The term of prescription shall not run when the offender
is absent from the Philippines.
Lim Case:
Prescription begins to run from the institution of a
judicial proceeding.
The term “institution of judicial proceeding” refers to
the filing of a case before the Office of the City
Prosecutor.
Lim Case:
Prescription begins to run from the institution of a
judicial proceeding.
The term “institution of judicial proceeding” refers to
the filing of a case before the Office of the City
Prosecutor.
Judy Ann Santos Case:
SC held that the CTA En Banc can acquire jurisdiction
over petitions for certiorari questioning the denial of
a Motion to Quash.
EFFECTS OF FAILURE TO PAY THE TAX ON TIME
Effects would be the payment of:
1. SURCHARGE
Can be in the nature of:
a. Ordinary Surcharge(Section 248(A))- is equivalent to
25% of the basic tax due. This is only a one-time
imposition.
It shall be imposed in the following cases:
 In cases of failure to pay the tax on time as
required by law;
 Failure to pay the deficiency tax within the time
fixed in the notice;
 Filing of the return with the wrong office.
b. Fraud Penalty- Is equivalent to 50% of the basic tax
due. This is a one-time imposition only. It will only be
imposed if there exists a TAX FRAUD. Meaning, it has
been established that, the TP has the intention to evade
the tax.
CIR v. Javier Jr.
Will Javier be subject to fraud penalty of 50%?
According to the SC, by reason of the existence of the
footnote made by Javier, there is no fraud. There was
no intent to evade the payment of tax. Because
otherwise, if he had the intention to evade the
payment of tax, then Javier should not have included
the $1,000 accidentally received from a remittance in
the footnote. This being said, the fraud penalty
cannot be imposed.
The imposition of SURCHARGE is MANDATORY
The imposition of COMPROMISE PENALTY is
MANDATORY. But compromise penalties can be
reduced by Revenue Officers pursuant to the
parameters set under existing administrative issuances.
2. INTEREST- now pegged at 12% (TRAIN LAW)
**Assignment
3. COMPROMISE PENALTY
CIR v. Saint Lukes
Facts:
Saint Lukes requested for the issuance of a ruling and
the CIR ruled that it is exempt from tax and therefore
it did not pay any tax liability with respect to the
income that it earned from paying patients.
Later on, it was ruled that it is liable for the taxes on
income earned from paying patients.
Question:
Would there be imposition of compromise penalties
on the deficiency taxes of Saint Lukes?
Held:
No. Because the non-payment of the tax is by reason
of an honest mistake and compromise penalties will
not be imposed in cases when the TP committed an
honest mistake.
LOCAL TAXATION
The Power of Taxation of Local Government Unit
- It is settled that a municipal corporation
unlike sovereign state is clothed with no
inherent power of taxation. And the
power when granted is to be construed in
strictissimi juris. Any doubt or ambiguity
arising out of the term used in granting
that power must be resolved against the
municipality. This particular principle is
not applicable to the power of taxation of
the State because the taxation power of the
State is inherent.
This particular power is limited by the provision of
the law.
- Section 5 Article X of the 1987 Constitution
provides that subject to the limitations
set forth by the Congress, the Local
Government Units can levy taxes, fes, and
charges.
- Such taxes must accrue exclusively to the
Local Government. Hindi yan shine-share
with the National Government.
- These limitations are found under the Local
Government Code (R.A. 7160).
- We do not apply the NIRC because NIRC
applies only to national internal; revenue
taxes. It does not apply to Local taxes and
Real Property taxes.
- The Local Government Code is not used as
a basis in imposing and collecting taxes.
Ang basis parin dapat ay issuance of a tax
ordinance. The Local Government Code
merely sets the limitations on the taxing
power of the Local Government Units. It
is not considered as a source of obligation
on the part of the citizens who will pay the
tax. Dapat meron paring ordinance.
How do we describe the Power of Taxation of Local
Government Unit?
- A power that is directly conferred by the
Constitution.
Question: Let us assume that a Local Government
Unit did not enact an ordinance tapos nagcollect sila
ng taxes. Pwede ba yun?
- No that is in violation of the due process
clause of the Constitution. Take note that
the substantive aspect of due process clause
requires that a law must be enacted first
before the collection and imposition of taxes.
With respect to local taxes including real
property taxes, ang law na yan local
ordinance.
The Congress cannot prohibit the exercise of the
taxing power.
- The power of taxation of the Local
Government Unit is no longer considered a
delegated power. It is a power that is
directly conferred under the
Constitution. Therefore, the Congress
cannot prohibit the exercise of the taxing
 power of the Local Government Unit but it
can merely set the limitations.
What are the limitations set forth under the Local
Government Code?
1. Those limitations under Section 133 of the
Local Government Code.
This is also called the rule on pre-emption.
- The tax ordinance may be nullified if the local
tax does not comply with Section 133 (Rule
on Pre-emption) or Section 130
(fundamental principles on local taxation) of
the Local Government Code.
Case of Pelizloy (READ)
The only authority vested upon the Congress is to
provide limitations on the exercise of the power to
tax.
The Congress cannot abolish the power to tax.
In the case of Meralco v. the Province of Laguna,
the SC held that he Legislature must still see to it
that:
1. The taxpayer will not be over-burdened or
saddled with multiple and unreasonable
impositions;
2. Each local government unit will have its fair
share of available resources;
3. The resources of the National Government
will not be unduly disturbed; and
4. Local taxation will be fair, uniform, and just.
These principles are important in order to determine
if the ordinance is considered as valid or not.
NOTE: Review the differences between the flexible
tariff clause and the power of the Local Government
Unit. Why do you need to categorize? Because I
might ask a question that would ask you to answer
these questions:
a. Can the Congress abolish the power to tax of
Local Government Units?
b. Can the Congress abolish the power of the
President to impose custom duties, tariffs,
wharfage dues, tonnages, and excess quotas
(flexible tariff clause)?
Per Section 5, Article X of the 1987 Constitution, the
power to tax is no longer vested exclusively on
Congress; Local Legislative bodies are now given
direct authority to levy taxes, fess, and other
charges”. Nevertheless, such authority is subject to
such guidelines and limitations as the Congress
may provide.
In order for the ordinance to be considered valid.
The ordinance must comply with the Fundamental
Principles of local taxation:
Fundamental Principles of Local Taxation
(Section 130 of the Local Government Code)
1. Taxation shall be uniform in each local
government unit;
Taxation shall be uniform in each local government
unit
- Hindi kailangan na pare-parehas per Local
Government Unit pero sa isang Local
Government Unit dapat uniform ang
applicability nung tax.
2. Taxes, fees, charges and other impositions
a. Be equitable and based as far as
practicable on the taxpayer’s ability to
pay;
b. Be levied and collected only for public
purposes;
c. Not be unjust, excessive, oppressive, or
confiscatory;
d. Not be contrary to law, public policy,
national economic policy, or in restraint
of trade;
3. The collection of local taxes, fees, charges,
and other impositions shall in no case be let
to any private person;
4. The revenue collected pursuant to the
provisions of the Local Government Code
shall inure solely to the benefit of, and be
subject to disposition by the local
government unit levying the tax, fee, charge
or other imposition unless otherwise
specifically provided in the Local
Government Code that it must be distributed
to several municipalities; and
- Ang general rule, kung sino man ang LGU na
nangongolekta ay kanya lang yun. Hindi
pwedeng Kinolekta ng Pasig tapos ishe-
share niya sa ibang cities/municipalities.
5. Each local government unit shall, as far as
practicable, evolve a progressive system of
taxation.
- A violation of one principle would result to
the nullity of the tax ordinance.

Rule on Pre-emption
(Section 133 of the Local Government Code)
Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities,
and Barangays shall not extend to the levy the
following:
1. Income tax except when levied on banks
and other financial institutions;
- This is already being imposed by the Local
Government.
- Rule on pre-emption states that the Local
Government Unit is prohibited from
imposing taxes on subject matter which are
already subject to tax by the National
Government except if the Local Government
Code allows the imposition of tax by the
Local Government Unit on such subject
matter.
Both the National Government and Local
Government may impose a tax on the gross receipts
earned by banks and other financial institutions.
2. Documentary Stamp Tax
- Under the NIRC, the national government
imposes documentary stamp tax.
- The one which collect the tax technically is
still the National Government Unit, the Local
Government Unit is just a collector.
3. Taxes on estates, inheritance, gifts,
legacies, and other acquisitions mortis
causa, except as otherwise provided herein;
- The Local Government Unit can only impose
transfer tax on real properties which is not a
tax on the estate or tax on the transfer of
property gratuitously but rather it is more of
like the privilege of transferring the property
within the jurisdiction of the Local
Government Unit.
4. Custom duties, registrations fees on vessels
and wharfage on wharves, tonnage dues,
and all other kinds of customs fees,
charges and dues except wharfage on
wharves constructed and maintained by the
Local Government Unit concerned;
- Exception covers only reimbursement of the
cost of the construction of these wharves but
outside that the Local Government Unit
cannot impose one that is in the nature of
custom duties.
Note: Palma Development Corporation v.
Municipality of Malangas.
Si Municipality nag-imposed siya ng certain amount
of tax based on the weight of the product that will
pass through that municipality.
“Pag nag-daan kayo ng ganitong product, ito ang
tax, .50 per sack/kilo”.
The SC held that the tax imposed is in the nature of
custom duties and under Section 133 of the Local
Government Code, Local Government Units cannot
imposed a tax that is in the nature of custom duties.
In this particular case, the amount collected is not
even for the sole purpose of reimbursing the cost of
the construction of these wharves.
5. The Local Government Units cannot impose
taxes, fees, and charges and other
impositions upon goods carried into or
out of, or passing through, the LGU.
“Municipalities have the power to tax vehicles using
its roads but cannot tax the goods transported by
vehicles.”
“Service fee imposed on vehicles using municipal
roads leading to the wharf is valid.”
- It is imposed on the use of roads.
- It is not a tax on the goods transported
rather it is a service fee imposed on the
vehicles using the municipal/city roads.
The City of Cebu passed an ordinance imposing a
tax of P5 on every kilo of lechon taken out of the
City. Is the tax valid?
- Section 133 of the Local Government Code
clearly proscribes the imposition of a tax by
local government units concerning all
articles that are going in or out, or passing
through, the territorial jurisdiction of the
local government unit. Therefore, this tax is
not valid.
6. Taxes, fees, or charges on agricultural and
aquatic products when sold by marginal
farmers or fishermen.
Marginal farmer – subsistence farming or fishing
7. Taxes on business enterprises certified to
by the Board of Investments (BOI) as pioneer
or non-pioneer for a period of six (6) and four
(4) years, respectively from the date of
registration.
Read: Batangas Power Corporation v. Batangas City
BATANGAS POWER CORP. v. BATANGAS
G.R. No. 152675 28 April 2004
Section 133g, LGC | BOI

