Tax 2022 – 3 TSN
At present, there are 31
We are now into Tax Laws and regulations. We will discuss the different
regulations how to reinterpret regulation and laws pertaining to Tax.
Basic Principles of Interpretation of Tax Laws
Interpretation of Tax Laws
-On the interpretation and construction of tax statutes, legislative intention
must be considered
-In case of doubt, tax statutes are construed strictly against the government
and liberally construed in favor of the taxpayer.
-The rule of strict construction against the government is not applicable
where the language of the tax law is plain and there is no doubt as to the
legislative intent.
-The exemptions (for equivalent provisions, such as tax amnesty and tax
condonation) are not presumed and when granted are strictly construed
against the grantee.
-The exemptions, however, are construed liberally in favor of the grantee in
the following:
 When the law so provides for such liberal
construction;
 Exemption from certain taxes granted under special
circumstances to special classes of persons.
-The tax laws are presumed valid.
-The power to tax is presumed to exist.
On the interpretation and construction of tax statutes, legislative intention
must be considered.
Same as what you have learned in your Consti 1, in case of doubt tax
statutes are construed strictly against the govt. Do not confuse this with
exemption. In tax exemption, it is construed strictly against the taxpayer. If
it is a tax statute, it is strictly construed against the govt because you are
forcing an exaction on the people. So there must be a clear and categorical
imposition of tax.
Now the rule of strict construction against the government is not applicable
where the language of the tax law is plain and there is no doubt as to the
legislative intent.
Exemptions or the like – tax amnesty, tax condonation, anything that
exempts taxation from obtaining a certain tax are not presumed and when
granted are strictly construed against the grantee or the taxpayer.
The exemptions however, are construed liberally in favor of the grantee in
the following:
- When the law so provides for such liberal construction;
- Exemptions from certain taxes granted under special
circumstances to special classes of persons;
Again tax laws and other principles of tax are presumed valid unless
declared by the court to be otherwise.
The power to tax is presumed to exist. You can never question whether the
govt has the power to tax. It is always presumed to exist.
What are the Sources of Tax Laws in the Philippines
Tax law in the Philippines covers national and local taxes. Local taxes, it’s
the local Government Code, through an ordinance.
Try to look at the National tax laws. You have the National Internal
Revenue Tax as amended by the CREATE Law and TRAIN Law.
Local tax laws are through an ordinance based on the LGU.
GENERAL SOURCES OF NATIONAL TAX LAW
 1987 Constitution - The 1987 Philippine Constitution sets
limitations on the exercise of the power to tax.
 Laws - The basic source of Philippine tax law is the National
Internal Revenue Law, which codifies all tax provisions, the
latest of which is embodied in Republic Act No. 8424 ("The Tax
Reform Act of 1997"). It amended previous national internal
revenue codes, which was approved on December 11, 1997. A
copy of the Tax Reform Act of 1997, which took effect on
January 1, 1998, can be found here.
 Local taxation is treated separately in this Guide. There are,
however, special laws that separately provide special tax
treatment in certain situations.
 Treaties. The Philippines has entered into several tax treaties
for the avoidance of double taxation and prevention of fiscal
evasion with respect to income taxes.
Philippine Tax Treaties in force. Copies are available at the BIR
Library and the International Tax Affairs Division of the BIR,
which is under the Deputy Commissioner for Legal and
Inspection Group.
 Administrative Material - The Secretary of Finance, upon the
recommendation of the Commissioner, promulgates needful
rules and regulations for the effective enforcement of the
provisions of the Tax Code (Section 244, Tax Code of 1997).
The Commissioner of Internal Revenue, however, has the
exclusive and original power to interpret the provisions of the
Tax Code, but subject to review by the Secretary of Finance.
The Constitution;
Laws such as the NLRC;
Local taxation per LGU;
Treaties;
Admin Material - pertains to the revenue regulations issued by the Govt
agency, in our case the BIR.
Administrative Issuances
Administrative issuances which may be relied upon in
interpreting the provisions of the Tax Code, which are signed by the
Secretary of Finance, or the Commissioner of Internal Revenue, or his duly
authorized representative, come in the form of Revenue Regulations,
Revenue Memorandum Orders, Revenue Memorandum Rulings, Revenue
Memorandum Circulars, Revenue Memorandum Rulings, and BIR Rulings.
So let’s go one by one. Very common are Revenue Regulations (RRs). Pag
may batas like TRAIN Law, may RR kaagad yan.
Revenue Regulations (RRs) are issuances that specify, prescribe or define
rules and regulations for the effective enforcement of the provisions of the
National Internal Revenue Code (NIRC) and related statutes.
So these are detailed guidelines to implement the laws. For example, si
Train Law nagkaroon ng RR, to implement the amendment brought about
by the Train Law. SO, that’s the RR, it specifies, prescribe or define rules
and regulations for the effective enforcement of the provisions of the
statutes.
Revenue Memorandum Orders (RMOs)
Revenue Memorandum Orders (RMOs) are issuances that
provide directives or instructions; prescribe guidelines; and outline
processes, operations, activities, workflows, methods and procedure
necessary in the implementation of stated policies, goals, objectives, plans
and programs of the Bureau in all areas of operations, except auditing.
RMO’s are like an instruction to the BIR, it provides for procedures.
Revenue Memorandum Rulings (RMRs)
Revenue Memorandum Rulings (RMRs) are rulings, opinions
and interpretations of the Commissioner of Internal Revenue with respect to
the provisions of the Tax Code and other tax laws, as applied to a specific
set of facts, with or without established precedents, and which the
Commissioner may issue from time to time for the purpose of providing
taxpayers guidance on the tax consequences in specific situations. BIR
Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the
Rulings are null and void ab initio.
