TAX REMEDIES

I. BIR
Organizational Structure
1. Chief Officials of the Bureau of Internal Revenue (Section 3)

- Commissioner of Internal Revenue (CIR)

- Four (4) assistant chiefs to be known as Deputy Commissioners.

2. Agents of the Commissioner of Internal Revenue (Section 12)

- The Commissioner of Customs and his subordinates with respect to the

collection of national internal revenue taxes on imported goods;

- The head of the appropriate government office and his subordinates with respect

to the collection of energy tax; and

- Banks duly accredited by the Commissioner with respect to receipt of payments

of internal revenue taxes authorized to be made thru banks.

- 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.

Powers and Duties of the Bureau if Internal Revenue

1. Powers and Duties of the Bureau of Internal Revenue (Section 2)

-The Bureau of Internal Revenue shall be under the supervision and control of the Department of
Finance.

- Its powers and duties shall:

a. 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.

b. Give effect to and administer the supervisory and police powers conferred to it by this Code or other
laws.

Powers of the Commissioner of Internal Revenue

- Interpret Tax Laws and to Decide Tax Cases

- Obtain Information, and to Summon, Examine, and Take Testimony of Persons

- Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement
- Authority of the Commissioner to Delegate Power

2. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases (Section 4)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

- The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions
thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals

3. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony
of Persons (Section 5)

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, paper, 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
governmentowned 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 or consortia and
registered partnerships, and their members.

- Provided, That the Cooperative Development Authority shall submit to the Bureau a tax incentive
report, which shall include information on the income tax, value-added tax, and other tax incentives
availed of by cooperatives registered and enjoying incentives under Republic Act No. 6938, as amended:
Provided, further, That the information submitted by the Cooperative Development Authority to the
Bureau shall be submitted to the Department of Finance and shall be included in the database created
under Republic Act No. 10708, otherwise known as ‘The Tax Incentives Management and Transparency
Act (TIMTA);

C. To summon the person liable for tax or required to file a return, or any officer or employee of such
person, or any person having possession, custody, or care of the books of accounts and other accounting
records containing entries relating to the business of the person liable for tax, or any other person, to
appear before the Commissioner or his duly authorized representative at a time and place specified in
the summons and to produce such books, papers, records, or other data, and to give testimony;

D. To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; and

E. To cause revenue officers and employees to make a canvass from time to time of any revenue district
or region and inquire after and concerning all persons therein who may be liable to pay any internal
revenue tax, and all persons owning or having the care, management or possession of any object with
respect to which a tax is imposed.

The Commissioner has no authority to inquire into bank deposits other than as provided for in Section
6(F) of the NIRC.

CIR v. Raul M. Gonzales, G.R. No. 177279, 13 October 2010

A notice of assessment is a declaration of deficiency taxes issued to a [t]axpayer who fails to respond to
a Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was
found to be without merit. The Notice of Assessment shall inform the taxpayer of this fact, and that the
report of investigation submitted by the Revenue Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the
fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the
formal letter of demand and the notice of assessment shall be void.

Fitness by Design v. CIR, G.R. No. 177982, 17 October 2008

The law allows the BIR access to all relevant or material records and data in the person of the taxpayer,
and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of
Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to
help the BIR assess and collect the correct amount of taxes.

4. Power of the Commissioner to Make Assessments and Prescribe Additional

Requirements for Tax Administration and Enforcement (Section 6)
- Examination of Return and Determination of Tax Due;

- Failure to Submit Required Returns, Statements, Reports and other Documents;

- Authority to Conduct Inventory-taking, Surveillance and to Prescribe Presumptive Gross Sales and
Receipts;

- Authority to Terminate Taxable Period;

- Authority of the Commissioner to Prescribe Real Property Values;

- Authority of the Commissioner to Inquire into Bank Deposit Accounts and Other Related Information
Held by Financial Institutions;

- Authority to Accredit and Register Tax Agents;

- Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements.

(A) Examination of Return and Determination of Tax Due. — After a return has been filed as required
under the provisions of the NIRC, the Commissioner or his duly authorized representative may authorize
the examination of any taxpayer and the assessment of the correct amount of tax, aside any law
requiring the prior authorization of any government agency or instrumentality:
- Failure to file a return shall not prevent the CIR from authorizing the examination of any taxpayer;

- The tax or any deficiency tax assessed shall be paid upon notice and demand from the Commissioner or
from his duly authorized representative;

- Any return, statement of declaration filed in any office authorized to receive the same shall not be
withdrawn;

- Within three (3) years from the date filing, such return may be modified, changed, or amended; as long
as no notice for audit or investigation of such return, statement or declaration has actually served upon
the taxpayer.

(B) Failure to Submit Required Returns, Statements, Reports and other Documents. –The
Commissioner shall assess the proper tax based on the best evidence obtainable, when a report
required by law as a basis for the assessment of any national internal revenue tax:

- Is delayed or there is an impending delay; or

- There is reason to believe that any such report is false, incomplete or erroneous. The Commissioner
shall make or amend the return from his own knowledge and from such information as he can obtain
through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes,
in case a person:

- Fails to file a required return or other document at the time prescribed by law; or

- Willfully or otherwise files a false or fraudulent return or other document.

(C) Authority to Conduct Inventory-taking, Surveillance and to Prescribe Presumptive Gross Sales and
Receipts. –

- The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any
taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business
operations of any person, natural or juridical, under observation or surveillance if there is reason to
believe that such person is not declaring his correct income, sales or receipts for internal revenue tax
purposes.

- The findings may be used as the basis for assessing the taxes for the other months or quarters of the
same or different taxable years and such assessment shall be deemed prima facie correct for purposes
of determining the internal revenue tax liabilities of such person.

(D) Authority to Terminate Taxable Period. –

When it shall come to the knowledge of the Commissioner that a taxpayer is:

- retiring from 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

- is performing 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.

The Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send
the taxpayer a notice of such decision, together with a request for the immediate payment of the tax for
the period so declared terminated and the tax for the preceding year or quarter, or such portion as may
be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the penalties
hereafter prescribed, unless paid within the time fixed in the demand made by the Commissioner.

(E) Authority of the Commissioner to Prescribe Real Property Values.-

-The Commissioner is authorized to divide the Philippines into different zones or areas

- Upon mandatory consultation with competent appraisers both from the private and public sectors, and
with prior notice to affected taxpayers, The Commissioner is authorized to determine the fair market
value of real properties located in each zone or area, subject to automatic adjustment once every three
(3) years through rules and regulations issued by the Secretary of Finance based on the current
Philippine valuation standards:

No adjustment in zonal valuation shall be valid

- Unless published in a newspaper of general circulation in the province, city or

municipality concerned, or

- In the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two (2)
other conspicuous public places therein:

The basis of any valuation, including the records of consultations done, shall be public records open to
the inquiry of any taxpayer. 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.

(F) Authority of the Commissioner to Inquire into Bank Deposit Accounts and Other Related
Information Held by Financial Institutions. – Notwithstanding any contrary provision of Republic Act
No. 1405, Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act (FCDA) of the
Philippines, and other general or special laws, the Commissioner is hereby authorized to inquire into the
bank deposits and other related information held by financial institutions of:

(1) A decedent to determine his gross estate;

(2) Any taxpayer who has filed an application for compromise of his tax liability under Section 204(A)(2)
of the NIRC by reason of financial incapacity to pay his tax liability. However, his application shall not be
considered unless and until he waives in writing his privilege under the FCDA, or under other general or
special laws. This waiver shall serve as the authority of the Commissioner to inquire into the bank
deposits of the taxpayer;
(3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign
tax authority pursuant to an international convention or agreement on tax matters to which the
Philippines is a signatory or a party of.

a. The exchange of information shall be done in a secure manner to ensure confidentiality under rules
and regulations as may be promulgated by the Secretary of Finance, upon recommendation of the
Commissioner;

b. The Commissioner shall forward the information as promptly as possible to the requesting foreign tax
authority;

c. To ensure a prompt response, the Commissioner shall confirm receipt of a request in writing to the
requesting tax authority and shall notify the latter of deficiencies in the request, if any, within sixty (60)
days from the receipt of the request.

d. The information obtained from the banks and other financial institutions may be used by the BIR for
tax assessment, verification, audit and enforcement purposes.

e. If the Commissioner is unable to obtain and provide the information within ninety (90) days from the
receipt of the request, due to obstacles encountered in furnishing the information or when the bank or
financial institution refuses to furnish the information, he shall immediately inform the requesting tax
authority of the same, explaining the nature of the obstacles encountered or the reasons for refusal.

The Commissioner shall provide the tax information obtained from banks and financial institutions
pursuant to a convention or agreement upon request of the foreign tax authority when such requesting
foreign tax authority has provided the following information to demonstrate the foreseeable relevance
of the information to the request:

(a) The identity of the person under examination or investigation;

(b) A statement of the information being sought including its nature and the form in which the said
foreign tax authority prefers to receive the information from the Commissioner;

(c) The tax purpose for which the information is being sought;

(d) Grounds for believing that the information requested is held in the Philippines or is in the possession
or control of a person within the jurisdiction of the Philippines;

(e) To the extent known, the name and address of any person believed to be in possession of the
requested information;

(f) A statement that the request is in conformity with the law and administrative practices of the said
foreign tax authority, such that if the requested information was within the jurisdiction of the said
foreign tax authority then it would be able to obtain the information under its laws or in the normal
course of administrative practice and that it is conformity with a convention or international agreement;
and

(g) A statement that the requesting foreign tax authority has exhausted all means available in its own
territory to obtain the information, except those that would give rise to disproportionate difficulties.
Foreign tax authority - the tax authority or tax administration of the requesting State under the tax
treaty or convention to which the Philippines is a signatory or a party of.

(G) Authority to Accredit and Register Tax Agents. The Commissioner shall accredit and register
individuals and general professional partnerships and their representatives who prepare and file tax
returns, statements, reports, protests, and other papers with or who appear before, the Bureau for
taxpayers based on their:

- professional competence;

- integrity; and

- moral fitness

Within one hundred twenty (120) days from January 1, 1998, the Commissioner shall create national
and regional accreditation boards, the members of which shall serve for three (3) years, and shall
designate from among the senior officials of the Bureau, one (1) chairman and two (2) members for
each board, subject to such rules and regulations as the Secretary of Finance shall promulgate upon the
recommendation of the Commissioner.

- Individuals and general professional partnerships and their representatives who are denied
accreditation by the Commissioner and/or the national and regional accreditation boards may appeal
such denial to the Secretary of Finance, who shall rule on the appeal within sixty (60) days from receipt
of such appeal.

- Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed
as approval of the application for accreditation of the appellant.

(H) Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements.

– The Commissioner may prescribe the manner of compliance with any documentary or procedural
requirement in connection with the submission or preparation of financial statements accompanying
the tax returns.

Revenue Memorandum Circular No. 23-2000 - Prescribes the policies and guidelines in the preparation
and submission of reports required by the Taxpayer Assistance Service

Oceanic Wireless Network, Inc. v. CIR, G.R. No. 148380, 9 December 2005
The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner
or from his duly authorized representative. Thus, the authority to make tax assessments may be
delegated to subordinate officers. Said assessment has the same force and effect as that issued by the
Commissioner himself, if not reviewed or revised by the latter such as in this case.

Republic v. Aquafresh Seafoods, Inc., G.R. No. 170389, 20 October 2010

While the CIR has the authority to prescribe real property values and divide the Philippines into zones,
the law is clear that the same has to be done upon consultation with competent appraisers both from
the public and private sectors.
5. Authority of the Commissioner to Delegate Power (Section 7)
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
limitations and restrictions as may be imposed under rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner:

Exceptions: The following powers of the Commissioner shall not be delegated:

- The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

- The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the
Bureau;

- The power to compromise or abate any tax liability, under Sec. 204(A) and (B) of the NIRC: 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

- The power to assign or reassign internal revenue officers to establishments where articles subject to
excise tax are produced or kept.