Section 133G, LGC – Grant of exemption for BOI
registered pioneer enterprises. These enterprises are
exempt from local tax for a period of 6 years.
Is the 6 years reckoned from date of registration or
start of commercial operations?
Ruling:
Start of date of registration because it is a local
tax.
If it deals with exemption from income tax (i.e.
national tax), reckon from the date of start of
commercial operations (SCO).
Note: This rule is exclusive to BOI corporations.
Note: This is not a case of tax exemption but a tax
holiday because the immunity is only for 6 years or
4 years as the case may be. 6 years for pioneer
enterprises. 4 years for non-pioneer enterprises.
8. Excise taxes on articles enumerated under
the National Internal Revenue Code, as
amended, and taxes, fees, or charges on
petroleum products;
Read:
Petroleum Corporation v. Tiangco, G.R. No.
158881, 16 April 2008
- There was a local tax imposed on the
business of Petron. Pwede bang mag-impose
ng local business tax sa business ni Petron?
Petron is engaged in the sale of petroleum
products.
Province of Bulacan v. Court of Appeals, 27
November 1998
- Whether or not the Local Government Unit
can impose a tax on the quarrying of earth
materials.
- The NIRC provides that quarrying activities
shall be subject to excise tax.
- The excise tax being imposed by the National
Government covers only the quarrying
activities from private land. Therefore, can
the Local Government Unit impose a tax on
the quarrying activities of individuals on
public lands? Yes. That is allowed.
9. Percentage Tax or Value Added Tax (VAT)
on sales, barters, or exchanges on similar
transactions on goods or services except as
otherwise provided under the Local
Government Code;
 Amusement tax – based on the grossed
receipts
 Percentage tax on gross sales of
manufacturers, wholesalers,
distributors, dealers, and contractors.
These are percentage taxes allowed under
the Local Government Code.
PBA v. Court of Appeals
The Supreme Court enumerated the coverage of
amusement taxes under the National Internal
Revenue Code. Ang nangongolekta niyan ay
National Government.
Under the National Internal Revenue Code, the
following shall be subject 3% other percentage taxes
being collected by the National Government:
1. Cockpits;
2. Cabarets;
3. Night or day clubs;
4. Boxing exhibition; (18%)
5. Professional Basketball Games;
6. Jai-alai; Race tracks; and
7. Bowling alleys.
Yan ang coverage under the National Internal
Revenue Code and these are all subject to
percentage tax being imposed by the National
Government.
Ang tanong ngayon, subject ba siya sa amusement
tax? The answer is no.
In order for an activity be subject of amusement tax,
there must be an artistic display of performance.
The gross receipts of PBA shall not be subject to
amusement tax since there is no artistic display of
performance.
First Philippine Industrial Corporation (FPIC) v.
CA
- The SC held that FPIC should not be subject
to taxes by the Local Government Unit
because this subject matter is already being
subjected to 3% common carriers tax.
- The pipeline is considered as a common
carrier and this is already subject to 3%
other percentage tax or also called as
common carriers tax that is being imposed
by the National Government, hence, the
Local Government Unit can no longer impose
a tax on the gross receipts of FPIC pursuant
to Section 133 of the Local Government
Code.
10. Taxes on the gross receipts of transaction
contractors and persons engaged in the
transportation of passengers or freight by
hire and common carriers by air, land, or
 water except as provided under the Local 7. Annual fixed tax for delivery trucks, van,
Government Code; manufacturer / producer / wholesaler /
- This is refer to as common carrier tax under dealer / retailer in certain products.
the National Internal Revenue Code.
This can also be imposed by City.

The only exception is:

TRANSFER TAX
 Annual fixed taxes on delivery vans of
manufacturers, producers, or dealers
and operation and franchising of
tricycles.
- Allowed to be imposed by the Local
Government Unit

- tax on a real property

11. Taxes, fees, or charges on Philippine
products actually exported, except as
otherwise provided under the Local Gratuitous or onerous it is still subject to
Government Code; transfer tax as long as the transfer involves real
property.
What are allowed?
 Municipalities may impose taxes on
exporters of essential commodities.
 To be an exporter, the taxpayer must be Taxable base = gross selling price or FMV
a business entity engaged in exportation whichever is higher
of goods.

12. Taxes, fees, or charges, of any kind on the

- FMV = higher value between the value
National Government, its agencies and
instrumentalities, and local government prescribed by the CIR or the value
units. prescribed by the assessor.
- Simply put, a Local Government Unit cannot
impose taxes of any kind on the National
Government, its agencies and FRANCHISE TAX
instrumentalities, and local government
units.

Read: MIAA v. CA and Paranaque

MIAA is an instrumentality of the National

Government, hence, cannot be subject to real
property tax or local tax.

What are the taxes that a Local Government Unit In order for a franchise tax to be imposed, the
may impose? franchise must be in the form of a corporate
- It will depend on the Local Government franchise granted by state
involve.
 For example: Jollibee will never be
PROVINCES: imposed with franchise tax, while being
a corporate, the franchise was granted
1. Tax on transfer of Real Property Ownership; not by the state.
2. Tax on Business on Printing and
Publication;
3. Franchise Tax (even if the municipality In talking about legislative franchise – there
granted franchise); has to be a legislative grant to operate a public
4. Tax on sand, gravel , and other quarry utility that is for public use.
resources;
5. Professional Tax;  For example: telecommunications
6. Amusement Tax; company, airline company.
  They have been granted corporate
franchise by state.
The existence of a corporate franchise granted
by state is material in the imposition of the
franchise tax.
 NPC is no longer subject to franchise
tax imposed by Bataan.
Under the Law, Power Generation is no longer
considered a public utility operation. And
companies which shall engage in power
generation and supply of electricity are no
longer required to secure a National Franchise.
Question: Can there be simultaneous imposition
of Franchise tax and local business tax?
 Local business tax is a tax imposed on
the privilege of doing business in the
jurisdiction of the LGU.
 What is being imposed is the privilege of
conducting a business.
 Franchise tax is tax imposed on the
privilege of operating business in a
State and exercising corporate
franchises granted by the State.
 It is not levied to a corporation just by
simply existing as a corporation, but on
the exercise of the rights and privileges
granted to it by the government.
CA decision; no SC decision yet.
Can there be direct double taxation?
 None. Direct double taxation exists only
when the same type of tax is imposed
on the same subject matter.
- Since the subject matter are different, there
can be no direct double taxation. The
simultaneous imposition of both taxes is
allowed.
SAND AND GRAVEL FEE
Imposed on those entities conducting quarrying
activities from public lands.
 - If private: Province Bulacan case – not
allowed. Because it violates the rule on pre-
emption. The tax is in the nature of an
excise tax to be imposed by the National
Government.
- In the case of lawyers, they are required to
pay fees to the IBP.
Thus, one cannot argue that since he paid prof. fee
before the LGU, he can no longer pay license fee.

In order for the entities to conduct quarrying and
pay fee, there has to be a payment of local tax first
and obtain a business permit.
 The TP must pay local business tax.
 What is being paid is the permit fee and
local business tax
If a lawyer paid his professional tax in the LGU,
would it be effective only to the particular LGU? (this
is asked because there are lawyers who appear on
more than the particular LGU)
Would this mean that they have to pay their
professional tax first to the LGU?

- NO.
- Once a lawyer pays his professional fee
where he is residing or located, then that
FEE V TAX tax is effective even outside the said
Purpose: particular LGU. So can practice all over the
Phil.
 Fee is collected for purposes of regulation.
 Tax is collected for purpose of revenue.
Where to pay?
The amount to be collected:
- Shall pay at the place where he mainly
 Fee must be commensurate to the cost of exercises his profession.
inspection.
 Tax may be way more than that as the
Where a dentist was imposed with local business
purpose is to raise revenue.
tax, would it be valid?
Documents required:
- No because the exercise is one of profession
 In fees, there has to be a submission of
and not of conducting business.
documents in order to pay.
- Therefore, local business tax shall not be
 Taxes on the other hand require none.
imposed.

PROFESSIONAL TAX

- is paid by individuals exercising their

profession within the locality

Professionals who pay professional tax in the LGU

are still required to pay license fee to the National
Government.
AMUSEMENT TAX -Sec. 125 provides that amusement tax
can be imposed/levied by the LGU
- Tax imposed on amusement places.
regardless of the amount of gross
sales/receipts
- These taxpayers are not liable to pay
VAT.
Entities subject to amusement taxes TO BE
COLELCTED BY THE NATIONAL
GOVERNMENT:
Cockpits
Cabarets
Night or day club
- Similar places refer to places that are Jai alay
similar to theaters, etc. in compliance with boxing stadium.
the principle of jus dem generis in statutory
construction

Amusement tax under the Local Government

Pelizloy vs. Province Of Benguet Code
- Amusement Taxes may be imposed by the
Pelizloy collects admission fees for who enters Local Government Unit upon the
palm grove. proprietors, lessees, operators of theaters,
cinemas, concert halls, circuses, boxing
Issue: stadia and other places of amusement.
w/n the Province of Benguet can impose
amusement taxes on pelizloy since he collects
admission fees. The Supreme Court held that:
- Imposition of Amusement Taxes on the
admission fees collected by Pelizloy

Pelizloy’s argument: It is a percentage tax.

(NOTE: Sec. 133 of the LGC, LGU cannot

impose percentage tax, unless the percentage
tax is in the nature of an amusement tax)

Province of Benguet argues amusement tax

which is allowed under the LGC.
The phrase “other places of amusement” will not
include the enumeration.

While true that the people who go to these places

are visually engaged, they are not considered
places of amusement.

A place of amusement requires that there has to

be an artistic display of performance on that
Both percentage tax and VAT are in the nature particular place such as theaters, cinemas and the
of Business Tax. like.

There is one type of amusement tax which is in

the nature of a percentage tax that can be - Since no artistic display of performance in
imposed by the national government.
the pools, amusement tax should not be
imposed.