Revenue Memorandum Rulings (RMRs) are rulings (pag
nakakita kayo ng rulings, those are opinions), opinions and interpretations
of the Commissioner of Internal Revenue with respect to the provisions of
the Tax Code and other tax laws, as applied to a specific set of facts, with
or without established precedents (meron kasing instances na hindi clear
kung these transactions ba are taxable then separated from the BIR Ruling.
For purposes lang of giving interpretation, pwede silang magkaroon ng
RMR in the form of an opinion of certain facts.) BIR Rulings, we will
discuss later; but should not contravene duly issued RMR’s.
BIR Rulings
BIR Rulings are the official position of the Bureau to queries raised by
taxpayers and other stakeholders relative to clarification and interpretation
of tax laws.
Rulings are official positions. When we talk about BIR Rulings, there is a
taxpayer, may issue na and we want to be clarified. Saka ka mag iissue ng
BIR Ruling, giving opinion to a specific set of facts, applicable only to that
taxpayer. Its like a special query.
RMR’s walang query but just want to make an opinion regarding a matter.
Usually ang RMR kapag may bagong landmark case, sini- circulate, kina-
cascade.
RMC’s also similar.
Revenue Memorandum Circular (RMC’s)
Revenue Memorandum Circular (RMCs) are issuances that publish
pertinent and applicable portions, as well as amplifications, of laws, rules,
regulations and precedents issued by the BIR and other agencies/offices.
If they want to emphasize something, they will issue an RMC for the
guidance of the BIR officers.
Case Law
In the Philippines, Supreme Court decisions form part of the law
of the land. As such, decisions by the Supreme Court (sc.judiciary.gov.ph)
in the exercise of its power to review, revise, reverse, modify or affirm on
appeal or certiorari, as the law or the Rules of Court may provide, final
judgments and orders of lower courts cases involving the legality of any
tax, impost, assessment, or toll or any penalty imposed in relation thereto
are adhered to and recognized as binding interpretations of Philippine tax
law. Court of Appeals and Court of Tax Appeals decisions which have
become final and executory are also recognized interpretations of
Philippine tax law.
Of course, jurisprudence is part of the law of the land.
We have BIR, admin level, go to Court of Tax Appeals (CTA). May
instances din na when you go to Tax 2, na from MTc, RTC, to CTA.
Different remedies, magkaiba yung jurisdiction. But when it comes to
income tax provision, it’s the admin, the BIR, then go to CTA. Wala na
pong CA. Court of Tax Appeals (CTA) is a different appellate body. But
you only have one office unlike a CA na may Mindanao, Visayas, Luzon.
But for the CTA we only have the Manila in Quezon City. And then of
course appealable to the SC.
Now, when we talk about precedence, were talking about SC jurisprudence
and decisions. But CTA has a convincing although hindi naman talaga sya
final arbiter. Whatever is the ruling for CTA, meron siyang convincing on
how to interpret, the judicial interpretation of certain set of tax laws as
applied to a certain set of facts.
Power of the Commissioner to Interpret Tax Laws
The Court of Appeals ruled that under the 1997 NIRC, the
dispute between the parties is within the authority of the CIR to resolve.
Section 4 of the 1997 NIRC reads:
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.
The power to decide disputed assessments, refunds in 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. (Emphasis supplied)
Now we have the CIR, Commissioner of Internal Revenue. What’s the
power of the CIR?
Actually its comprehensive: as the one who is the Commissioner or the
head of the collecting agency, he has different powers.
1. He can resolve dispute arising from the Tax Code.
2. The power to interpret the provisions of this Code and other tax
laws shall be under the exclusive and original jurisdiction of the
Commissioner
3. The power to decide disputed assessments, refunds in internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto..
o That’s why admin level talaga kung may issue bago
mag go to the judicial review to the CTA. Of course
delegated yan kasi isang tao lang naman si
Commissioner pero may mga deputy commissioners
and each may mga revenue region. Under revenue
region may mga Regional Director. And under the
revenue region may mga district offices. Ang head
ng mga district offices is what we call the RDO-
Revenue District Officer.
Non-retroactivity of Rulings
Section 246 stating that any revocation, modification of any of
the rules and regulations shall not be given retroactive application, if
prejudicial to the taxpayers. This rule, however, is subject to three
exceptions:
(a) If the taxpayer deliberately misstates or omits material facts from his
return or any document required by the BIR;
(b) If the facts subsequently gathered by the BIR are materially different
from the facts on which the ruling is based; or
(c) If the taxpayer acted in bad faith.
We have talked about rulings. For example meron akong issue, I do not
know the tax implication so I want to ask the BIR. I will write a request for
ruling tapos mag iissue sila ng ruling.
Now we have what we call the Non-retroactivity of Rulings. Before, let’s
say taxable yan tapos may nag ask ng ruling ngayon, sinabi non-taxable
na. Hindi yan pwede mag retroact to say that those “irefund nyo kami kasi
non-taxable na sya.”
We have what we call a Non-retroactivity of Ruling: Any revocation,
modification, or reversal of any of the rules or regulations shall not be
given retroactive application, if prejudicial to the taxpayer. However, there
are 3 exceptions:
a) If may misstatement doon sa material facts na sinubmit mo for
for request for ruling;
b) If the facts subsequently gathered by the BIR are materially
different;
c) And of course, if you acted in bad faith.
CIR v COL Financing Group, Inc
This is a CTA EB (En Banc) Case. This pertains to RR-02-2010
regarding OSD-Optional Standard Deduction, kasi before, there was a
revenue regulation that’s irrevocable. We’ll learn that as we go to
Deduction. You have 2 types of deduction: Optional Standard Deduction
(OSD) and the Itemized Deduction.
Commissioner of Internal Revenue (CIR) vs. COL Financing Group,
Inc., CTA EB Case No. 1187, June 30, 2015.