Duty of the Commissioner to Ensure the Provision and Distribution of Forms,

Receipts, Certificates, and Appliances, and the Acknowledgment of Payment of
Taxes (Section 8)
(A) Provision and Distribution to Proper Officials. –It shall be the duty of the Commissioner to:
prescribe, provide, and distribute to the proper officials the requisite licenses; internal revenue stamps;
unique, secure and nonremovable identification markings (hereafter called unique identification
markings), such as codes or stamps, be affixed to or form part of all unit packets and packages and any
outside packaging of cigarettes and bottles of distilled spirits; labels and other forms; certificates; bonds;
records; invoices; books; receipts; instruments; appliances and apparatus used in administering the laws
falling within the jurisdiction of the Bureau.

- Internal revenue stamps, whether of a bar code or fuson design, or other markings and labels shall be
printed with adequate security features.

- Internal revenue stamps or other markings shall be firmly and conspicuously affixed or printed on each
pack of cigars and cigarettes and bottles of distilled spirits subject to excise tax in the manner and form
as prescribed by the Commissioner, upon approval of the Secretary of Finance.

- To further improve tax administration, cigarette and alcohol manufacturers shall be required to install
automated volume counters of packs and bottles to deter overremovals and misdeclaration of removals.
(B) Receipts for Payment Made. – It shall be the duty of the Commissioner or his duly authorized
representative or an authorized agent bank to whom any payment of any tax is made under the
provisions of this Code to acknowledge the payment of such tax, expressing the amount paid and the
particular account for which such payment was made in a form and manner prescribed therefor by the
Commissioner.

II. PRESCRIPTIVE PERIODS

Imprescriptibility of Taxes
General Rule: Taxes are imprescriptible as they are the lifeblood of the government.

Exception: Tax statutes may provide for statute of limitations. Equitable recoupment: A common law
concept wherein tax refund claims barred by prescription may be set off against a current assessment.
This is inapplicable in the Philippines since the tax authorities are particular with prescriptive periods in
successfully obtaining a tax refund.

Distinguish: false return, fraudulent return, or omission to file return

- False returns implies deviation from the truth, whether intentional or not.

- Fraudulent returns mean that there is an intention or deceitful entry with intent to evade the taxes
due.

- Omission to File Return or Non-filing of returns pertains to situations where the taxpayer did not file a
return which is required to be filed with the BIR

c. Sections 203, 222, 223

Period of Limitation Upon Assessment and Collection. (Section 203)

When shall the prescriptive period for the assessment run?

- 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.

- In case 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.

- A return filed before the last day prescribed by law for the filing thereof shall be considered as filed on
such last day.

Exceptions as to Period of Limitation of Assessment and Collection of Taxes. (Section 222)

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;
- The 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.

- Any internal revenue tax which has been assessed within the period of limitation may be collected by
distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax.
(Section 222(c))

Both the Commissioner and the taxpayer have agreed in writing to the assessment of tax after the
expiration of the time prescribed in Section 203 of the NIRC for the assessment.

- It 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

- Any internal revenue tax, which has been assessed within the period agreed uponmay 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 agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon. (Section 222(d)) These
exceptions do not authorize the examination and investigation or inquiry into any tax return filed in
accordance with the provisions of any tax amnesty law or decree.

Suspension of Running of Statute of Limitations. (Section 223) –

Grounds for the suspension of running of the statute of limitations in case of assessments

- 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: Except 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.

Section 6(A): Examination of Return and Determination of Tax Due.

After a return has been filed as required under the provisions of this Code, the Commissioner or his duly
authorized representative may authorize the examination of any taxpayer and the assessment of the
correct amount of tax, notwithstanding any law requiring the prior authorization of any government
agency or instrumentality:

Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the
examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and
demand from the Commissioner or from his duly authorized representative.
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.

Revenue Memorandum Circular No. 6-2005

Circularizes the salient features of Supreme Court decision on waiver of the statute of limitations under
the Tax Code (February 14, 2005)

Revenue Memorandum Order No. 14-2016

Revises the guidelines for the execution of waivers from the defense of prescription pursuant to Section
222 of the National Internal Revenue Code of 1997, as amended (April 18, 2016)

Revenue Memorandum Circular No. 141-2019

Reiterates the salient points arising from RMO No. 14-16 on the proper execution of Waivers of the
Defense of Prescription and providing an illustration of the basic requirements thereof (December 20,
2019).

CIR v. United Salvage and Towage, 729 SCRA 113

- A taxpayer must be informed in writing of the legal and factual bases of the tax assessment made
against him. The use of the word "shall" in these legal provisions indicates the mandatory nature of the
requirements laid down therein.

- A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code.
While it is desirable for the government authority or administrative agency to have one immediately
issued after a law is passed, the absence of the regulation does not automatically mean that the law
itself would become inoperative.

BPI v. CIR, G.R. No. 139736, 17 October 2005

- Though the statute of limitations on assessment and collection of national internal revenue taxes
benefits both the Government and the taxpayer, it principally intends to afford protection to the
taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected
to further investigation for taxes after the expiration of a reasonable period of time.

- While we may agree with the Court of Tax Appeals that a mere request for reexamination or
reinvestigation may not have the effect of suspending the runningof the period of limitation for in such
case there is need of a written agreement to extend the period between the Collector and the taxpayer,
there are cases however where a taxpayer may be prevented from setting up the defense of
prescription even if he has not previously waived it in writing as when by his repeated requests or
positive acts the Government has been, for good reasons, persuaded to postpone collection to make
him feel that the demand was not unreasonable or that no harassment or injustice is meant by the
Government. And when such situation comes to pass there are authorities that hold, based on weighty
reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of
the Government.