CIR V. SM PRIME HOLDINGS INC.
SC:
Since SM prime holding is already subject to
amusement tax imposed by the LGU, it is no
longer subject to VAT.
Primarily the LGC does not include in the list
cinemas and theaters, so applying the rule of
strict interpretations, since the law does not
include cinemas and theaters under the
coverage of VAT, then VAT cannot be imposed
on them.
Since they are already subject to amusement
tax.
Question: Does it mean that if a TP is subject to
amusement tax he can no longer be required to
pay VAT?
Not necessarily. It is only incidental.
Take into consideration the main intention of
the law. There is still no direct double taxation
since the taxing authorities are different.
- What is exempted is the purchase of
tickets.
- If there is already a sale or lease of
cinematographic films, it is already
subject to VAT.
Places not subject to amusement tax by the LGU
- because it is already subject to amusement
tax collected by the National
Government.
MUNICIPALITIES
- may impose taxes on subject matters not
taxed by the province.
- Can impose local business tax
CITIES
- may impose taxes which the province and
the municipality may impose.
 If not within the list provided under law for
Provinces, the Municipality may impose tax
on it.
 On cities, it cannot be that there will be
two taxing authorities on the same subject
matter.
 So what can municipalities impose? Local
business tax, it is not within the list under
provinces.
BARANGAYS
1. Barangay Clearance
- Needed in order to gain business permit
2. Service Fee
3. Community Tax
Community Tax
collected from:
 It must be collected on every inhabitant of the
Philippines:
1. Who is 18 years of age who has been regularly
employed on a wage or salary basis for at least 30
consecutive working days.
2. Who is engaged in business or occupation
3. Who owns real property with an aggregate value
of Php1,000 or more.
4. Who is required by law to file an income tax
return.
It can be required from a minor who earns income
and is required to file an ITR
- Even if the ITR is filed by the guardian of
the minor
 Community tax must likewise be collected
from every corporation no matter how created
or organized, whether domestic or resident
foreign corporation, engaged in or doing
business in the Philippines.
- This corporation must be in the nature of
domestic or resident foreign corporation
because they are the ones engaged in or
doing business in the Philippines
- Non-resident foreign corporation is not
mandated to pay community tax. as it is
not engaged in business in the Philippines.
Exemptions (exempt from paying or securing
community taxes)
1. Diplomatic and consular representatives; and
2. Transient visitors when their stay in the
Philippines does not exceed 3 months.
Diplomatic and consular representatives are
exempt pursuant to the Principle of International
Comity.
LOCAL BUSINESS TAX IMPOSITION
When can LGU impose local business tax
It enters into a contract with these individuals
(contract is in the Philippines, but the service is
performed outside of the Philippines)
Can the LGU impose a tax on Thermaprime?
Take note: the basis is consummation, not
perfection of minds. Because the contract is in the
Philippines – this is only perfection. Consummation
would mean rendition of service in order to fulfill the
obligations in the contract.
BLGF (Bureau of Local Government Finance) – the
ones who gives/issues opinion for local tax.
- If it is national internal revenue taxes, the
opinion is issued by the BIR.
- If it is local taxes, BLGF issues opinion.
LGUs have no authority to impose and collect local
business tax on gross receipts realized by specialty
contractor form its overseas construction because
is it falls outside their jurisdiction
- Since the subject matter of the tax has been
consummated outside the territorial
jurisdiction of the LGU, the LGU has no
authority to impose and collect local
business tax on the gross receipts of the
contractor.
Michigan Holdings, Inc. vs. City Treasure of
Makati
CTA Case
Michigan is a holding company whose principal
office is located in Makati City.
It earned dividend income. Makati Revenue
Code imposes LBT on holding companies.
According to the Treasurer, the basis of the
imposition is the Makati revenue code which
 imposes local business tax on holding - RAVI is one of the coconut industry
companies investment fund. It was created for
holding shares of SMB
CTA:
In order for there to be a correct determination if
RAVI is a financial intermediary, the CTA
explained:

Te Deum Resources, Inc. vs. Davao City

CTA Case

CTA held that:

Local Business Taxes may only be imposed if
the holding company is considered a financial
intermediary or a non-bank financial
intermediary.
When may a holding company be subject to local
business tax?
Sec. 143 of the LGC, involving LBTs, shall be
imposed on non-bank financial intermediary.
Non-bank Financial Intermediary
1.The person or entity is authorized by the BSP
to perform quasi-banking functions;

2. The principal functions of said person or

- look into the Articles of Incorporation
entity include the lending, investing or
placement of funds or evidences of indebtedness
or equity deposited to them, acquired by them,
or otherwise coursed through them, either for
their own account or for the account of others;
and

Basic Requirements to be considered as 3. The person or entity must perform any of the
Financial Intermediary: following functions on a regular and recurring,
not on an isolated basis, to wit:
1. Entity is authorized by BSP to perform quasi- a. Receive funds from one (1) group of
banking functions; persons, irrespective of number, through
2. Principal functions include lending, investing, or traditional deposits, or issuance of debt or
placement of funds or evidence of indebtedness equity securities; and make available/lend
coursed through them for their own account or for these funds to another person or entity,
other’s accounts. and in the process acquire debt or equity
3. Entity must perform said functions on a regular securities;
basis.
b. Use principally the funds received for
acquiring various types of debt or equity
City of Davao vs. Randy Allied Ventures, Inc. securities;

c. Borrow against, or lend on, or buy or

Supreme Court ruled on the issue related to sell debt or equity securities.
holding companies.

The question is whether RAVI's management of

the dividends from the SMC preferred shares
shall now be considered as an act of a non-bank
financial intermediary.

SC:
This management of dividends from the SMC
preferred shares, including placing the same in
a trust account yielding interest, is not
tantamount to doing business whether as a
bank or other financial institution, i.e., an
NBFI, but rather an activity that is essential to
its nature as a CIIF holding company.
- It is an activity essential of being a
holding company.
- The income earned by RAVI shall not be
subject to local business tax because
RAVI does not qualify as a non-bank
financial intermediary, not even a
banking institution.
CTA defined a Holding Company:
A "'holding company' is 'organized' and is
basically conducting its business by investing
substantially in the equity securities of another
company for the purpose of controlling their
policies (as opposed to directly engaging in
operating activities) and 'holding' them in a
conglomerate or umbrella structure along with
other subsidiaries. “While holding companies
may partake in investment activities, this does
not per se qualify them as financial
intermediaries that are actively dealing in the
same. Financial intermediaries are regulated by
the BSP because they deal with public funds
when they offer quasi-banking functions. On the
other hand, a holding company is not similarly
regulated because any investment activities it
conducts are mere incidental operations, since
its main purpose is to hold shares for policy-
controlling purposes.
- For example: Since Jollibee & max are
under Double Dragon Corp. the latter is
called a holding company. It is to hold
shares of the former but for policy
controlling purposes. Thus not a
financial intermediary. It is a holding
company
While RAVI's stated primary purpose in its AOI
is couched in broad terms as to allow some
functions similar to an NBFI, this does not
necessarily mean it is engaged in the same
business. Verily, the "power to purchase and
sell real and personal property, including
shares," and "to receive dividends thereon," are
common provisions to all corporations,
including holding companies like RAVI which
undertake investments. The mere fact that a
holding company makes investments does not
ipso facto convert it to an NBFI. Otherwise,
there would be absolutely no distinction
between a mere holding company and financial
intermediaries.
- what was looked into was what RAVI
does, and it is only to hold the shares of
SMB.
NOTE: Extent of the power of the Congress in local
taxation which has been explained in the City
Government of Quezon City v. BayanTel (2006).
CASE: City Government of Quezon City v.
BayanTel
 This involves the withdrawal of tax
exemption of BayanTel and then later on
BayanTel was asking for the amendment of
its charter so it can continue to enjoy tax
exemption. Clearly, the Congress still has
the power to grant tax exemption to local
taxes. So while a new slant on the subject of
taxation now prevails in a sense that the
former doctrine that power of taxation is
merely a delegated power which has been
modified under the Constitution, the basic
doctrine of taxation essentially remains
the same.
 The power to tax is still vested with the
Congress. While the power of taxation is
directly conferred to the LGU’s under the
Constitution, the power to grant tax
exemption is still within the powers of the
Congress.
 HOWEVER, the Congress cannot remove the
power of the LGU’s to impose local taxes.
CONCEPT OF RESIDUAL POWER
 This is the power of the LGUs to levy taxes,
fees or charges in any subject not specifically
enumerated or taxed under the NIRC (Sec.
186, LGC).
 The tax to be imposed should NOT be
unjust, excessive or oppressive, or
against any of the fundamental
principles.
  Tapos tandaan niyo na dapat daw laging
may PRIOR PUBLIC HEARING – this is
always a requirement before any local tax
may be imposed. But jive this principle with
the RULE OF PRE-EMPTION.
NOTE: Pwede i-impose kung wala doon sa Local
Government Code basta syempre it will not violate
the Section 130 and Section 133 of the LGC.
 Section 133, LGC speaks of Pre-emption.
Illustration:
Assuming that the Provincial Government
did not impose tax on a particular subject matter,
this would mean that the municipality may impose
a tax thereon and this is part of the residual
powers.
 Kung under the LGC, province dapat nagi-
impose non, hindi dapat yun impose-an ng
munisipyo. Magiisip si munisipyo ng ibang
tax or fees para makapaglevy upon the
businesses or persons falling within their
jurisdiction, pare!
To sum it up:
 Residual power to tax is the power of the
LGU to levy taxes, fees or charges in any
subject NA HINDI NAKA-SPECIFY SA LGC.
Tinagalog ko, pare, kasi inulit lang yung
definition, pare!
CASE: Alta Vista
 FACTS: The City of Cebu enacted an
ordinance for the imposition of an
amusement tax. An assessment was issued
against Alta Vista for the collection of
amusement tax on its golf course.
 ISSUE: Is the imposition of amusement tax
on the golf course considered as part of the
residual power to tax?
 RULING: According to the SC, an LGU may
exercise its residual power to tax when: (a)
there is neither a grant nor a prohibition
by statute; OR (b) such taxes, fees, or
charges are not otherwise specifically
enumerated in the LGC, NIRC, as
amended, or other applicable laws. In the
present case, Section 140, in relation to
Section 131 (c), of the LGC already explicitly
and clearly cover amusement tax and
respondent Cebu City must exercise its
authority to impose amusement tax within
the limitations and guidelines as set forth in
said statutory provisions.
 Side Chikka: The City of Cebu cannot argue
that such imposition was part of its residual
power to tax because of the limitations.
Power to Adjust Local Tax Rate
 Allows an adjustment in local tax rates not
more than once every five years, AND not
exceeding 10%, provided:
o There is a tax ordinance that already
imposes a tax in accordance with the
LGC; AND
o There is a second ordinance that
made an adjustment on the tax rate
fixed by the first
 So very important yun ha, pare! Dapat
mayroong unang provision na nire-revise.
 This is NOT APPLICABLE if it is the first time
that the LGU had imposed such type of tax.
 This was discussed in the case of Mindanao
Shopping
CASE: Mindanao Shopping Destination
Corporation, et. al. v. Hon. Rodrigo R. Duterte
👊🏻, et. al. (June 2017)
 FACTS: Mindanao Shopping and other
corporations engaged in the retail business
of selling general merchandise within Davao
City questioning the City Ordinance No. 158-
05 enacted by the City Council of Davao
which separated the tax liability of retailers
and wholesalers. Under the old Davao City
Ordninance No. 230, the two were taxed in
the same manner at 50% of 1% of the gross
sales/receipts. The new ordinance imposed
a tax rate of 1.5% of gross sales in excess of
P400,000 or a 200% increase from the rate
under the old ordinance. The rate was
reduced in 2006 to 1 ¼% or 0.25% short of
the maximum tax rate of 1.5% for cities
sanctioned by the LGC. Under the old
ordinance, wholesalers and retailers were
grouped as one and thus, the tax base and
tax rate imposed upon retailers were the
same as those imposed upon wholesalers.
Subsequently, the LGC authorized a
difference in the tax treatment between
wholesale and retail businesses.
  Arguments:
o Dati nung old Tax Code, wholesalers
and retailers are taxed as one. Then,
LGC came into existence which
provided that PWEDE ANG
SEPARATE TAX sa wholesaler at
retailer. So hiniwalay, there was of
course an adjustment.
o MINDANAO: This increase or
adjustment violated Section 191 of
LGC which provides that LGUs shall
have the authority to adjust the tax
rates not oftener than once every five
years, and in no case shall be
exceeding 10% of the rates fixed in
the LGC.
 ISSUE: Is the contention of Mindanao
meritorious?
 RULING: There are two requirements
before Section 191 of the LGC may apply to
an amendment of tax rates, namely: (1) there
is a tax ordinance that already imposes a tax
in accordance with the LGC; and (2) there is
a second ordinance that made an
adjustment on the tax rate fixed by the first.
In this case, the first requirement was not
met as Davao City Ordinance No. 158-05
was actually the first to impose the tax on
retailers in accordance with the provisions of
the LGC. The second requirement is also
absent as Section 191 contemplates a
situation where there is already an existing
tax as authorized under the LGC and only a
change in the tax rae would effected. The
new ordinance provided not only a tax rate
but also a tax base that were appropriate for
retailers, following the parameters under the
LGC. While it may appear that there was a
significant adjustment on the tax rate of
retailers which affected petitioners, the
adjustment was not by virtue of a
unilateral increase of the tax rate but
merely incidental as a result of the
correction of the classification of
wholesalers and retailers and its
corresponding tax rates in accordance with
the LGC.
Taxable Base for Local Business Tax
 The taxable base is the amount of gross
receipts and NOT the amount of gross
revenue.
 Ibig sabihin only the AMOUNT COLLECTED.
NOTE: Gross receipts is the amount collected; while
gross revenue is the amount of sales (or amount
whether collected or not).
 So sa GROSS RECEIPTS, para yang pag
local business tax, naka-cash method ka.
Ibig sabihin din niyan, the amount indicated
in the financial statement would not
necessarily mean that said entire amount is
already subject to tax because of the
probability that the amount reflected therein
is the amount of gross sales WHETHER
COLLECTED OR NOT.
Illustration:
Nakabenta sila ng P10M, eh P4M lang na-
kolekta lang nila during the taxable year. Yung P6M
hindi pa collected.
 Question: Ano ang taxable base mo, pare?
 Answer: Syempre P4M lang, pare! Eguls tayo
pag buong P10M kasi di naman collected
yunng P6M, pare!
Side Chikka: Kasi ganito ang sistema, class, sa
LGUs, pag mag-a-apply ka ng business permits at
magbabayad ka ng local business tax, hindi nila
titignan kung magkano ang KIKITAIN mo eh. Ang
titignan nila kung magkano ang KINITA mo nung
nakaraang taon. So GROSS RECEIPTS yan for the
preceding year kaya sila humihingi ng financial
statement. Sa financial statement mo kasi yung
amount ng gross sales at yung amount ng kinita mo
at hindi mo kinita.
 So kung papansinin mo, pare, iba ang
taxable base for VAT, at iba rin ang taxable
base for Local Business Tax. Wag mong
kalilimutan yan, pare!
 Sa VAT, alam mo nang gross sales or gross
receipts ang taxable base mo.
With respect to the Local Business Tax on
CONDOMINIUM DUES, pare, eto ang tandaan mo…
CASE: City Treasurer of Makati v. BA Lepanto
Condominium Corporation
 The Supreme Court held that homeowners
associations or condominium associations
are NOT engaged in business. Therefore, the
condominium dues or association dues
collected by them cannot be subject to local
business tax.
  Under the LGC, local business taxes shall be
imposed only upon a taxpayer who or that is
engaged in business.
 LGC: A taxpayer is engaged in business if he
is undertaking trade or commercial activity
regularly engaged in as a means of livelihood
or with a view to profit.
BAR Q: BATAS Law is a general professional
partnership operating in the City of Valenzuela. It
regularly pays value-added tax on its services. All its
lawyers have individually paid the required
professional tax for the year 2017. However, as a
condition for the renewal of its business permit for
the year 2017, the City Treasurer of Valenzuela
assessed BATAS Law for the payment of percentage
business tax on its gross receipts for the year 2016
in accordance with the Revenue Tax Code of
Valenzuela. Is BATAS Law liable to pay the
assessed percentage business tax? Explain your
answer, pare. (3%)
ANS: BATAS Law is NOT liable to pay the local
business tax because of the following reasons:
o First, BATAS Law is not engaged in
business but rather it is engaged in the
practice of its profession; and
o Second, The rule of pre-emption
precludes the City Treasurer of
Valenzuela in collecting local business
taxes because such local business tax
collected from the law firm is in the
nature of a percentage tax.
o Side Chikka: You know, when you
become lawyers you will pay income tax
and you will likewise pay percentage tax
OR the 8% option which is already in lieu
of the income tax and the percentage tax.
Nonetheless, that still covers the
payment of percentage tax. Since the
subject matter is already covered by a
National Tax then that subject matter
can no longer be a subject matter of a
local tax – RULE ON PRE-EMPTION.
So balik tayo sa conclusion sa ANS, pare…
 Hence, the City Treasurer of Valenzuela
cannot impose percentage tax on the gross
receipts of the BATAS Law.
Situs of Tax For Business
(1) Principal Office for the sales
consummated in the principal office.
Hence, sales in principal office must be
paid to the LGU which has jurisdiction
over the said principal office.
 NOTE: It shall pertain ONLY TO
SALES CONSUMMATED IN THE
PRINCIPAL OFFICE.
(2) Branches for the sales consummated in
the branches. Hence, the tax shall be
paid to the LGU which has jurisdiction
over the said branches.
(3) Business with factories, project
offices, plants and plantations
 30% of the sales shall be recorded in
the principal office
 70% of the sales shall be recorded in
the factories
 Pare, natatanong daw ito sa Bar.
CASE: Municipality of Cainta v. City of Pasig
(June 28, 2017)
 FACTS: Uniwide conducted business in
building constructed on its parcels of land.
The City of Pasig issued building permit
and business permit. Beginning 1997,
Uniwide did not file any application for the
renewal of its mayor’s permit in Pasig. It
instead paid taxes to Cainta because
according to Cainta, the principal business
of Uniwide is located in Cainta; hence, the
tax shall be paid to it.
 RULING: The SC held that Uniwide can rely
on the location of the property as reflected
in the title. Since the title indicates that the
property is located in the City of Pasig and
Uniwide had already relied on it when it
first filed an application for issuance of
Mayor’s permit. So Uniwide must
continuously pay to Pasig and NOT to
Cainta.
NOTE: Kindly remember this case daw,
pare, because you will encounter another case
kanu met.
vis-à-vis Sta. Lucia Case
  This case is different daw, pare! The
title describes a different metes and
Under the LGC:
bounds. So VP Barlis will discuss this
particular case when we reach real
property taxation.
BAR Q: Napakahaba, pare. Sana wag kang
magalit, pare, kung screenshot kinuha ko, pare.
Effect of Late Filing and Late Payment of Taxes
(1) An interest of 2% per month shall be
imposed but it shall not exceed a period of
36 months
(2) A surcharge of 25% can be likewise
imposed