In this case, the taxpayer COL Financing Group, Inc. filed its
income tax return for the first three quarters of the taxable year 2009 using
the itemized method of deduction for claiming its expenses. At the time of
its filing, RR No. 16-2008 allows the taxpayer to use either the itemized or
Optional Standard Deduction (OSD) method, but the option to choose the
method of deduction shall be determined in its annual ITR. However, on
Feb. 24 and 26, 2010, the BIR issued RR No. 02-2010 and RMC 16-10,
respectively, which now provides the method of deduction shall be
determined in the taxpayer's first quarterly ITR instead of the annual İTR,
and that this rule shall be applicable for taxable year 2009. Despite this new
regulation, COL filed its annual ITR on April 12, 2010 using the OSD.
It, however, paid under protest, an additional income tax under
that would have been due had it used the itemized deduction. It then filed
an application for refund with the BIR on the excess income tax paid. In
arriving at a decision to allow a refund to COL, the CTA in an en banc
decision applied the principle of non-the application of a retrospective law,
which in the legal sense, is one which takes away or impairs vested rights
acquired under existing laws, or creates a new obligation and imposes a
new duty, or attaches a new disability, in respect of transactions or
considerations already past.
The court explained that when COL filed its first 3 quarterly
ITRs for 2009, it was with the belief that it can still change its method of
deduction for its annual ITR. With the issuance of RR 02-2010, it had lost
this option. It then ruled that the issuance of RR No. 02-2010 should not be
given retroactive application for being prejudicial to the rights of the
taxpayers.
Imprescriptibility of Taxes
General Rule: Taxes are imprescriptible Exception: When provided
otherwise by the tax law itself.
Example: NIRC provides for statutes of limitation in the assessment and
collection of taxes therein imposed
Important Point to consider
The law on prescription, being a remedial measure, should be
liberally construed to afford protection as a corollary, the exceptions to the
law on prescription be strictly construed. (CIR VS CA. G.R. No. 104171,
Feb. 24, 1999)
We also have certain principles of taxes, the GR rule, taxes are
imprescriptible. Exception, when provided by the tax law itself.
Tax Code actually provides for Statutes of Limitation in the Assessment and
Collection. When you talk about taxes, hindi naman talaga prescriptible or
subject to prescription. It’s just that the right of the government to collect
taxes is subject to prescription. Kung hindi sila magcollect, wala ka nang
kasalanan. It’s already estopped or nag prescribe na yung right to collect.
The law on prescription, being a remedial measure, should be liberally
construed to afford protection as a corollary, the exceptions to the law on
prescription be strictly construed.
Mandatory and Directory Provisions
Sa tax law, kapag nakalagay ang SHALL, mandatory. Kapag MAY,
directory.
It’s very common kapag tax law, how to interpret, tinitingnan yung mga
provisions.
Gulf Air Company v CIR
The legislature is presumed to have full knowledge of the
existing revenue regulations interpreting the aforequoted provision of law
and, with its subsequent substantial re-enactment, there is a presumption
that the lawmakers have approved and confirmed the rules in question as
carrying out the legislative purpose. Hence, it can be concluded that with
the continued duplication of the NIRC provision on common carrier's tax,
the law-making body was aware of the existence of Revenue Regulations
No. 6-66 and impliedly endorsed its interpretation of the NIRC and its
definition of gross receipts.
This case is about RR 6-66, old RR.
In this case the legislature is presumed to have full knowledge of the
existing revenue regulations interpreting the aforequoted provision of law,
and with its subsequent substantial re-enactment, there is a presumption
that the lawmakers have approved and confirmed the rules in question as
carrying out the legislative purpose. Hence it can be concluded that with
the continued duplication of the NIRC provision on common carrier’s tax,
the law-making body was aware of the existence of Revenue Regulations
No. 6-66 and impliedly endorsed its interpretation of the NIRC.
Now, yang mga number, yang sa last, that’s the year it was issued. For
example uulit yan, ngayon 1-2022, 1-22, 2-22, hanggang sa next year uulit
naman, 23 na sya.
San Pablo v CIR
Pelizloy Realty Corporation v. Province Benguet, GR 183137, 10 April
2013
In this case, the definition of' amusement places' in Section 131 (c) of the
LGC is a clear basis for determining what constitutes the other places of
amusement' which may properly be subject to amusement tax impositions
by provinces. There is no reason for going beyond such basis. To do
otherwise would be to countenance an arbitrary interpretation/application of
a tax law and to inflict an injustice on unassuming taxpayers. The previous
pronouncements notwithstanding, it will be noted that it is only the second
paragraph of Section 59, Article X of the Tax Ordinance which imposes
amusement taxes on "resorts, swimming pools, bath houses, hot springs,
and tourist spots". The first paragraph of Section 59, Article X of the Tax
Ordinance refers to "theaters, cinemas, concert halls, circuses, cockpits,
dancing halls, dancing schools, night or day clubs, and other places of
amusement".
In any case, the issues raised by Pelizloy are pertinent only with
respect to the second paragraph of Section 59, Article X of the Tax
Ordinance. Thus, there is no reason to invalidate the first paragraph of
Section 59, Article X of the Tax Ordinance. Any declaration as to the
Province of Benguet's lack of authority to levy amusement taxes must be
limited to admission fees to resorts, swimming pools, bath houses, hot
springs and tourist spots.
Sometimes the interpretation of tax law requires the basic interpretation of
shall and may.
Tax Administration and Enforcement.
Having known how to interpret tax laws, lets go to Tax Administration and
Enforcement.