Commissioner of Internal Revenue v. Transitions Optical Philippines, Inc., G.R. No. 227544, 22
November 2017
Estoppel applies against a taxpayer who did not only raise at the earliest opportunity its representative's
lack of authority to execute two (2) waivers of defense of prescription, but was also accorded, through
these waivers, more time to comply with the audit requirements of the Bureau of Internal Revenue.
Nonetheless, a tax assessment served beyond the extended period is void.

Republic v. GMCC United Development Corp., G.R. No. 191856, December 7, 2016

FACTS:

On March 28, 2003, the Bureau of Internal Revenue National Investigation Division issued a
Letter of Authority, authorizing its revenue officers to examine the books of accounts and other
accounting records of GMCC United Development Corporation (GMCC) covering taxable years 1998 and
1999.

On April 3, 2003 GMCC was served a copy of said Letter of Authority and was requested to
present its books of accounts and other accounting records. GMCC failed to respond to the Letter of
Authority as well as the subsequent letters requesting that its records and documents be produced. Due
to GMCC's failure to act on the requests, the Assistant Commissioner of the Enforcement Service of the
Bureau of Internal Revenue issued a Subpoena Duces Tecum on GMCC president, Jose C. Go (Go). When
GMCC still failed to comply with the Subpoena Duces Tecum, the revenue officers were constrained to
investigate GMCC through Third Party Information.

The investigation revealed that in 1998, GMCC, through Go, executed two dacion en pago
agreements to pay for the obligations of GMCC's sister companies, Ever Emporium, Inc., Gotesco
Properties, Inc. and Ever Price Club, Inc., to Rizal Commercial Banking Corporation. GMCC allegedly
failed to declare the income it earned from these agreements for taxation purposes in 1998. Moreover,
these transactions constituted a donation in favor of GMCC's sister companies for which GMCC failed to
pay the corresponding donor's tax. The BIR also assessed the value added tax over the said transactions.
It was also discovered that in 1999, GMCC sold condominium units and parking slots for a total amount
of P5,350,000.00 to a Valencia K. Wong.

However, GMCC did not declare the income it earned from these transactions in its 1999
Audited Financial Statements. Thus, on November 17, 2003, the Bureau of Internal Revenue issued a
Notice to Taxpayer to GMCC, which GMCC ignored. On December 8, 2003, the Bureau of Internal
Revenue issued a Preliminary Assessment Notice. It was only when the Bureau of Internal Revenue
issued the Final Assessment Notice that GMCC responded.

In a Letter dated November 23, 2004, GMCC protested the issuance of the Final Assessment
Notice citing that the period to assess and collect the tax had already prescribed. The Bureau of Internal
Revenue denied the protest in a Final Decision dated February 10, 2005.2 Thus, on November 17, 2003,
the Bureau of Internal Revenue issued a Notice to Taxpayer to GMCC, which GMCC ignored. On
December 8, 2003, the Bureau of Internal Revenue issued a Preliminary Assessment Notice. It was only
when the Bureau of Internal Revenue issued the Final Assessment Notice that GMCC responded. In a
Letter dated November 23, 2004, GMCC protested the issuance of the Final Assessment Notice citing
that the period to assess and collect the tax had already prescribed. The Bureau of Internal Revenue
denied the protest in a Final Decision dated February 10, 2005.

Thus, on November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to
GMCC, which GMCC ignored.1On December 8, 2003, the Bureau of Internal Revenue issued a
Preliminary Assessment Notice. It was only when the Bureau of Internal Revenue issued the Final
Assessment Notice that GMCC responded. In a Letter dated November 23, 2004, GMCC protested the
issuance of the Final Assessment Notice citing that the period to assess and collect the tax had already
prescribed. The Bureau of Internal Revenue denied the protest in a Final Decision dated February 10,
2005.

ISSUE:

WO the period to assess and collect the tax had already prescribed

HELD:

In arguing for the application of the 10-year prescriptive period, petitioner claims that the tax
return in this case is fraudulent and thus, the three-year prescriptive period is not applicable. Petitioner
fails to convince that respondents filed a fraudulent tax return. The respondents may have erred in
reporting their tax liability when they recorded the assailed transactions in the wrong year, but such
error stemmed from the wrong application of the law and is not an indication of their intent to evade
payment. If there were really an intent to evade payment, respondents would not have reported and
subsequently paid the income tax, albeit in the wrong year. As found by the Court of Appeals, there is no
clear and deliberate intent to evade payment of taxes in relation to the dacion en pago transactions or
on the sale transaction with Valencia Wong. The dacion en pago transactions, though not included in the
1998 Financial Statement, were properly listed in GMCC's Financial Statement for the year 2000.
Regarding the sale transaction with Valencia Wong, the respondents said that it was not reflected in the
year 1999 because it was an installment sale. Units sold on installment, they explained, are recognized
not in the year they are fully paid, but in the year when at least 25% of the selling price is paid. In this
instance, the unit and the parking lot were sold prior to 1996, thus, in the Schedule of Unsold Units filed
by GMCC as of December 31, 1996, the said properties were no longer included or the ten-year period
under Section 222(a) to apply, it is not enough that fraud is alleged in the complaint, it must be
established by clear and convincing evidence. The petitioner, having failed to discharge the burden of
proving fraud, cannot invoke Section 222(a). Having settled that the case falls under Section 203 of the
Tax Code, the three-year prescriptive period should be applied. In GMCC's case, the last day prescribed
by law for filing its 1998 tax return was April 15, 1999.56 The petitioner had three years or until 2002 to
make an assessment. Since the Preliminary Assessment was made only on December 8, 2003, the period
to assess the tax had already prescribed.

CIR v. FMF Dev. Corp., 556 SCRA 698

- Internal revenue taxes must be assessed within three years counted from the period fixed by law for
the filing of the tax return or the actual date of filing, whichever is later. This mandate governs the
question of prescription of the government’s right to assess internal revenue taxes primarily to
safeguard the interests of taxpayers from unreasonable investigation. Accordingly, the government
must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and
deprive the taxpayer of the assurance that it will no longer be subjected to further investigation for
taxes after the expiration of reasonable period of time.