NOTE: This 2% interest per month and

the 25% surcharge must be indicated in
the tax ordinance. If there is no provision imposing
interests and surcharges, the same cannot be
imposed by the LGU.

CASE: NAPOCOR v. City of Cabanatuan

 FACTS: The City of Cabanatuan imposed a

 RULING: This computation of the surcharge
ANS:
 Side Chikka: She loves this case daw, pare.
(a) This is meritorious because Kalookan City,
which is the principal office, cannot collect the
sales consummated in the branches. The LGU
which has jurisdiction over the branch offices shall
collect the same.
25% surcharge which was computed on an
annual basis.
is oppressive and unconscionable. The main
intention of the Congress is to impose the
25% ng minsanan at hindi every year.
Further, LGU cannot collect a total interest
on the unpaid tax including surcharge that
is effectively higher than 72%. Here,
respondent applied the 25% cumulative
surcharge for more than three years. Its
computation undoubtedly exceeded the 72%
ceiling imposed under Section 168 of the
LGC.
All this time prior to the promulgation of the
case, she thought daw that the City
Government can impose 2% per month but
not exceeding 36 months. So that is basically
2% multiplied by 36 months, eh di 72, pare!
Kaso here is the catch, pare, the 72% does
NOT only pertain to the 2% interest
because in the abovementioned case, the
72% is ALSO applicable to surcharge. Awit!

(b) No. A professional tax receipt shall be effective

and applicable ANYWHERE in the Philippines.
Obviously, this contention is not meritorious.
NOTE:
- always remember the limit that the
imposition of interest does not exceed 72%
Remedies of the Government
 These are the remedies that the government
may avail of when the taxpayer did not pay
his or her tax liability
 Local Government’s Lien
 This is the same as the tax lien which
has been discussed under Tax Remedies.
 LGC: Local taxes, fees, charges and other
revenue constitute a lien, SUPERIOR to
all liens, charges or encumbrances in
favor of any person, enforceable by
appropriate administrative or judicial
action, not only upon any property or
rights therein which may be subject to
the lien but also upon property used in
business, occupation, practice of
profession or calling, or exercise of
privilege with respect to which the lien is
imposed.
 The lien may only be extinguished upon
full payment of the delinquent local taxes
fees and charges including related
surcharges and interests.
Q ano lang ang hindi covered dito?
A Ang hindi covered dito eh yung FAMILY
HOME mo kasi hindi mo naman yan ginagamit for
business or profession, hindi yan part ng local
government’s lien.
And take note, the lien may only be extinguished
upon full payment of the delinquent local taxes,
fees, and charges, including, of course, surcharges
and interests.
 Another remedy of the government is called
ASSESSMENT.
It is governed by Sec. 194, LGC. Under sec 194, the
LGU must assess the tax within:
- 5 years from the date the taxes become due.
So, dapat alam mo kung kailan ang due date
ng mga taxes. Usually January 1 yan of the
year.
Q ano to? Date of accrual or date of payment?
A Date required by law for the taxpayer to pay
the tax.
There is also a principle called EXTRAORDINARY
PERIOD to assess.
- The extraordinary period to assess is 10
years counted from the date of the discovery
of the fraud or intent to evade the tax.
Walang omission to file a return kasi walang returns
to be filed pagdating sa local taxes kaya hindi
kasama ang omission of filing of a return. That is
applicable only with respect to national taxes.
Q until when can the government collect?
A the government can collect within a period of
5 years from the date of assessment. So, kung
icocompare natin sa NIRC, 3-3, 10-5-5, pag LGC, 5-
5, 10-5. (period to assess and period to collect
ordinary and extraordinary)
 COLLECTION may be made through:
1. Levy (sec 175)
2. Distraint (sec 176)
3. Judicial action
So, para din ba yang sa NIRC? OO, same concepts.
The period to collect and assess can also be
suspended:
1. When the treasurer is legally prevented from
making the assessment or collection;
2. When the taxpayer requests for a
reinvestigation and executes a waiver in
writing before expiration of the period within
which to assess or collect; and
- the difference in the NIRC is that the
suspension be granted. In local
taxation even though not needed to be
granted, there is a need to file a
waiver
3. The taxpayer is out of the country or
otherwise cannot be located
- This is also provided under the NIRC.
Only that if you talk about the other
instances, wala dito noh. So, etong
tatlo lang ang meron.
REMEDIES OF THE TAXPAYER
1. Remember, the No Injunction Rule is NOT
applicable under the LGC.
- Unlike the NIRC, the LGC does not contain
any specific provision prohibiting courts
from enjoining the collection of local taxes.
Q Can the taxpayer file a case for injunction in
order to enjoin the collection of a local tax?
A Yes. That is allowed.
2. Administrative Remedies
a. If the taxpayer wants to question the
constitutionality or legality of a tax
ordinance or revenue measures, the
taxpayer must file an appeal with the
SECRETARY OF JUSTICE (SOJ) pursuant to
sec 187, LGC.
Take note, this particular procedure will apply only
when there is a question on the constitutionality or
legality of a tax ordinance.
The appeal must be filed within 30 days from the
effectivity of the ordinance.
b. When the appeal is already filed before the
SoJ, the SoJ has a period of 60 days from
the date of the receipt of the appeal to decide
on the appeal.
c. If the SoJ issued a decision or in cases of an
action, the TP can file the appropriate action
in court (RTC) within 30 days after the
receipt of the decision or the lapse of the 60-
day period. Take note that the lapse of 60-
day period is considered an implied denial.
i. This particular remedy will be
extensively discussed by VP Barlis
because this remedy is applicable to
real property taxes as well.
3. Protest e. RTC will exercise its original jurisdiction over
the case. Therefore, when the TP is aggrieved
by the decision of the RTC, the TP can elevate
it to the CTA division.
i. mag-CTA en banc ka lang kung ang
RTC ay exercising its appellate
jurisdiction. But, if RTC exercises its
original jurisdiction, then the NEXT
LEVEL is CTA Division.