Agencies involved in Tax Administration
Bureau of Internal Revenue and the Bureau of Customs for
internal revenue and customs law enforcement It is noteworthy to note that
the BIR is largely decentralized in that a great extent of tax enforcement
duties are delegated to the Regional Directors and Revenue District
Officers. Provincial, City and Municipal assessors and treasures for local
and real property taxes.
We have the BIR and Bureau of Customs for the Tax Code.
I’ve just checked the 2023 exam or syllabus, wala na syang Customs Law.
Wala nang Tariffs, Sinta, because it’s a very specialized field.
BIR and the BOC for internal revenue and customs law enforcement. It is
worthy to note that the BIR is largely decentralized in that a great extent of
tax enforcement duties are delegated to the RD’s and RDO’s. Provincial,
City, and Municipal Assessors and treasurers for local and real property
taxes.
BIR
Section 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.
Bureau of Internal Revenue (BIR)
Section 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.
Note: The deputy commissioners are assisted by assistant
commissioner
The BIR shall be under the supervision and control of the DOF(so we have
DOF, under niyan – BIR, BOC) and they comprehend the assessment and
collection of all national internal revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and fines (so they can forfeit
property pag hindi talaga nagbayad. They can issue letter of garnishment,
they can levy, they can file cases for collection) including the execution of
judgments in all cases decided in its favor by the CTA 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.
Who are the Chief officials of the BIR?
You have the CIR, Commissioner of Internal Revenue, and 4 asst chiefs for
the Deputy Commissioner. And then sa Deputy Commissioner naman, they
are assisted by asst commissioner.
Powers and Duties of the BIR
1. Exclusive and original power to interpret provisions of the NIRC and
other tax laws, subject to review by the Secretary of Finance; 
2. Assessment and Collection of all national internal revenue taxes, fees and
charges; 
3. Enforcement of all forfeitures, penalties and fines connected therewith;
4. Execution of judgment in all cases decided in its favor by the Court of
Tax Appeals and the ordinary courts.
5. Effecting and administering the supervisory and police powers conferred
to it by the Tax Code or other laws. 
7. Obtaining information, summoning, examining and taking testimony of
persons for purposes of ascertaining the correctness of any return or in
determining the liability of any person for any internal revenue tax, or in
collecting any such liability.
1. Different ito of ordinances kasi nasa local govt yan;
4. Pag nanalo sa case, ipapasa sa kanila, and they will execute it;
5. They do tax mapping, its part of their police power;
6. They can issue subpoena duces tecum; usually duces tecum kasi
document lang naman. But nothing prohibits them from issuing
a subpoena ad testificandum.
Rule of “No Estoppel Against the Govt”
It is a settled rule of law that in the performance of its
governmental functions, the state cannot be estopped by the neglect of its
agents and officers. Nowhere is it more true than in the field of taxation
(CIR vs. Abad, et. al., L19627, June 27, 1968). Estoppel does not apply to
preclude the subsequent findings on taxability (Ibid.)
The principle of tax law enforcement is: The Government is not
estopped by the mistakes or errors of its agents; erroneous application and
enforcement of law by public officers do not block the subsequent correct
application of statutes (E. Rodriguez, Inc. vs. Collector of Internal Revenue,
L23041, July 31, 1969.),
Similarly, estoppel does not apply to deprive the government of its
right to raise defenses even if those defenses are being raised only for the
first time on appeal (CIR vs Procter & Gamble Phil.G.R. No. 66838, 15
April 1988.)
-This means pag nagkamali yung officer, hindi pwedeng sabihin mo
estopped na si govt. This is actually a public ad rule- The mistake of an
officer should not be _______ sa mistake of the govt.
Exception:
The Court ruled in Commissioner of Internal Revenue vs. C.A.,
et. al. G.R. No. 117982, 6 Feb 1997 that like other principles of law, the
non-application of estoppel to the government admits of exceptions in the
interest of justice and fair play, as where injustice will result to the
taxpayer.
However, estoppel can be invoked against the taxpayer.
Estoppel Against the Taxpayer:
While the principle of estoppel may not be invoked against the
government, this is not necessarily true in case of the taxpayer. In CIR vs.
Suyac, 104 Phil 819, the taxpayer made several requests for the
reinvestigation of its tax liabilities such that the government, acceding to
the taxpayers request, postponed the collection of its liability. The taxpayer
cannot later on be permitted to raise the defense of prescription inasmuch as
his previous requests for reinvestigation have the effect of placing him in
estoppel.
Tax Assessments
Kunwari hindi ka nagbayad ng tax, inassess ka. The BIR will issue what
you call an assessment notice.
Nature and kinds of Assessment
An assessment is the official action of an administrative officer
determining the amount of tax due from a taxpayer, or it may be the notice
to the effect that the amount therein stated is due from the taxpayer that the
payment of the tax or deficiency stated therein. (Bisaya Land
Transportation Covs CIR, 105 Phil 1338)
Different Types of Assessment / Classifications:
 Self assessment Tax is assessed by the taxpayer himself. The
amount is reflected in the tax return that is filed by him and the
tax is paid at the time he files his return. (Sec. 56 (A) (1), 1997
NIRC)
 Illegal and Void Assessments 
This is an assessment wherein the tax assessor has no power to act at
all (Victorias Milling vs. CTA, L24213, 13 Mar 1968)
 Erroneous Assessment - This is an assessment wherein the
assessor has the power to assess but errs in the exercise of that
power (ibid.)
 Deficiency Assessment. This is an assessment made by the tax
assessor whereby the correct amount of the tax is determined
after an examination or investigation is conducted. The liability
is determined and is; therefore, assessed for the following The
amount reasonsd exceeds that which is shown as tax by the
taxpayer in his return; Na amount is shown in the return or; The
taxpayer did not file any return at all (Sec. 5611 and 12) 1997
NIRC)
Self assessment – self assessing naman talaga yung atin sa Pilipinas.