- Tax officers are obliged to act promptly in the making of assessment so that taxpayers, after the lapse
of the period of prescription, would have a feeling of security against unscrupulous tax agents who will
always try to find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability,
but to take advantage of a possible opportunity to harass even law-abiding businessmen. Without such
legal defense, taxpayers would be open season to harassment by unscrupulous tax agents.

CIR vs. Stanley Works (Phils.) Incorporated, GR No. 187859, 3 December 2014
- The statute of limitations on the right to assess and collect a tax means that once the period
established by law for the assessment and collection of taxes has lapsed, the government’s
corresponding right to enforce that action is barred by provision of law.

- Although we recognize that the power of taxation is deemed inherent in order to support the
government, tax provisions are not all about raising revenue. Our legislature has provided safeguards
and remedies beneficial to both the taxpayer, to protect against abuse; and the government, to
promptly act for the availability and recovery of revenues. A statute of limitations on the assessment
and collection of internal revenue taxes was adopted to serve a purpose that would benefit both the
taxpayer and the government.

- The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would havea feeling of security against unscrupulous tax agents who will always
find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens. Without such legal defense
taxpayers would furthermore be under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial
measure should be interpreted in a way conducive to bringing about the beneficient purpose of
affording protection to the taxpayer within the contemplation of the Commission which recommends
the approval of the law.

CIR vs. Kudos Metal, GR No. 178087, 5 May 2010

- The prescriptive period on when to assess taxes benefits both the government and the taxpayer.
Exceptions extending the period to assess must, therefore, be strictly construed.

- The doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against
public policy. It should be resorted to solely as a means of preventing injustice and should not be
permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue
advantage, or to extend beyond them requirements of the transactions in which they originate. Simply
put, the doctrine of estoppel must be sparingly applied.
CIR v. Systems Technology Institute, Inc., G.R. No. 220835, 26 July 2017
The primary reason behind the prescriptive period on the CIR's right to assess or collect internal revenue
taxes: that is, to safeguard the interests of taxpayers from unreasonable investigation. Accordingly, the
government must assess internal revenue taxes on time so as not to extend indefinitely the period of
assessment and deprive the taxpayer of the assurance that it will no longer be subjected to further
investigation for taxes after the expiration of a reasonable period of time.

RCBC v. CIR, G.R. No. 170257, 7 September 2011

FACTS:

January 23, 1997, RCBC executed 2 waivers of Defense of Prescription. Under the statute of
limitation of the NIRC covering the Internal Revenue Taxes due for 1994 and 1995 extending the
assessment up to Dec. 31, 2000.

January 27, 2000: RCBC received a formal letter of demand together with assessment notices for
deficiency taxes. RCBC filed a Protest and then, a Petition for Review before the CTA pursuant to Sec.
228 of the 1997 Tax Code.

Dec. 6, 2000: It again received a letter of demand which drastically reduced the deficiency tax
except from the onshore tax and document stamp tax (DST).

RCBC argued the validity of the waivers for not being signed and for the onshore tax, it should
not be primarily liable since it is only a withholding agent.

CTA terminated the assessment for other deficiencies except for the FCDU shore tax and DST
charging 20% deficiency tax. Being denied in CTA en banc, it raised the matter to the Supreme Court.
While the case is pending, the DST deficiency was paid after the BIR approved its application for
abatement.

ISSUES:

W/N RCBC as payee bank can be held liable for deficiency on shore tax which is mandatory by law to be
collected at source in the form of a final withholding tax.

HELD:

Petition is denied. As held in Chamber of Real Estate and Builder's Association Inc. v. Executive Sec., the
purpose of the withholding tax system are:

- to provide the taxpayer with a convenient way of paying his tax liability

- to ensure the collection of tax

- to improve the governments cashflow.

Under the withholding tax system, the payor is the taxpayer upon whom the tax is imposed, while the
withholding agent simply acts as an agent or a collector of the government to ensure the collection of
taxes

The liability of the withholding agent is independent from that of the taxpayer.
 The former cannot be made liable for the tax due because it is the latter who earned the income
subject to withholding tax.

The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax
and remit the same to the government. The liability for the tax, however, remains with the taxpayer
because the gain was realized and received by him.

RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-
borrower as the withholding agent.

The CTA, as a specialized court dedicated exclusively to the study and resolution of tax
problems, has developed an expertise on the subject of taxation and shall be accorded the highest
respect and shall be presumed valid, in the absence of any clear and convincing proof to the contrary.

CIR v. Phoenix Assurance G.R. No. L-19727. May 20, 1965

Topic: Period to assess internal revenue taxes, Prescription Petitioner
ISSUE:

1. Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income tax for
the year 1952 against Phoenix Assurance Co., Ltd. has prescribed – NO.

DOCTRINE:. Where the deficiency assessment is based on an amended income tax return, which is
substantially different from the original return, the period of prescription of the right to issue deficiency
assessment should be counted from the filing of the AMENDED, not the original, income tax return. To
hold otherwise would pave the way for taxpayers to evade the payment of taxes by simply reporting in
their original return heavy losses and amending the same more than five years later when the
Commissioner of Internal Revenue has lost his authority to assess the proper tax thereunder.