f. The next is motion for new trial or motion for

- If the TP has already received an assessment reconsideration before the CTA Division
and does not really want to question the
legality of the ordinance, the TP can file a
Protest. g. If denied, then proceed to CTA en banc.

a. Before a TP can file a protest, there has to be h. Supreme Court

a determination on whether the LGU issued
a Notice of Assessment. In order for a
document to be constituted as a NOA, the
document must indicate: the nature of the
tax/fee.charge, the amount of the deficiency,
the amount of the surcharge, interest and
penalties.
i. If the document does not contain this
material information, then the
document will not be treated as NOA.
- TAKE NOTE: In this particular case where
the TP will question the constitutionality or
legality of an ordinance, the TP may file a
case for declaratory relief which, I will
repeat, will be discussed under Real Property
Tax.

b. Upon the receipt of NOA, the TP can now file

a Protest within a period of 60 days from the
receipt of the NOA.
i. Take note, payment under protest is
not necessary with respect to local
taxes. Payment under protest is
mandatory only when it pertains to
erroneous assessment of real
property taxes.

c. Upon the receipt of the protest, the City

Treasurer has a period of 60 days to decide.

d. If the City treasurer did not decide within the TAKE NOTE: This process shall be applicable in
period of 60 days, such action will be cases of PROTEST - meaning there has to be a
considered an implied denial and the TP can disputed assessment.
file the appropriate action before the RTC.
i. This particular appeal before the RTC
is considered as an action that is
incapable of pecuniary estimation SEC. 7 of RA 9282 provides that the CTA Division
kasi ang ina-act dito ay yung denial shall have jurisdiction over:
of protest. So kahit may amount pa
1. Decisions of inaction of the Commissioner of
ng tax sa protest, di mo pwedeng
Internal Revenue involving DROP cases;
sabihin na ang gagamitin ay
1. Decisions, orders, or resolutions of the
jurisdictional amount kasi ang issue
RTC in local tax cases originally decided
dito ay W/N the denial is proper and
or resolved by them in the exercise of
that is incapable of pecuniary
their original or appellate jurisdiction;
estimation kaya RTC yan kaagad.
 2. Decisions of the Commissioner of Customs
in cases involving liability for custom duties,
etc;
TAKE NOTE: Dito sa Sec. 7, hindi dinivide kung en
banc or division.
Just remember: ORIGINAL (RTC) - CTA Division;
APPELLATE (RTC) - CTA En Banc (legal basis:
Revised Rules of Procedure of Court of Tax Appeals)
4. Refund: What are the remedies of the TP when
TP paid the tax?
a. It is mandatory that the TP files a claim for
written claim for refund before the Local
Treasurer.
i. If there is no compliance with this
particular requirement, the judicial
claim for refund must be denied. This
requirement is mandatory.
ii. After filing the written claim for
refund, the taxpayer can await the
decision. Such waiting period must
not exceed 2 years from the date of
payment because both written claim
for refund filed with local treasurer
and judicial claim for refund shall be
filed within a period of 2 years from
the date of payment
b. Judicial claim for refund (MTC/RTC)
Judicial claim may either be filed with MTC or RTC
(base of jurisdictional amount = applying BP 129)
● MTC -> RTC -> CTA en banc
● RTC -> CTA division -> CTA en banc
In one of the case, the SC held that the taxpayer
facing an assessment may protest AND
alternatively (1) appeal the assessment in court; or
(2)pay the tax and thereafter, seek a refund.
Thus, a taxpayer who had protested and paid an
assessment is not precluded from later on
instituting an action for refund or credit.
In the case of City Treasurer of Manila vs. Phil
Beverages Partners (2019), this is the case where
the taxpayer received an assessment and thereafter
the taxpayer filed a protest after which, the
taxpayer paid the tax then the taxpayer received
denial of the protest; and since it had received a
denial of the protest the taxpayer an appeal within
the 30 days from the receipt of the protest. So in
the appeal, the taxpayer also claiming for a refund
of the taxes that it had paid.
So and sabi hindi daw pwede kasi nag appeal na
daw siya.
The SC held that there are two conditions that
must be satisfied in order to successfully prosecute
an action for refund in case the taxpayer had
received an assessment. Take note that this
particular quote pertains to refund when the
taxpayer received an assessment.
One, pay the tax and administratively assail within
60 days the assessment before the local treasurer
whether in a letter protest or in a claim of refund.
So ang sinasabi dito, pagkareceive ng assessment,
pwede siyang magbayad, and file the necessary
protest within 60 days or file a claim for refund.
Second, bring an action in court within 30 days
from the decision or inaction of the local treasurer
whether such action is denominated as an appeal
or a claim of refund of illegally collected tax.
So dito, anong ginawa ng TP? Since nga na may
protest na nadeny, nag file siya ng appeal sa court.
Pero, nag seek na din siya ng refun nung file siya
ang appeal sa court. Sabi ng Supreme Court pwede
daw yun.
This is a new case and might as well consider this
seriously. This has not been discussed in the bar
exam.
CITY of MANILA v. GRECIA
FACTS: a complaint for refund was filed in the
RTC. The RTC granted the application for writ of
preliminary injunction because the LGU was
already collecting the tax. The City of Manila filed a
MR but was denied by the RTC. And by reason of
the denial of the RTC, the City of Manila filed a
special action for certiorari with the CA. The CA
dismissed the petition for certiorari holding that it
has no jurisdiction over the said petition.
Kasi nga for regulation and inspection yan. Walang
tax exemption or tax incentive pagdating sa
regulatory fees.
This grant can only apply with respect to taxes. And
when the LGU has granted immunity from local
taxes, then the LGU will issue a tax exemption
certificate which is non- transferable.

However, in the grant of tax exemption, the IRR of

ISSUE: Does the CTA have jurisdiction over a the Local Government Code provide for several
special civil action for certiorari? exemptions, to wit:

SC: The power of the CTA includes that of

determining whether or not there has been abuse
of discretion amounting to lack or excess of
jurisdiction on the part of the RTC.

So, notwithstanding the fact that RA 9282 does not

include actions dealing with certiorari then it does
not follow that it is not included.

Because SC provides that notwithstanding the fact

that it is not included in the enumeration, it
follows that the CTA, by constitutional mandate, is
vested with jurisdiction to issue writs of certiorari
in these cases.

REAL PROPERTY TAXATION

Of course, in this particular case where the CTA
has jurisdiction over the main case such as in the
case of local taxes.
TAX EXEMPTION / TAX INCENTIVES
- a form of property tax
- is not just confined with real property tax,
although currently what we have right now is
that property taxation is mainly dealing with
real property taxes.

Property taxation is not just confined with real

Grant of tax exemption, tax incentive, or tax relief property.
shall not apply to regulatory fees which are levied
For example:
under the police power of LGU’s.
Tax imposed by reason of the existence of
property, then it is a property tax.

Issuance of a tax exemption certificate shall be
non-transferable.
Is motor vehicle registration fee a property tax?
- No. because in a motor vehicle registration,
the purpose is not having a motor vehicle but
on the use of the road. The registration fee is
more on a road usage tax not the use of
motor vehicle itself.
 For example:
If having a motor vehicle for display, it will not be
used for traversing roads. Hence not liable for the
motor vehicle registration fee.
- Different if the tax is imposed on having a
motor vehicle, then it will be a property tax.
GENERAL PRINCIPLES:
Definition
Real property taxation is a system of
administration, appraisal, assessment, levy, and
collection of taxes imposed on real property.
As a property tax, the touchstone of liability is
having a taxable real property within the
jurisdiction of the taxing authority.
- The fact that there is a real property gives
rise to a tax liability.
- Applying territorial principle, the property
must be situated in the territorial jurisdiction
of the taxing authority.
Principle of Territoriality
- A taxing authority cannot go beyond its
territorial jurisdiction. This applies to real
property taxation.
Comparing:
Sta. Lucia Realty vs Pasig
&
Municipality of Cainta vs. Pasig
- In these two cases, the important question is:
Can we rely on a certificate of title for purposes
of imposing real property tax?
Sta. Lucia Realty vs Pasig
The city of pasig having a boundary
dispute with the municipality of cainta.
Santa lucia has a property where the title
appears that the property is registered in
the city of pasig.
But the technical description and plotting
of the title, it would appear that the
property is located in the municipality of
cainta.
Can the city of pasig impose RPT on the
property of santa lucia since the title is
registered in such city?
SC Ruling:
In the imposition of RPT, important that
the property be unquestionable located in
the territorial jurisdiction of the LGU. For
authority be present, it should not be
doubted that the property be located
within the taxing authority.
The title itself would raise doubts as to the
location of the property. Being registered
under the city of pasig but the technical
description shows a different location
which is cainta
There could be no reliance on the title
alone for purposes of imposing RPT. The
better thing to do is allow the taxpayer to
deposit the amount in escrow such that
whatever be the turn out of the boundary
dispute between Pasig and Cainta would
be determinative which LGU would get the
property tax.
Municipality of Cainta vs. Pasig
There is a boundary dispute.
UNIWIDE sales has a business paying local
tax in the city of Pasig.
The title of the property is registered in the
city of pasig.
Since the boundary dispute between the
two LGU, cainta was also demanding
payment from uniwide for local business
tax.
UNIWIDE decided to pay LBT in the
municipality of CAINTA.
Since UNIWIDE was paying LBT to Cainta,
UNIWIDE was no longer willing to pay RPT
in the City of Pasig.