Meaning, walang 3rd person na mag a-asses kung mgakano ang babayaran
mong tax. Ikaw mismo yung maglalagay dun sa form kung magkano yung
sales, subject lang siya to audit. So honesty system pero i-audit ka lang.
Deficiency Assessment – meaning may kulang ka. Yung tax required for
yoo to pay, will be greater than the amount you paid.
Illegal and void assessments – usually these are assessment in which the
tax officer or assessor has no power to act at all. For ex, in violation of due
process clause.
Erroneous Assessment – may assessment nga mali naman.
Principle Governing Tax Assessment
- Assessments are presumed to be valid and in good faith.
- Burden of proof is on the taxpayer.
- Almost always, as a tax lawyer, lahat talaga ng mga assessments are
bloated kasi may mga presumptions. May mga accounting
assumptions na ginagawa and based on assumptions yon.. But if you
can prove that those assumptions will not apply in your particular
case, then you can actually have that deleted, that particular item of
assessment.
-Assessments are prima facie presumed correct and made in good faith.
-The taxpayer has the duty of proving otherwise (Interprovincial Autobus
vs CIR)
-In the absence of any proof of any irregularities in the performance of
official duties, an assessment will not be disturbed.
-All presumptions are in favor of tax assessments (Dayrit vs Cruz)
-Failure to present proof of error in the assessment will justify judicial
affirmation of said assessments (CIR vs CC).
-A party challenging an appraiser’s finding of value is required to prove not
only that the proper value is.
-Assessments should not be based on presumptions no matter how logical
the presumption might be. In order to stand the test of judicial scrutiny, it
must be based on actual facts.
Assessment is discretionary on the party of the Commissioner. Mandamus
will not lie to compel him to assess a tax after investigation if he finds no
ground to assess. Mandamus to compel the commission to assess will result
in the encroachment on executive functions.
Except:
Sabi nga natin self assessing ang Tax. So pwedeng hindi ka ma audit, good
for you. Pero pwde din ma audit ka. But you can never compel the BIR to
audit. However:
The BIR Commissioner may be compelled to assess by
mandamus if in the exercise of his discretion there is evidence of
arbitrariness and grave abuse of discretion as to go beyond statutory
authority (Maceda vs. Macaraig, G.R. No. 8829, 8 June 1993).
The authority vested in the Commissioner to assess taxes may
be delegated. An assessment signed by an employee for and in behalf of the
Commissioner of Internal Revenue is valid. However, it is settled that the
power to make final assessments cannot be delegated. The person to whom
a duty is delegated cannot lawfully delegate that duty to another. (City
Lumber vs. Domingo, L18611, 30 Jan 1964).
Investigative Powers of the CIR
Now lets go to the power of the Commissioner to Obtain information and
Summon, Examine, and take testimony of persons.
a) The CIR or his authorized person may examine, pwede sila
pumunta sa business nyo, mag examine ng book, paper, record
or any data. Hindi pwedeng hindi papasukin dahil may right
sila nun.
b) Meron tayong tinatawag na matching. Kung purchases mo,
sales yun ng supplier mo. So pwede sila magkaroon ng 3rd party
matching, usually yan ang ginagawa nila. Hindi yan beyond
their authority, that’s part noh, to determine the actual pack or
value
Section 5. Power of the Commissioner to obtain information, Summon,
Examine, and Take Testimony of Persons. - In ascertaining the correctness
of any return, or in making a return when none has been made, or in
determining the liability of any person for any internal revenue tax, or in
collecting any such liability, or in evaluating tax compliance, the
Commissioner is authorized:
(A) To examine any book, pager, record, or other data which may be
relevant or material to such inquiry;
(B) To Obtain on a regular basis from any person other than the person
whose internal revenue tax liability is subject to audit or investigation, or
from any office or officer of the national and local governments,
government agencies and instrumentalities, including the Bangko Sentral
ng Pilipinas and government-owned or-controlled corporations, any
information such as, but not limited to, costs and volume of production,
receipts or sales and gross incomes of taxpayers, and the names, addresses,
and financial statements of corporations, mutual fund companies, insurance
companies, regional operating headquarters of multinational companies,
joint accounts, associations, joint ventures of consortia and registered
partnerships, and their members;
In the original draft of the TRAIN Law, when it was amended, meron dyang
nakalagay ne exemption yun sa Bank Sececy Law that the commissioner
can go to the bank and get information on the bank deposits of certain
individuals or taxpayer.
Pero in the senate provision, actually meron. But in the bicameral
provision, nawala na yun.
So pwede pa rin. They cannot just go to the bank and say look into the
account even with the amendment of the TRAIN LAW, its still part of the
Bank Secrecy Law.
Refer to your codal, these are part of the powers of the CIR.
Means Employed in the Assessment of Taxes
Of course it is confidentiality. May data privacy pa din. You cannot, except
if you are the BIR official. Kung 3 rd party ka,hindi mo pwede tingnan
returns ng ibang tao.
Examination of Returns: Confidentiality Rule
The Tax Code requires that after the return is filed, the
Commissioner or his duly authorized representative shall examine the same
and assess the correct amount of tax. The tax or the deficiency of the tax so
assessed shall be paid upon notice and demand from the Commissioner or
from his duly authorized representative. Any return, statement or
declaration filed in any office authorized to receive the same shall not be
withdrawn. However, within three (3) days from the date of such filing, the
same may be modified, changed or amended, provided that no notice for
audit or investigation of such return, statement or declaration has in the
meantime been actually served upon the taxpayer. (Sec 6[A], 1997 NIRC)
1. Although Sec. 71 of the 1997 NIRC provides that tax returns shall
constitute public records, it is necessary to know that these are confidential
in nature and may not be inquired into in unauthorized cases under pain of
penalty of law provided for in Sec 270 of the 1997 NIRC.