RATIO:

FACTS:

Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great
Britain, is licensed to do business in the Philippines with head office in London. - Through its head office,
it entered, into worldwide reinsurance treaties with various foreign insurance companies. It agreed to
cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries,
and branch offices throughout the world, in consideration for assumption by the foreign insurance
companies of an equivalent portion of the liability from such original insurances. - Phoenix Assurance
Co., Ltd. filed its income tax return for 1952 on April 1, 1953 showing a LOSS of P199,583.93. - It
amended said return on August 30, 1955 reporting a tax liability of P2,502 00. - On July 24, 1958, after
examination of the amended return, the Commissioner of Internal Revenue assessed deficiency income
tax in the sum of P5,667.00. - Phoenix Assurance Co., Ltd. protested against such assessment. However,
the Commissioner of Internal Revenue denied such protest. - The Court of Tax Appeals found the right of
the Commissioner of Internal Revenue barred by prescription, the same having been exercised more
than five years from the date the original return was filed. - On the other hand, the Commissioner of
Internal Revenue insists that his right to issue the assessment has not prescribed inasmuch as the same
was availed of before the 5-year period provided for in Section 331 of the Tax Code expired, counting
the running of the period from August 30, 1955, the date when the amended return was filed. SEC. 331.
Period of limitation upon assessment and collection. — Except as provided in the succeeding section,
internal-revenue taxes shall be assessed within five years after the return was filed, and no proceeding
in court without assessment for the collection of such taxes shall be begun after the expiration of such
period. For the 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: Provided, That this limitation shall not apply to
cases already investigated prior to the approval of this Code."

2. Should the running of the prescriptive period commence from the filing of the original or the
amended return? – From the filing of the AMENDED return.

- The changes and alterations embodied in the AMENDED income tax return consisted of the exclusion
of reinsurance premiums received from domestic insurance companies by Phoenix Assurance Co., Ltd.'s
London head office, reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines and various items of deduction attributable to such excluded reinsurance premiums, thereby
substantially modifying the original return. - Although the deduction for head office expenses allocable
to Philippine business, whose disallowance gave rise to the deficiency tax, was claimed also in the
original return, the Commissioner could not have possibly determined a deficiency tax thereunder
because Phoenix Assurance Co., Ltd. declared a loss of P199,583.93 therein which would have more
than offset such disallowance of P15,826.35. - Considering that the deficiency assessment was based on
the amended return which is substantially different from the original return, the period of limitation of
the right to issue the same should be counted from the filing of the AMENDED income tax return. - From
August 30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment
was issued, less than five years elapsed. (three years pa lang). Thus, the right of the Commissioner to
assess the deficiency tax on such amended return has NOT prescribed. - To strengthen our opinion, we
believe that to hold otherwise, we would be paving the way for taxpayers to evade the payment of taxes
by simply reporting in their original return heavy losses and amending the same more than five years
later when the Commissioner of Internal Revenue has lost his authority to assess the proper tax
thereunder. The object of the Tax Code is to impose taxes for the needs of the Government, not to
enhance tax avoidance to its prejudice.

WHEREFORE, the decision appealed from is modified. Phoenix Assurance Co., Ltd. is hereby ordered to
pay the Commissioner of Internal Revenue the amount of P75,966.42, P59,059.68 and P48,812.32 as
withholding tax for the years 1952, 1953 and 1954, respectively, and the sums of P5,667.00 and
P2,847.00 as income tax for 1952 and 1954 or a total of P192,352.42. The Commissioner of Internal
Revenue is ordered to refund to Phoenix Assurance Co., Ltd. the amount of P20,180.00 as overpaid
income tax for 1953, which should be deducted from the amount of P192,352.42. If the amount of
P192,352.42 or a portion thereof is not paid within thirty (30) days from the date this judgment
becomes final, there shall be collected a surcharge and interest as provided for in Section 51 (e) (2) of
the Tax Code. No costs. It is so ordered.

BPI v. CIR, G.R. No. 139736, 17 October 2005

- The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will always
find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense
taxpayers would furthermore be under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial
measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording
protection to the taxpayer within the contemplation of the Commission which recommend the approval
of the law.

- A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code
of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer;
(3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a
definite period beyond the ordinary prescriptive periods for assessment and collection.

Aznar vs. CTA, GR No. L-20569, 23 August 1974

The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of
deception willfully and deliberately done or resorted to in order to induce another to give up some legal
right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax
contemplated by the law. It must amount to intentional wrong-doing with the sole object of avoiding
the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both
petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in
the returns and in the assessment, respectively, under the inventory method of determining tax liability,
it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the
respondent as made in good faith.

CIR vs. Philippine Daily Inquirer, GR No. 213943, 22 March 2017

In the three different cases of (1) false return, (2) fraudulent return with intent to evade tax. (3) failure
to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be
begun without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud,
(3) omission. Our stand that the law should be interpreted to mean a separation of the three different
situations of false return, fraudulent return with intent to evade tax, and failure to file a return is
strengthened immeasurably by the last portion of the provision which segregates the situation into
three different classes, namely "falsity," "fraud," and "omission." That there is a difference between
"false return" and "fraudulent return" cannot be denied. While the first implies deviation from the truth,
whether intentional or not, the second implies intentional or deceitful entry with intent to evade the
taxes due.
CIR vs. Asalus Corporation, GR No. 221590, February 22, 2017
- The proper and reasonable interpretation of said provision should be that in the three different cases
of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may
be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at
any time within ten years after the discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that the
law should be interpreted to mean a separation of the three different situations of false return,
fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by
the last portion of the provision which segregates the situations into three different classes, namely
"falsity", "fraud" and "omission." That there is a difference between "false return" and "fraudulent
return" cannot be denied. While the first merely implies deviation from the truth, whether intentional or
not, the second implies intentional or deceitful entry with intent to evade the taxes due.

CIR v. Ayala Securities Corp., 101 SCRA 231

- It is well settled limitations upon the right of the government to assess and collect taxes will not be
presumed in the absence of clear legislation to the contrary. The existence of a time limit beyond which
the government may recover unpaid taxes is purely dependent upon some express statutory provision,
(51 Am. Jur. 867; 10 Mertens Law of Federal Income Taxation, par. 57. 02.). It follows that in the absence
of express statutory provision, the right of the government to assess unpaid taxes is imprescriptible.
Since there is no express statutory provision limiting the right of the Commissioner of Internal Revenue
to assess the tax on unreasonable accumulation of surplus provided in Section 25 of the Revenue Code,
said tax may be assessed at any time.