Thus Pasig is also demanding from
UNIWIDE.
UNIWIDE answered the City of pasig that it
had paid the tax in CAINTA. RPT should
not also be paid in the CITY of pasig.
Can we rely on the certificate of title?
Supreme Court Ruling:
- Yes, we can rely on the Certificate of title
because the certificate is presumed correct
in so far as the items are mentioned
therein. Since there is that presumption,
we can also presume that the property is
really located within the LGU of which the
title is registered.
Since registered in Pasig, it is property that
Pasig would get the real property tax.
HOW TO COMPARE?
- Opinion: SC is telling us that still we can rely
on the certificate of title to determine upon
which the property is located, even if there is a
boundary dispute between adjoining LGUs.
- Exceptional situation is sited in Sta. Lucia, on
the face of the title itself there seems to be a
problem. Where the property is registered in
one city but the technical description
implicates in another locality. Such title
cannot be relied on.
FUNDAMENTAL PRINCIPLES in Real Property
Tax
- Sec. 198 of the LGC
Very important as they were asked in BAR
questions: identify the fundamental principles.
(a) FMV is the price for which a seller is not
compelled to sell is willing to sell and the price
upon which a buyer is compelled to buy.
(b) Classification shall be based on actual use.
(c) Offshoot in the requirement of the constitution
on the uniformity of taxes. RULE ON
UNIFORMITY
(d) was asked in BAR, should not be let to any
private person, a power that must be exercised by
the LGU and cannot be DELEGATED
(e) offshoot of the constitutional requirement of
taxes to be equitable.
Real properties that are subject to Real
Property Tax:
Section 232, LGC
Land, building, machinery, and other
improvement not hereinafter specifically
exempted
- the LGC does not specifically identify or give
meaning to real properties but provides that
such RPT would be imposed on the items
stated in Sec. 232.
Article 415 Civil Code
- enumerates different real properties
Do we adhere to what is provided in the civil code?
- no doubt that the items in Art. 415 are indeed
real property even if for taxation purposes.
- IF NOT IN 415? Do we consider it as real
property?
Caltex vs. Central Board Of Assessment
Appeals
Caltex constructing a gas station within a
leased property.
Upon expiration of the lease term, the
items would be removed from the
property.
 Would the removed items be considered as
real property?
- If applying 415, they are not real property
because they are not immobilized by
intention

SC Ruling:
They are considered as real properties for
taxation purposes. Falls within the
enumeration provided by law “land,
building, machinery and other
improvements”
For as long as there is some degree of
permanence, even if that degree is quite
temporary, or at the very least some
degree of permanence it was maintained
within the property, then it will be
considered as real property for taxation
purposes.
“Machinery”
Provincial Assessor of Agusan Del Sur vs.
Filipinas Palm Plantation
NDC transferred the parcels of land to CARL
beneficiaries who formed a cooperative
Filipinas Palm and the Cooperative executed
a lease agreement
Are the parcels of land subjects to real
property tax?
Are the road equipment and mini haulers
used by Filipinas in transporting the fruits
that it harvested subject to tax?

(focus on the 2nd question)

The characterization of machinery as real

property is governed by the LGC and not the
Should it be attached on the ground to be
civil code.
considered real property?
- No. Even those that are not permanently
What is being discussed are properties
considered as real property for taxation
attached to the property, the machinery
purposes but not real property by civil code
may be considered as real property.
provision.
- Take note of the requirement: ADE used to
meet the particular needs of the industry,
Capital Wireless vs. Provincial Treasurer
business or activity. And by the very nature
of Batangas
and purpose designed for.
Are submarine or undersea communication
cables akin to electric transmission lines?
Are submarine or undersea communication
cables considered real property?
 As to basis

Real properties may be classified to various

- Sec. 28(3) Article 6: ADE used for religious
kinds:
purposes
 Residential – for habitation
- Sec. 4(3) Art. 14: non-stock, non-profit
 Agricultural – for planting of trees, raising educational institution; ADE in educational
of crops, livestock and poultry, dairying, purposes.
salt making, inland fishing and similar
aqua cultural activities
 Commercial – devoted for profit Exemption from property tax by reason of Local
 Industrial – industrial activity Government Code
 Mineral – minerals, metallic or non-
metallic, exist
- For as long as there is commercial
availability
 Timberland
 Special – hospitals, cultural, or scientific
purposes, and those owned and used by
local water districts, and GOCCs in the
supply and distribution of water and/or
generation and transmission of electric
power
- Very important as this was asked in bar
Actual use of Real Property as Basis for and used in cases decided by the SC.
Assessment
Real property shall be classified, valued and (a) If owned by the RP, then exempt. Unless when
assessed on the basis of its actual use regardless used by a taxable person.
of where located, whoever owns it, and whoever (b) Not just statutory but in fact constitutional
uses it. (Sec. 28[3] Art. 6 of the Constitution)
- one of the fundamental principle of RPT as
provided in the LGC.

For example:
A building may be owned by the church but if the
church is not using it for religious purposes, then
it would not be classified as a property used for
religious purposes. The property shall be assessed
based on how it is actually used. REGARDLESS OF
WHO OWNS IT, WHO USES IT OR LOCATED (c) RA 6938: as amended by New Coop code.
- Mere ownership will give rise to an
- If used for a specific purpose, it is the exception.
determinative factor
EXEMPT FROM RPT

General rule: If real property, then be subject to

tax.

Exception: if the law otherwise provides.

 - Who is the one - Use determines
liable for the real exemption.
property tax.
Eg. if a property is
GR: it is the owner owned by the
who will be liable for church, but the
the property tax. church does not
If a government owned corporation will claim - Ownership need the property in
exemption, take a look at the charter of the determines liability the meantime and
corporation. leased it to another
person for
When was the exemption given? commercial
- If charter was prior to the LGC in 1991, purposes. Because
then exemption is withdrawn. the property is used
- If the charter is after the enactment of the for non-exempt
LGC, then the legislative intention was to purposes, then it is
grant exemption to that governmental taxable.
corporation.
- Who will be liable?
Classifications: Liability is on the
church since it is
the owner applying
Doctrine of
ownership.

For example: 234 (a)(d). as they are owned by RP

and Cooperatives. What if the owner is exempt from real property
tax? But the property is a taxable property?
- Concept of beneficial use.

Concept of BENEFICIAL USE

- Whoever is the beneficial user shall be the
one liable for the property tax.

- dealing with the character of the real Estate of Concordia Lim vs. City of
property itself. Manila
- 234 (c); 234(e)
Concordia lim owning property in the city of
manila
Concordia lim is leasing the property to
various tenants.
Obtained a loan from GSIS and mortgaged
the property.
For failure to pay the obligation, GSIS
foreclosed the mortgage.
GSIS was declared as the winning bidder in
the foreclosure sale, GSIS was able to
DOCTRINE OF OWNERSHIP vs. DOCTRINE OF consolidate ownership.
USAGE GSIS is a tax exempt entity. (including RPT)
- The ownership of a - In usage GSIS did not pay RPT.
property is mainly exemption, it is the Concordia lim decided to repurchase the
determinative of use that is properties from GSIS.
the liability. determinative of CITY of manila discovered that during the
exemption. years when GSIS was the owner, there was
no payment of RPT. But the property was a
taxable property.
Now manila wants to claim the RPT.
Concordia lim: during the years in question,
she was neither the owner or used the
property during that time. Thus no liability.
City of Manila: real property tax attaches on
the property itself. Whoever the owner. Thus
the current owner Concordia lim should be
liable.
SC Ruling:
No. Concordia lim should not be liable. The
liability on the tax rests upon the owner.
During that time it was GSIS as the owner.
Since GSIS is exempt, City of Manila cannot
run after GSIS.
Who is liable for property tax?
- It should have been the beneficial
users. The lesees who will be liable
for the RPT. But in the end not liable.
Why?
- They were not made liable because
they were not impleaded as parties in
the case.
NOTE: the beneficial user is the on liable.
GSIS vs. Manila City Treasurer
GSIS, GOV CORPORATION, charter provides
for tax exemption.
GSIS owns properties in the city of manila.
One included is where manila hotel stands.
It is a situation where the property is taxable
but the owner is exempt.
Who is liable for RPT?
SC – the beneficial user should be the one
liable for the tax.
MIAA vs. CA
UP V. TREASURER OF QUEZON CITY
(2019) (MUST READ)
UP owns a property in Diliman QC.
UP entered into an agreement with AYALA
land for purposes of constructing a techno
hub.
The agreement provides that techno hub
would be used not only for commercial
purposes but also for scientific, educational
and similar purposes.
Also includes that UP shall be the one liable
for the RPT , if any, on the land.
For improvements, AYALA should be
responsible for the RPT on the
improvements as they will be the one who
will construct the improvement.
QC claims RPT for the land and the
improvements constructed.
The charter of UP, UP shall be exempt from
all forms of taxes.
Improvements: there is liability for RPT on
the improvements and the liability rests on
AYALA land.
As for the land on which the techno hub is
situated?
SC:
Relying on the charter of the UP, UP is not
liable for RPT although by contract, UP shall
be liable for RPT, “if any”. Thus there is no
liability on that particular land considering
the nature of the exemption of the charter of
UP.
Would AYALA land be liable for the land?
SC:
not also. SC traced back the reason for the
construction of the techno hub. Because the
techno hub will be used in furtherance of
educationally related purposes of UP, then
the techno hub shall be free from property
tax.
UP nor AYALA land should be responsible
for real property tax on the land itself.
- MIAA being the operator of NAIA is being
subjected to RPT by the City of Paranaque.
- MIAA argued of being a government
instrumentality, thus not liable for RPT
contending that RP is the owner of the
airport. MIAA is just administrator in behalf
of the RP.
- Certain parts are being leased to tenants or
concessionaires.
Should MIAA be liable for RPT?
 HELD:
- Earlier case of Mactan V. Marcos: the
airport aurhtority is not an instrumentality
of the government thus subject to tax.
- In this case, the SC: did not adopt mactan
case.
- MIAA is considered as an instrumentality of
the government. It is in the extent
performing regulatory function, though not
a government corporation. Because it can
neither be treated as a stock or non-stock
corporation, thusnot a government
corporation.
- It is an instrumentality thus not subject to
RPT. Any assessment made by the City of
Paranaque should be cancelled.
- As to the portion leased to concessionaires:
to areas which are being leased to private
entities, the tax exemption ceases. Because
referring to Sec. 234 (a) of the LGC,
properties are exempt if they are owned by
the RP, etc. except if the beneficial use is
granted to a taxable person.
- If the beneficial use had been granted to a
taxable person, the exemption no longer
operates.
Who will become taxable?
- SC: upheld the assessment against MIAA.
- Even the government may be subjected to
tax once the beneficial use had been
granted to a taxable person.
- (in this case, it goes against the principle
that the beneficial user will be the one to
pay the tax)
PFDA vs. CA
- There is a fishport, owned by the
government (PFDA).
- Iloilo wants to impose RPT on the fish port.
Is the fish port subject to property tax?
HELD:
- SC: the fish port itself is not subject to RPT.
However, for those portions of the fish port
where the beneficial use is granted to
private or taxable entities, then there will be
liability for property tax.
Who will be liable? PFDA.
- This case goes in tandem with MIAA case.
- If the PFDA will not be able to pay the
property tax, the LGU will find other ways it
can enforce the tax liability without having
to sell the fish port at public auction.
- The fish port cannot be the subject of
execution or tax sales it being a property of
the government.
- A government instrumentality again, not
the beneficial user, is being subjected to
tax.
CITY OF PASIG vs. RP
- A property was given back to the
government by a marcos crony after the
ousting of Pres. Marcos.
- The property is a commercial property being
leased to tenants.
- As it was returned to the ownership of the
RP, the City of Pasig wanted to levy RPT.
- The RP did not want to pay the tax relying
on sec. 234 (a)
HELD:
- the property is taxable as it is used for non-
exempt purposes. But the one liable will be
the RP invoking the exception in 234 (a) of
the LGC. The tax exemption ceases since
the property was being leased to tenants.
- Why RP? The SC went to use the trend in
MIAA, PDFA. Even the government is being
taxed instead of the application of the
Beneficial User.
Opinion: the better ruling is in the decisions of
Concorida lim, UP case etc.
How to resolve
- Suggestion by sir: STILL APPLY THE
BENEFICIAL USER.
- Why? because it is the correct application
of our law, it contains a better reasoning.
More wisdom in context. Following the
cases of MIAA, PFDA and PASIG more
problematic.
- Can still use those decisions as it remains
to be valid jurisprudence.
- But make sure that the line of reasoning is
that of the SC.
- Local taxation: a LGU cannot assert
authority over the national government.
LIGHT RAIL TRANSIT AUTHORITY vs. CBAA
 - LRTA operates the LRT system in manila.
- LRTA has a charter prior to the enactment
of the LGC.
- There was tax exemption. Because of the
blanket revocation of RPT. LGU wanted to
collect RPT from LRTA. - Survey of the cases in connection with the
- LRTA countered no liability because of the exemption would reveal the
charter and that it is providing mass abovementioned entities.
transportation. Thus free from tax. Its - The list is not exclusive as there are others.
carriage ways are also akin to roads. Roads FAMILIARIZE
are not subject to RPT.