2. The aforesaid rule, however, is subject to certain exceptions. In the
following cases, inquiry into the income tax returns of taxpayers may be
authorized:
3. When the inspection of the return is authorized upon the written order of
the President of the Philippines.
4. When inspection is authorized under the Finance Regulation No. 33 of
the Secretary of Finance.
5. When the production of the tax return is material evidence in a criminal
case wherein the Government is interested in the result. (Cu Unjieng, et. al.
vs. Posadas, etc, 58 Phil 360)
6. When the production or inspection thereof is authorized by the taxpayer
himself (Vera vs Cusi L33115, 29 June 1979).
And of course, the Data privacy consent of the taxpayer.
Assessment Based on the Best Evidence Obtainable
Based on the nature of our tax that is self assessing, what if hindi mo
dineclare properly? Hindi ka nag cooperate, hindi mo sila pinapasok,
sinabi mong close kayo, etc. Paano ngayon makakagawa ng report or
assessment ang BIR?
We have what we call Best evidence obtainable.
 The law authorizes the Commissioner to assess taxe basis of the
best evidence obtainable in the following cases.
 If a person fails to file a return or other document at the time
prescribed by law; or
 he willfully or otherwise files a false or fraudulent return or
other document.
 When the method is used, the Commissioner makes or amends
the return from his knowledge and from such information as he
can obtain through testimony or otherwise.
 Assessments made as such are deemed prima facie correct and
sufficient for all legal purposes. (Sec. 6 [B], 1997 NIRC)
So ayaw mo mag cooperate, ang pwede nilang gawin, I will see
another business which is similar to yours. Tama ba yung profit? Yung ba
yung industry? PWede din mag tanong2 sila, sa isang araw ilan karami
ang customer? Based on them they will do a presumption, so ganon ka
comprehensive ang power ng BIR. And the assessment that will resort to
that type of Best Evidence Obtainable Type of Assessment, is actually
presumed to be prima facie correct and sufficient for all legal purposes.
Inventory Taking, surveillance and Presumptive Gross Sales and
Receipts.
Kunwari tax mapping. Like kumain sa restaurant mot apos hindi ka nag
issue ng resibo. So intentional ang pag eat nila sa resto mo. That’s part of
their surveillance and investigative power.
The Commissioner is authorized at any time during the taxable
year to order the inventory-taking of goods of any taxpayer as a basis for
assessment.
If there is reason to believe that a person is not declaring his
correct income, sales or receipts for internal revenue tax purposes, his
business operation may be placed under observation or surveillance. The
finding made in the surveillance may be used as a basis for assessing the
taxes for the other months or quarters of the same or different taxable years.
(Sec. 6 [C], 1997 NIRC)
Termination of Taxable Period
Taxable period is the period wherein you will report your income. Can the
BIR terminate that? YES.
The Commissioner shall declare the tax period of a taxpayer
terminated at any time when it shall come to his knowledge:
 That the taxpayer is retiring from business subject to
tax;
 That he intends to leave the Philippines or remove
his property therefrom;
 That the taxpayer hides or conceals his property; or
 That he performs any act tending to obstruct the
proceedings for the collection of the tax for the past
or current quarter or year or to render the same
totally or partly ineffective unless such proceedings
are begun immediately.
Fixing of Real Property Values
Can the BIR fix Real Property Values? Meron tayong tinatawag
na zonal value. We are all adults and I think most of you have encountered
transferring property. So when you try to pay for capital gain stock, in the
BIR, kino compare yan. Magkano ang selling price, magkano ang assessed
value.
Assessed value is the value fixed by the local assessor. Zonal
value is the value fixed by the BIR. So whichever is higher. Normally mas
mataas ang zonal compared to assessed value, almost all the cases. But
still the law provides for whichever is higher. There is a presumption that
the assessed could be higher but I have yet to encounter that particular
instance.
So yun yong zonal assessor and the selling price. Kasi of course
ina under value naman yan sa mga deed of sale.
For purposes of computing any internal revenue tax, the value of
the property shall be whichever is the higher of: (1) the fair market value as
determined by the Commissioner; or (2) the fair market value as shown in
the schedule of values of the Provincial and City Assessors for real tax
purposes (Sec 6 [E], 1997 NIRC).
Inquiry into Bank Deposits
Bank deposits are confidential. Only 2 instances when the BIR can look
into you bank acct:
1. For purposes of determining the gross estate; or
2. Kung nag apply ka ng compromise. Sa compromise may 2
grounds: financial capacity and doubtful validity of assessment.
So if financially incapacitated ka, you will waive. Sabi mo hindi
mo na kaya pero may millions ka pala sa bank acct mo.
Examination of bank deposits enables the Commission assess the
correct tax liabilities of taxpayers. However, bank deposits are confidential
under R.A. 1405. Notwithstanding any contrary provisions of R.A. 1405
and other general or special laws, the Commissioner is authorized to inquire
into the bank deposits of;
 a decedent to determine his gross estate;
 and any taxpayer who has filed an application for compromise
of his tax liability under Sec. 204 (A) (@) of the Tax Code by
reason of his financial incapacity to pay his tax liability. In this
case, the application for compromise shall not be considered
unless and until he waives in writing his privilege under R.A.
1405, or under other general or special laws, and such waiver
shall constitute the authority of the Commissioner to inquire into
bank deposits of the taxpayer (Sec. 6[F], 1997 NIRC).
Net Worth Method in Investigation
This is also allowed. Net worth Method is actually based on the
accounting principle that if your net worth at the end of the year is greater
than your net worth at the beginning of the year, then that means you have
income. The basis for this is the old RMC 4372.