- Limitations upon the right of the government to assess and collect taxes will not be presumed in the
absence of clear legislation to the contrary and that where the government has not by express statutory
provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible.

Commissioner of Internal Revenue v. La Flor dela Isabela, Inc., G.R. No. 211289, 14 January
2019
It is established that a waiver of the statute of limitations is a bilateral agreement between the taxpayer
and the BIR to extend the period to assess or collect deficiency taxes on a certain date. Logically, there
can be no agreement if the kind and amount of the taxes to be assessed or collected were not indicated.
Hence, specific information in the waiver is necessary for its validity.

Commissioner of Internal Revenue v. Bank of the Philippine Islands, G.R. No. 227049, 16
September 2020
- Verily, the lifeblood doctrine enables the BIR "to avail themselves of the most expeditious way to
collect the taxes, including summary processes, with as little interference as possible." However, to
temper the wide latitude of discretion accorded to the tax authorities, "the law provides for a statute of
limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest
of the taxpayer against unreasonable investigation.
III. ASSESSMENT
What is a tax assessment?

- The term assessment refers to the determination of amounts due from a person obligated to make
payments. In the context of national internal revenue collection, it refers to the determination of the
taxes due from a taxpayer.

- It is an official action of an administrative officer in determining the amount of tax due from a taxpayer,
or it may be a notice to the effect that the amount therein stated is due from a taxpayer as a tax, with a
demand for payment of the tax or any deficiency stated therein

Revenue Regulations No. 12-99 as amended by Revenue Regulations No. 18-2013 and as further
amended by Revenue Regulations No. 22-2020

- Amends certain Sections of RR No. 12-1999, as amended by RR No. 18-2013 and RR No. 7-2018,
relative to the Due Process requirement in the issuance of a Deficiency Tax Assessment. RR 22-2020
(Published in Malaya Business Insight on September 17, 2020)

- Revenue Memorandum Order No. 26-2016

Prescribes the policies and guidelines in handling disputed assessments (June 4, 2016)

- Revenue Memorandum Order No. 40-2019

Prescribes the procedures for the proper service of Assessment Notices in accordance with the
provisions of Section 3.1.6 of Revenue Regulations No. 18-2013 (July 30, 2019)

- Revenue Memorandum Circular No. 15-2020

Prescribes the manner on how concerned taxpayers shall be informed of the procedures in responding
to the issuance of Deficiency Tax Assessments (February 27, 2020)

Kinds of Assessment:

-Voluntary Assessment or Self-Assessment

Self-assessment is a system whereby taxpayers themselves calculate or determine their own tax
liabilities. The taxpayer subsequently files a tax return together with payment for the tax liabilities so
calculated on or before the due date.

- Jeopardy Assessment

A jeopardy assessment is a tax assessment made by an authorized Revenue Officer (RO) without the

benefit of complete or partial audit. The assessment is done because of a belief that the determination
and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to: (a)
comply with audit and investigation requirements to present his books of accounts and/or pertinent
records; (b) substantiate all or any of the deductions, exemptions or credits claimed in his return. A
jeopardy assessment is valid.
- Deficiency Assessment

It is a deficiency tax liability that is determined after a tax audit and examination.

- Protested assessment

It is an assessment where a taxpayer questions the findings in an assessment and asks the collector to
reconsider or cancel the same because he believes that he is not liable thereof.

Powers of the Commissioner of Internal Revenue (CIR) in the assessment of taxes (Section 6)

- Examination of Return and Determination of Tax Due;

- Failure to Submit Required Returns, Statements, Reports and other Documents;

- Conduct Inventory-taking, Surveillance and to Prescribe Presumptive Gross Sales and Receipts;

- Authority to Terminate Taxable Period;

- Prescribe Real Property Values;

- Accredit and Register Tax Agents; and

- Prescribe Additional Procedural or Documentary Requirements.

Best evidence obtainable rule

The law authorizes the Commissioner to assess taxes on the basis of the best evidence obtainable in

the following cases:

(1) If a person fails to file a return or other document at the time prescribed by law; or,

(2) If taxpayer willfully or otherwise files a false or fraudulent return or other document.

Methods to constructively determine a taxpayer’s income

(1) Net worth method;

(2) Cash expenditure method;

(3) Percentage method;

(4) Bank deposit method;

(5) Unit and value method;

(6) Third party information or access to records method; and,

(7) Surveillance and assessments method.

Letter of Authority
It is an official document that empowers a Revenue Officer (RO) to examine and scrutinize a taxpayer’s
books of accounts and other accounting records, in order to determine the taxpayer’s correct internal
revenue tax liabilities (Sec. 13, NIRC).
There must be a grant of authority before any revenue officer can conduct an examination or
assessment and the revenue officer must not go beyond authority.

Otherwise, the assessment or examination is a nullity.

Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990

A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of
issuing L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a taxpayer shall
include more than one taxable period, the other periods or years shall be specifically indicated in the
L/A.

CIR v. Sony Phils. Inc., 635 SCRA 234

A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of
issuing L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a taxpayer shall
include more than one taxable period, the other periods or years shall be specifically indicated in the
L/A.

CIR vs. De La Salle University, Inc., GR No. 196596, November 9, 2016;

A LOA is the authority given to the appropriate revenue officer to examine the books of account and
other accounting records of the taxpayer in order to determine the taxpayer's correct internal revenue
liabilities and for the purpose of collecting the correct amount of tax, in accordance with Section 5 of the
Tax Code, which gives the CIR the power to obtain information, to summon/examine, and take
testimony of persons. The LOA commences the audit process and informs the taxpayer that it is under
audit for possible deficiency tax assessment.

MEDICARD Phils., Inc. vs, CIR, GR No. 222743, 5 April 2017

An 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. An LOA is
premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power
that statutorily belongs only to the CIR himself or his duly authorized representatives.