SC Ruling: MACTAN CEBU vs .CITY OF LAPULAPU

- the charter was enacted prior to enactment - Mactan v marcos does not already apply.
of LGC. Any exemption was already
revoked. The fact that the LRTA is providing SC: MCIAA is already a government
mass transportation is in the nature of a instrumentality thus not subject to RPT.
proprietary venture thus taxable also. there
is no automatic exemption simply because
LRTAs property is used for the benefit of the Bar Questions:
public. The LRT carriage ways are not like
roads. They are above the road.
- The carriage ways are used for the exclusive
use of the LRT system. Not like roads which
are open to the public and can be traversed
by anybody.
- LRTA is subject to RPT.

INSTRUMENTALITIES OF THE GOVENRMENT

ARE EXEMPT FROM PROPERTY TAX:

- the question is similar to LRTA case.

- Government corporation being subjected to
tax.
- SC in LRTA: there is liability.
- Going back to the listing of
instrumentalities. PNR is one of the
instrumentalities exempt from property tax.
- PNR is not subject to tax being an
instrumentality of the government.
 LUNG CENTER vs. QC
a.) reclaimed properties, the PH reclamation
authority is among the instrumentalities of the
government.
Reclaimed properties are considered properties of
the RP, as such, they will not be subject to tax.
b.) not be the same. In this case, the properties
owned by the RP, the beneficial use is granted to
a taxable person. Therefore there will be liability
for property tax.
The ones to be liable will be the RP in the
application of jurisprudence like MIAA, PFDA etc.
Is lung center liable for RPT?
But if you are to apply the Rule on Beneficial
owner, the one liable for said tax will be the
tenants or lessees.
- because the property is now being used by
a taxable person. There is liability for
property tax. it is but proper be subjected
to real property tax assessment.
- The liability rests on the beneficial user or
the City R.
- Lung center being a government hospital
created as a charitable hospital.
- Portions of the lung center is being leased
to an orchidarium
- Other portions used by lung center.
- The lung center had some issues because
some of it are being leased to doctors using
portions of the bldg. as clinics. Accepting
patients who are not patients of lung
center.
- Hospital is accepting paying and charity
patients.
- The payments are reverted to the operation
of the hospital.
- Only with respect with certain portions
such as those leased to the orchidarium. It
is not ADE used for exempt purpose.
- The portions used as clinics are also
subject to RPT because for a property to be
ADE used for an exempt person, exclusively
would mean solely. While being used as
clinic, the patients are not always patients
of LUNG center, thus the portion leased to
doctors are not solely for the operation of
Lung Center.
- The hospital, portion used by charity is
exempt. The portion used by paying
patients are also exempt. Because the mere
acceptance of a paying patients does not
negate the charitable nature of the hospital.
for as long as whatever amounts generated
from the paying patient are used for the
finance of the hospital operations. It
remains to be a charitable hospital.

a. The ½ portion leased to the mall is subject to
RPT. It is not used for an exempt purpose.
Opinion: As for the hospital, it is subject to
property tax. there is no evidence that the hospital
is being operated as a charitable hospital.
accepting charitable or paying patients. It did not
disclose the use of the payments. Did not disclose
the nature of the hospital. LUNG CENTER factual
basis does not exist here.
The portion used for the school is exempt
The church with cemetery is exempt. Consistent
with exempt uses.
b. Even if an entity is a tax exempt entity under
sec. 30 of the NIRC, the income is subject to tax if
the income is derived from an activity conducted
for profit or from the use of the property it is
taxable irrespective how the income is used.
a. Two of the buildings are devoted to classrooms,
bookstore, etc. thus not subject to property tax.
the school buildings are used for educational
purposes.
- Opinion: the leasing of the other portion to
concessionaires (canteen) can be considered
as taxable.
- The third building for dormitory purposes:
Opinion ni sir: not subject to tax as it is
still an educational function of the school.
The dormitories are for student athletes in
furtherance of the educational purpose for
which San Juan is established. Thus, still
exempt from tax.
b. Being a NSNP, for as long as the income can be
proven to be ADE used for educational purposes,
regardless of the source, the income will be
exempt from income tax.
ADE used by local water districts
NAPOCOR V. PROVINCE OF QUEZON.
- NAPOCOR is being imposed with RPT.
- It entered into a contract with MIRANT.
- In the agreement, MIRANT will construct a
power facility under a BOT scheme.
- NAPOCOR agreed to shoulder the
responsibility for RPT.
- The LGU wanted to collect the RPT on the
machineries/ power facility.
- MIRANT is resisiting because of the agreement
with NAPOCOR.
- NAPOCOR is questioning the assessment
as it is claiming exemption under 234(c)
SC Ruling:
- 234 (c) is not available because the
machineries and equipment should be ADE
used by the Government Corporation. It
should be NAPOCOR who is using it but
rather it was MIRANT.
 - Even if eventually the ownership would
pass to NAPOCOR under the BOT scheme,
in the meantime, the use of the machinery
is on MIRANT.
- Thus the machineries are subject to RPT.

Cooperative

Is Section 234(e) applicable?

- 234 (d) provides for ownership type of

exemption.
- Being owned by a cooperative, it would
already be exempt.
- As to the question: resolved under AGUSAN
vs. FILIPINAS PALM PLANTATION.
- Section 234(e) provides for exemption based on
USE. It is the actual use which is
determinative of exemption. It is not the
potential use neither is it the intended use of
the property.
- IT IS THE ACTUAL USE.

- In order to enjoy exemption, the property be

operational.

- The structure became non-operational in

- There will be no liability for RPT by the
Cooperative itself and the lessee as well.
- Why not similar to lands owned by the RP?
There is a difference between 234 a and 234
(d)
- 234 (a) provides “except when the beneficial
use is given to taxable person”
- 234 (d) has no such provision. For as long as
owned by a cooperative, then exempt from
taxes for both coop and lessee.
1993, no longer actually used for pollution
control.
- 234 (e) concerns machinery or equipment used
for pollution control and environmental
protection.
- The problem deals with structure. 234 (e) does
not cover structures.
- Thus there is liability for property tax.

Structure intended for pollution control and

environmental protection.

Section 234(e)
Machinery and equipment used for pollution
control and environmental protection Situation that is exempting property owners
from idle land tax only

REAL PROPERTY TAX ADMINISTRATION
Who are authorized to levy real property taxes?
Real property taxation is a system of imposing
taxes upon real properties; System of
administering tax of real properties.
Levying of real property tax can be done only by
Provinces and Cities, and Municipalities within
Metro Manila area, which are authorized to levy
real property tax.
Take note:
- Municipalities are not authorized to levy
real property taxes.
- The power to levy, being a power of
taxation, must be exercised by the
lawmaking of the government. In this case,
the lawmaking body of the local government
– therefore, it’s the Local Sanggunian that
must enact an ordinance that will levy real
property tax.
- Local Chief Executive cannot levy real
property tax. It must be the Local
Legislative Body.
How will a real property fall within the ambit of
the real property tax system?
There are certain obligations imposed by law,
particularly the Local Government Code, on some
persons for purposes of real property taxation.
 Obligation of the owner to declare his
property for taxation purposes.
- Tax declaration
- the owner goes to the assessor’s office, files
a sworn declaration of real property
ownership – this will commence the process
by which that real property will fall within
the ambit of the real property tax system.
- If the owner does not declare his property
for taxation purposes, the administrator of
that property is the one who will declare the
property for taxation purposes.
- If the owner and the administrator will not
declare the property voluntarily – the
assessor has the power to declare the
property for taxation purposes.
- Consequence: The assessor can make an
assessment for a back tax for a period of 10
years.
 Obligation of the assessors and registers of
deeds to monitor the property and declare it
for taxation purposes.
If in the process of their performance of their
functions, they encounter upon real properties
within the locality, there is a corresponding
obligation that the property must be monitored and
declared for taxation purposes.
For instance:
Registers of deeds are required to compare the list
of registry of properties versus that of the
assessment rolls of the assessor.
The purpose of which is to see whether there are
properties that are in the registry that may not be
in the assessment rolls, and therefore a
reconciliation will give rise to the possibility of
declaring a property for taxation purposes.
 Obligation of the geodetic engineers to
declare properties that they survey, giving
copy of that and declare the same to the
assessor’s office for purposes of monitoring.
Tax declaration in itself is not an evidence of
ownership of a property.
- Its evidentiary value is limited only to the
fact that a person declares a property for
taxation purposes.
- If a property is an unregistered land, and is
actually possessed by a person in an open,
continuous, exclusive and notorious
manner, coupled with the fact that he is
declaring the property for taxation purposes
and paying taxes thereon – may give a
collective evidence that the person is the
owner of the property
Procedure in the adoption of a real property tax
system
In order to have a real property tax system – this is
a function of the Local Sanggunian in enacting an
ordinance concerning the real property tax system
/ ordinance.
- The function is not necessarily just
executed solely by the Sangguinan
Procedure in the adoption of a real property tax
system: 2 ASPECTS
1. The preparation of Schedule of Fair Market
Values
- Main function of the assessor’s office –
taking into consideration the valuation of
properties in a particular local government
unit.
- Sanggunian comes into play when the
ordinance is being enacted.
2. The enactment of Ordinances:
- In the enactment of an ordinance, the
following must be done by the Local
Sanggunian.
 Levying an annual ad valorem tax on real
property
 Fixing the assessment levels
 Appropriation to defray expenses incident
to general revision of real property
assessments; and
- Assessors are supposed to revalue
properties within a local government not
oftener than once every 3 years.
 Adopting the Schedule of Fair Market
Values prepared by the assessors
Real property shall be appraised at current and
fair market value
One of the fundamental principles under Section
198, LGC
 Appraisal and assessment shall be made by
the assessor
 Assessment should not increase more than
once every 3 years
Question: Can it decrease?
The Local Government Code merely states that
there can be no increase more than once every 3
years.
If the purpose is to decrease, there can be no
prohibition regarding that.
Question: The City of Baguio revised its schedule of
fair market values. There were certain irregularities
that have been committed. There were principles
that were not followed. Can the City enact another
ordinance within 3 years?
Yes, even if it is within 3 years, if the purpose is to
downgrade the schedule of the fair market value.
But if the purpose is to increase, then it could not
be done more than once every 3 years.
Real property shall be classified, valued and
assessed on the basis of its actual use
Another principle under Section 198
It is the actual use of the property that will be
determinative of the classification and assessment.
City Assessor of Cebu vs. Association of
Benevola de Cebu
The hospital constructed a medical arts
center. The purpose is to house its doctors
and medical personnel.
The hospital itself is considered, for
taxation purposes, as belonging to a special
category.
The assessment is a special classification.
What about the medical arts center?
- The City Assessor insists that it is
commercial in nature – to have a
higher assessment rate.
- If it is commercial, it allows the City
to assess it up to 35% rate.
- If it is special, it is 10%.