The basis of using the Net Worth Method of investigation is
Revenue Memorandum Circular No. 4372. This method of investigation,
otherwise known as "inventory method of income tax verification" is a very
effective method of determining taxable income and deficiency income tax
due from a taxpayer.
Legal Source of Authority for use of the Method
The Commissioner’s authority to use the net worth method is
found in the Tax Code upheld by the CTA. It is a practical necessity if a fair
and efficient system of collecting revenue is to be maintained.
But then again, it is just a presumption that the taxpayer can
always present evidence to prove otherwise.
The Commissioner's authority to use the net worth method and
other indirect methods of establishing taxable income is found in Sec. 43,
1997 NIRC. This authority has been upheld by the courts in a long line of
cases, notable among which is the leading case of Perez vs. CTA, 103 Phil
1167. The method is a practical necessity if a fair and efficient system of
collecting revenue is to be maintained.
Moreover, Sec. 6(B), 1997 NIRC, provides for a broad and
general investigatory power to assess the proper tax on the best evidence
obtainable whenever a report required by law as basis for the assessment of
any national Internal revenue tax shall not be forthcoming within the time
fixed by law or regulation, or when there is reason to believe that any such
report is false, incomplete or erroneous.
Enforcement and Forfeiture of Penalties
Such are offenses and penalty.
Additions to Tax, so from the basic tax due basic deficiency magkakaroon
ng surcharge and interest. Surcharge usually 25% kung may violation ka,
and interest that is twice the legal rate.
Statutory Offenses and Penalties
Additions to the Tax. Additions to the tax are increments to the basic tax
incident due to the taxpayer's non-compliance with certain legal
requirements, like the taxpayer's refusal or failure to pay taxes and/or other
violations of taxing provisions,
Surcharge
The payment of the surcharge is mandatory and the
Commissioner of Internal Revenue is not vested with any authority to
waive or dispense with the collection thereof. In one case, the Supreme
Court held that the fact that on account of riots directed against the Chinese
on certain dates, they were prevented from paying their internal revenue
taxes on time, does not authorize the Commissioner to extend the time
prescribed for the payment of taxes or to accept them without the additional
penalty (Lim Co Chui vs. Posadas, 47 Phil 460)
Minsan pag bulok na ang Sistema, nagkakaroon ng delay. Ang problema
nyan is Whether or not problema ng taxpayer; or WON the taxpayer was
on time but the system of the BIR hindi gumagana, nagka count pa rin yung
time. Kaya frustrating sya most of the time.
Interest
Before it was 20% but under the TRAIN Law, twice the legal rate .
2018 na nagging effective ang TRAIN Law. Legal rate is 6%, so 12% is
twice the legal rate.
This is an increment on any unpaid amount of tax, assessed at the rate
of twenty percent (20%) per annum, or such higher rate as may be
prescribed y rules and regulations, from the date prescribed for payment
until the amount is fully paid. (Sec. 249 (A), 1997 NIRC)
2 Types of Interest
Deficiency and Delinquency.. nagkagulo ito before kaya this was clearly
stated in the TRAIN Law.
Deficiency interest – diba meron kang kulang na binayaran na tax, so that
will earn an interest, 20% pa nakalagay dyan but that’s already 12%
starting 2018. Tapos nakalagay doon sa notice that you have to pay at this
particular period, the basic, the surcharge, and the interest. Pag dumating
ka na sa period na dapat mo siyang bayaran, tapos hindi ka nakabayad,
maglalapse and magkakaron ng interest. Lahat ng basic, surcharge, and
deficiency interest, will earn an interest called the Delinquency interest. So
that is the difference between deficiency and delinquency.
Interest is Classified into:
1. Deficiency interest
Any deficiency in the tax due, as the term is defined in this code,
shall be subject to the interest of 20% per annum, or such higher rate as
may be prescribed by rules and regulations, which shall be assessed and
collected from the date prescribed for its payment until the full payment
thereof (Sec. 249 [B], 1997 NIRC)
2. Delinquency interest
This kind of interest is imposed in case of failure to pay:
 The amount of the tax due on any return required to be filed, or 
 The amount of the tax due for which no return is required, or 
 A deficiency tax, or any surcharge or interest thereon on the due
date appearing in the notice and demand of the Commissioner.
Administrative Offenses
 Failure to File Certain Information Returns
 Failure of a Withholding Agent to Collect and Remit Taxes
 Failure of a Withholding Agent to Refund Excess Withholding
Tax
Failure of these, may penalties, P1000 per penalty usually.
Authority of the CIR to Delegate Power
He can delegate it to the regions, the RD, and to the RDO’s.
Section 7. Authority of the Commissioner to Delegate Power - The
Commissioner may delegate the powers vested in him under the pertinent
provisions of this code to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such imitations and
restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner: Provided. However, that the following powers of the
Commissioner shall not be delegated
(a) The power to recommend the promulgation of rules and regulations by
the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or
modify any existing ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (8) of this
Code, any tax liability: Provided, however, That assessments issued by the
regional offices involving basic deficiency taxes of Five hundred thousand
pesos (P500,000) or less, and minor criminal violations, as may be
determined by rules and regulations to be promulgated by the Secretary of
finance, upon recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional
evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, the heads of the Legal,
Assessment and Collection Divisions and the Revenue District Officer
having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to
establishments where articles subject to excise tax are produced or kept.
Powers and Duties of the RD
Section 10. Revenue Regional Director - Under rules and regulations,
policies and standards formulated by the Commissioner, with the approval
of the Secretary of Finance, the Revenue Regional director shall, within the
region and district offices under his jurisdiction, among others:
(a) Implement laws, policies, plans, programs, rules and regulations of the
department or agencies in the regional area;
(b) Administer and enforce internal revenue laws, and rules and regulations,
including the assessment and collection of all internal revenue taxes,
charges and fees.
(c) Issue Letters of authority for the examination of taxpayers within the
region;
(d) Provide economical, efficient and effective service to the people in the
area;
(e) Coordinate with regional offices or other departments, bureaus and
agencies in the area;
(f) Coordinate with local government units in the area;
(g) Exercise control and supervision over the officers and employees within
the region, and
(h) Perform such other functions as may be provided by law and as may be
delegated by the Commissioner.
Under the RD, every region has and RDO Revenue District office.
Under the RD, every region has and RDO Revenue District office.
TAXES
Characteristic of Taxes, remember LEP3S:
L – it is levied by the law making body;
E- it is an enforced contribution;
P – it is payable in money; (hindi pwede sasakyan or lupa ang pambayad sa
BIR. But of course kung hindi ka na makabayad, pwede nilang ilevy yun.)
P- Proportionate in character;
P – for public purpose/s
Essential Characteristic of Taxes (LEMP3S]
 It is levied by the law-making body of the State
The power to tax is a legislative power which under the
Constitution only Congress can exercise through the enactment
of laws. Accordingly, the obligation to pay taxes is a statutory
liability
 It is an enforced contribution
A tax is not a voluntary payment or donation. It is not dependent
on the will or contractual assent, express or implied, of the
person taxed. Taxes are not contracts but positive acts of the
government.
 It is generally payable in money
Tax is a pecuniary burden- an exaction to be discharged alone in
the form of money which must be in legal tender, unless
qualified by law, such as RA 304 which allows backpay
certificates as payment of taxes.
 It is proportionate in character. It is ordinarily based on the
taxpayer's ability to pay.
 It is levied for public purpose or purposes - Taxation involves,
and a tax constitutes, a burden to provide income for public
purposes.
Lets go to INCOME TAXATION proper
Income by analogy, kunwari may puno. Income is the Fruit, capital mo ang
puno.
Income
An income may be defined as the amount or money to a person
or corporation within a specified time, whether as payment for services,
interest, or profit from investment. A mere advance in the value of the
property of a person or corporation in no sense constitutes the "income
specified in the revenue law. Such advance constitutes and can be treated
merely as an increase of capital. An income means cash received or its
equivalent; it does not mean chooses in action or unrealized increments in
the value of the property. The revenue law with reference to the income tax
employs the term "income" in its natural and obvious sense, as importing
something distinct from principal or capital. (Fisher v. Trinidad, G.R. No.
17518, (October 30, 1922), 43 PHIL 9731000)
Income, in its broad sense, means all wealth which flows into
the taxpayer other than as a mere return on capital. [Section 36, Revenue
Regulations 2]
What I want to highlight is that the measurement of income is for a specific
period.
Income
Commissioner v. BOAC (149 SCRA 395):
Income means "cash received or its equivalent." It is the amount
of money coming to a person within a specific time. It is distinct from
capital for, while the latter is a fund, income is a flow. As used in our laws,
income is flow of wealth. The source of an income is the property, activity
or service that produces the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that income is
derived from activity within the Philippines. IN BOAC's case, the sale of
tickets in the Philippines is the activity that produces the income
For example tinanong ka randomly, magkano ang income mo? Masasagot
mo ba? Anong ibig sabihin nun, daily income? Monthly income? Yearly
income?
So it has to have a specific reference as to time. This is what we call the
taxable period, or in accounting, the accounting period. It is always in
reference to time because you can never determine an income kung walang
reference, kung walang basis. Kaya magkakaron ng taxable period.
Taxable period for individual, it’s always the calendar year, Jan-Dec.
For corporation, it could be a fiscal year other than ending in Dec. 31, so
pwede Jan-Jan, Feb-Jan, Mar-Feb.
When is Income Taxable?
Secs. 51-53, Revenue Regulations No. 2
SECTION 51. When income is to be reported. - Gains, profits, and
income are to be included in the gross income for the taxable year in which
they are received by the taxpayer, unless they are included when they
accrue to him in accordance with the approved method of accounting
followed by him.

Please take note, we have what we call, Realization test. I want to highlight
that.
Dun sa illustration ko na puno ng manga, may mangga. Income na ba yung
manga subject to tax? The answer is NO. Magiging income yan kung
putulin mo sya. It has to be realized.
Another example is meron kang $100 bili mo ng P50. Ngayon P55 na sya.
Yung P5 na increment, income na ba yun? The answer is that is just an
unrealized income. It will become an income kung kinonvert mo na to Peso
because meron nang realization test.
Eisner v. Macomber, 252 US 89

Mere growth or increment of value in a capital investment is not

income; income is essentially a gain or profit, in itself, of exchangeable
value, proceeding from capital, severed from it, and derived or received by
the taxpayer for his separate use, benefit, and disposal. Id.

Different types of Income Tax Systems

Income Tax Systems

1. Global Tax System

A system where the tax treatment views indifferently the tax

base and generally treats in common all categories of taxable income of the
taxpayer. (Tan v. Del Rosario, Jr., G.R. No. 109289, 109446, [October 3,
1994), 307 PHIL 342-355).

2. Schedular Tax System

A system employed where the income tax treatment varies and

made to depend on the kind or category of taxable income of the taxpayer.
(Tan v. Del Rosario, Jr., G.R. No. 109289, 109446, (October 3, 1994), 307
PHIL 342-355).

Global – they will treat the income in different ways so same lang,
magiging same lang yung tax rate;
Scheduler – depende what type of income, passive income, professional
income, compensation income, will be taxed at different rates.
We follow the Schedular, semi-Schedular, and Semi-global. Kasi as to VAT,
we follow the global. As to these particular other income, we follow the
schedular.