Supreme Court Ruling:
- The medical arts center (MAC) is
being used only by the accredited
doctors of the hospital
- Because of this, it cannot be
classified as a separate commercial
entity because it is incidental to
the operation of the hospital.
- A hospital is required to have a pool
of physicians, therefore it is but
incidental for the hospital to come
up with a center where these
accredited physicians would be able
to diagnose patients and treat
patients.
- Therefore, since it is incidental, it is
not classified as commercial, but
remains to be special in nature.
“incidental to the operation” – this concept
should not be applied when it comes to
EXEMPTION from property tax.
Incidental exemption is no longer recognized
by reason of the fact that the requirement is
actual, direct, exclusive use for religious,
educational and charitable purposes.
[current discussion] is dealing with
CLASSIFICATION on the basis of ACTUAL USE
 The court allowed incidental use as the
basis of classifying the medical arts center
as Special and not Commercial.
2016 Bar
- Case of Benevola de Cebu
Procedure in Real Property Tax
How would you know how much real property tax is
due with the local government?
How would you know your real property tax
obligation?
First, determine the fair market value of the
property to be taxed
Who determines the FMV of the property to be
taxed?
 initially, it is the owner who declares the
value – Sworn Declaration Of Real Property
Ownership where the owner declares his
property and he also declares the valuation
of the property.
- Any declaration made by the owner will not
be immediately believed as true because
this will still be validated by the assessors.
 The assessors necessarily would have to
determine how much really is the FMV of
the property.
Second, determine the applicable assessment level
of the property, taking into consideration of its
actual use
- Classification of uses of lands – Residential,
agricultural, commercial, industrial,
mineral, timberland or special – these will
be determinative of the assessment level
For example:
Real Property worth 1M – used for residential
purposes
The City of Baguio says that “for properties that
are used for residential purposes, we will assess it
at a 10% level”
The 1M FMV is NOT YET the basis of the tax.
It will still be multiplied by that assessment level
for residential – 10%
1M
X 10%
100,000
- This is the assessed value
Third, the fair market value shall be multiplied
with the applicable assessment level to determine
the assessed value – taxable value of the property
- Unless there are other adjustments that are
made by the Local Government, the
assessed value will be the taxable value of
the property.
Fourth, multiply the assessed value with the
applicable real property tax rate based on the real
property tax ordinance of the province, city, or
municipality within Metro Manila.
How much is the real property tax rate that is
allowable?
For Provinces: up to 1%
For Cities and Municipalities (within metro
manila): 2%
In the example (Real Property – Baguio City 1M)
Assessment level imposed by Baguio City for
residential lot is: 10%
The City of Baguio adopts 2% tax rate for cities.
1M (market value)
X 10% (assessment level)
100,000 (assessed value)
X 2% (rate of tax)
2,000 (Real Property Tax)
 real property tax – annual obligation
- The RPT is known as the BASIC REAL PROPERTY TAX.
Are there other impositions?
Taxes in addition to the basis real property tax
- Take note this are possible impositions,
depends on the LGU to impose it.
How to know if the land is idle?
- A land is idle if it is an agricultural land,
capable of being used as such, at least 1
hectare in area, and at least 50% is
unutilized. It will be considered idle thus
the imposition of IDLE LAND TAX.
- If nonagricultural land, at least 1k sq meters
in area, and 50% is unutilized, then
considered idle.
For example:
In Special assessment. There is a highway, there
are inner properties not in access to the highway.
If there is a road constructed in order to link the
inner properties to the highway, the owners of the
inner properties would benefit from it. However
the construction is funded by the LGU.
What can be done?
LGC provides that the LGU can recover part of
the construction of the project by making a
special assessment.
How done?
The enactment of an ordinance levying special
assessment. The ordinance should fix how much
would be the recovery. The LGC provides for a
ceiling of up to 60% of the actual cost of the
project.
- It is not a onetime imposition as there will
be a period for recovery.
- The period should not be less than 5 but
not more than 10 years.
 NOTE: under the LGC, if a property is exempt
from property tax (like exempt by reason of
usage), then they will not also be exposed to
Special Assessment
What if the taxpayer did not pay the tax?
What if the government wants to recover more than what
is due?
- Remedies in RPT may be remedies available
to government and TP.
- Either government or TP, the remedy can
either be Administrative and Judicial
Remember:
If the government is the one asserting itself of
remedy, it need not comply with the DEAR. The
Government can assert itself of whatever remedy
available for as long as it WILL NOT
OVERCOLLECT THE TAX.
- If the taxpayer avails of the remedy:
GR: the TP must comply with DEAR.
REMEDIES OF THE GOVERNMENT
 Assessment
 Collection
ASSESSMENT
- Remember: including the discovery, listing,
classification and appraisal of properties.
Notice of assessment
Must contain:
- If one of the essential element is lacking,
then the assessment is not a notice of
assessment.
MERALCO V. BARLIS (2001)(2002)(2004)
- Meralco received a notice form the LG of
Muntinlupa.
- The Notice: “ginoo/ginang Meralco,
ipinababatid po naming na ayon sa aming
talaan mayroon kaung kaukulan buwis na
hindi nababayaran sa halagang Pxxxxxx.xx”
“marapat lang po na bayaran ang buwis sa
loob ng (period)” “kung nagbayad na
maaring ipagpaliban ang patalastas na ito”
IS IT A VALID NOTICE OF ASSESSMENT?
Ruling:
- NO, as it did not contain the proper
contents of a notice of assessment. The
notice received by meralco is a mere
collection notice. It is not a NOA
- Why important to have a valid NoA? Upon
arriving at the TP’s remedies, you will see
that once an assessment is issued, then the
TP can exercise the remedy of protesting
the assessment. If no assessment, then
there is nothing to protest. Thus relevant to
find out if a NoA is issued.
Who is entitled to Notice of Assessment?
- If not registering the sale as the buyer, and
it turned out that there was tax
delinquency, it would still be the registered
 owner who will be issued the notice. The
buyer may not know that the property was
subjected to a tax sale as he/she is not the
registered owner.
Who issues notice of assessment?
- last action of the assessor? Why?how?
For example:
The TP believes the property is used for residential
purposes. The assessor is claiming that you are
using it for commercial purposes. TP declare the
property for 1M. The assessor thinks 10M.
Can the TP go to the assessor and ask for
reconsideration? No. (Calianta v. Ombudsman)
CALIANTA V. OMBUDSMAN
SC emphasis:
The NoA by the assessor is the last action of the
assessor. The Assessor cannot entertain motion for
reconsideration to lower the assessment.
- There is a remedy which is to appeal to the
LBAA. But the remedy as a TP is not to ask
for a reconsideration form the assessor.
RULES ON ASSESSMENT/ REASSESSMENT
 All assessments or reassessments made
after the 1st day of January of any year
shall take effect on the 1st day of January of
the succeeding year.
 Real property declared for the first time
shall be assessed for taxes for the period
during which it would have been liable but
in no case of more than 10 years prior to
the date of initial assessment
 Back tax should only be limited to a 10 year
period.
COLLECTION
The collection mechanism can be
a. Administrative action thru levy
b. Judicial action
- 257 of the LGC provides that the
administrative remedy of the government is
through levy. It is specific.
Can the LGU administer other remedies? Like
distraint? Garnishment?
- There was no ruling or issuance of the LG
of Finance on the matter yet.
- OPINION NI SIR: since the LGC is very
explicit that the administrative action is
thru levy, then it precludes other
administrative act like distraint or levy.
Why? looking at the provision of PD 464
(Old RPT Code), it provides that a LG can
collect
- administratively RPT thru levy, distraint,
garnishment. There are even procedures
identified by the old RPT code on how to
exercise distraint or garnishment. All those
were not carried in the enactment of the
LGC. So the basis is on the legislative
intention. PD 464 was repealed by the LGC.
Since the provision did not contain the old
provision on distraint or garnishment,
legislative intention under statutory
construction, it is to do away with such
provision. Thus the thinking is
administrative remedy is only thru levy. If
administrative remedy cannot be done, then
judicial remedy can be an alternative.
SOME PRINCIPLES IN THE ISSUE OF
COLELCTION
1. ACCRUAL OF TAX V. DUE DATE OF
PAYMENT
Accrual of tax is not the same with due date of
payment
- RPT accrue on the first day of January. By
accrual, the LGU would have the right to
demand for RPT. The LGU right over the
tax already arises at the time. It is not the
fact that the TP must pay right away, it
simply means that the right already arises.
And that right will be enforced until the
time the due date arises.
- If the TP did not pay on or before the due
date. Then certain penalties can be
imposed.
 - Accrual is on Jan.1 . Due date is dependent
on the ordinance.
2. RPT PAYMENT CAN BE IN INSTALLMENT
- Not necessary that the TP pay the RPT on a
one time big time bases.
- Can be done in quarterly or installment
basis without incurring penalties.
- important because if we consider it as an
ordinary civil action, appeal is to the CA.
certiorari is to the CA.
- If a tax case, then to the CTA.
CE Casecnan Water and Energy Co. v. Province
of Nueva Ecija

Is it a local tax case?

3. TAX DISCOUNT FOR ADVANCE PAYMENT
- But for TPs who pay promptly, they are
entitled to tax discounts for advance
payment depending on the tax ordinance.
- The tax ordinance would depend on the
LGU but the LGC authorizes the grant up
to 20% of the RPT.
PERIOD OF COLLECTION
- 5 from due date
- 10 years from the discovery in case of
fraud.
In praying to restrain the collection of real property
tax, the TP also implicitly questions the propriety
of the assessment of such tax. This is because in
ruling as to whether to restrain the collection, the
RTC must first necessarily rule on the propriety of
the assessment. In other words, in filing an action
for injunction to restrain collection, the TP was in
effect also challenging the validity of the real
property tax assessment.
It is therefore a local tax case and nay appeal or
petition for certiorari to question the RTC’s Orders
should be brought before the CTA and not the CA.

PENALTY FOR FAILURE TO PAY TAX ON TIME

- Interest of 2% per month up to a maximum
of 36 months.

ANGELES CITY V. ANGELES CITY ELECTRIC

CORPORATION

This case is a building permit case, but borrowed

for illustration on RPT situations.

May RTC courts issue writs of injunctions against

the LGU collecting a real property tax?

A: Yes, unlike in national taxation where there is

an express prohibition regarding issuance of
injunctive writs against the government collecting
national taxes, there is no similar prohibition
under the LGC. Thus, for as long as the requisites
of an injunctive writ under the Rules of Court will
be complied with, RTCs may issue such writ.

CE V. PROVINCE OF NUEVA ECIJA

TP files a case for injunction to enjoin a Province
from collecting a real property tax assessment. Is
the case for injunction an ordinary civil action;
hence appeals or petitions for certiorari should be
before the CA and not the CTA?