CIR vs. McDonald’s Philippines Realty Corp.G.R. No. 242670. May 10, 2021

Facts:

On August 31,2007, the BIR Large Taxpayers Service issued a Letter of Authority (LOA) to the
following revenue officers: Eulema Demadura, Lover Loveres, Josa Gomez, and Emalyn Dela Cruz. The
LOA authorized the said revenue officers to examine the books of accounts and other accounting
records of the respondent for all internal revenue taxes for January 1, 2006 to December 31, 2006.On
December 2, 2008, the BIR transferred the assignment of Demadura and, pursuant to a Referral
Memorandum, directed and designated Rona Marcellano to continue the audit of respondent’s
books of accounts. No New LOA was issued in the name of Marcellano to continue the conduct of the
audit of respondent’s books of accounts. Moreover the August 31, 2007 LOA was not amended or
modified to include the name of Marcellano.
On January 25, 2011, the petitioner issued a Formal Letter of Demand (FLD) to the respondent. the FLD
demands payment of deficiency income tax and VAT liabilities. On April 18, 2013, the petitioner issued
the Final Decision on Disputed Assessment(FDDA). The FDDA granted respondent’s request for
cancellation of deficiency income tax assessments for C.Y. 2006, and reiterated the petitioner’s demand
for payment of the respondent’s deficiency VAT for C.Y. 2006.

Issue: Whether a separate or amended LOA must be issued in the name of a substitute or replacement
revenue officer in case of reassignment or transfer of a revenue officer originally named in a previously
issued LOA.

Held:

The transfer of a Revenue Officer Required the Issuance of a New or Amended LOA for the Substitute.
Yes. A LOA is the authority given to the appropriate revenue officer assigned to perform assessment
functions. It empowers and enables said revenue officer to examine the books of accounts and
other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. The
issuance of an LOA is premised on the fact that the examination of a taxpayer who has already filed his
tax returns is a power that statutorily belongs only to the CIR himself or his duly authorized
representatives. Due Process Requires Identification of Revenue Officers Authorized to Continue the Tax
Audit. Unless authorized by the CIR himself or by his duly authorized representative, an examination of
the taxpayer cannot be undertaken. Unless undertaken by the CIR himself or his duly
authorized representatives, other tax agents may not validly conduct any of these kinds of examinations
without prior authority. There must be a grant of authority, in the form of a LOA, before any revenue
officer can conduct an examination or assessment. The revenue officer so authorized must not go
beyond the authority given. In the absence of such an authority, the assessment or examination is a
nullity. The Use of Memorandum of Assignment, Referral Memorandum, or Such Equivalent
Document, Directing the Continuation of Audit or Investigation by an Unauthorized Revenue Officer
Usurps the Functions of the LOA. It is true that the service of a copy of a memorandum of assignment,
referral memorandum, or such other equivalent internal BIR document may notify the taxpayer of the
fact of reassignment and transfer of cases of revenue officers. However, notice of

Persons authorized to issue Letter of Authority

COMMISSIONER OF INTERNAL REVENUE versus SONY PHILIPPINES, INC.

G.R. No. 178697 November 17, 2010

Facts:

1. the CIR issued Letter of Authority (LOA 19734) authorizing certain revenue officers to examine
Sonys books of accounts and other accounting records regarding revenue taxes for the period 1997 and
unverified prior years.

2. A preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony
protested.
3. Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter of
demand and the details of discrepancies.

4. The CIR assessed a deficiency VAT - P11,141,014.41

Issue:

1. Whether or not he Letter of Authority is Valid

2. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of P11,141,014.41

Ruling:

1. Based on Section 13 of the Tax Code, a Letter of Authority or 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.

There must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the
authority given. In the absence of such an authority, the assessment or examination is a nullity.

The LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR acting
through its revenue officers went beyond the scope of their authority because the deficiency VAT
assessment they arrived at was based on records from January to March 1998 or using the fiscal year
which ended in March 31, 1998.

It violated also Section C of Revenue Memorandum Order No. 4390 - A Letter of Authority should cover
a taxable period not exceeding one taxable year.

2. CIRs argument that Sonys advertising expense could not be considered as an input VAT credit because
the same was eventually reimbursed by Sony International Singapore (SIS).

Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits
that should have been realized from the advertising expense of the latter. It is evident under Section 110
of the 1997 Tax Code that an advertising expense duly covered by a VAT invoice is a legitimate business
expense. There is also no denying that Sony incurred advertising expense. Aluquin testified that
advertising companies issued invoices in the name of Sony and the latter paid for the same. Indubitably,
Sony incurred and paid for advertising expense/ services. Where the money came from is another
matter all together but will definitely not change said fact.

The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus,
taxable.

Insofar as the subsidy may be considered as income and, therefore, subject to income tax, the Court
agrees. However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To
begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked
for Sonys advertising expense for it was but an assistance or aid in view of Sonys dire or adverse
economic conditions, and was only equivalent to the latters (Sonys) advertising expenses.
There must be a sale, barter or exchange of goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a
dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by Sony.

Examination of books of accounts and other accounting records of taxpayers by revenue officers to
determine correct tax liability [Sections 5(B) and 6(A)]

Methods:

a. Best Evidence Obtainable [Section 6(B)]

(B) Failure to Submit Required Returns, Statements, Reports and other Documents. –When a report
required by law as a basis for the assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe
that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on
the best evidence obtainable.

Commission Of Internal Revenue v. Hantex Trading Co., G.R. No. 136975, 31 March 2005

The "best evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and
accounting records of the taxpayer who is the subject of the assessment process, the accounting records
of other taxpayers engaged in the same line of business, including their gross profit and net profit sales.
Such evidence also includes data, record, paper, document or any evidence gathered by internal
revenue officers from other taxpayers who had personal transactions or from whom the subject
taxpayer received any income; and record, data, document and information secured from government
offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the
Tariff and Customs Commission.

The law allows the BIR access to all relevant or material records and data in the person of the taxpayer.
It places no limit or condition on the type or form of the medium by which the record subject to the
order of the BIR is kept. The purpose of the law is to enable the BIR to get at the taxpayer’s records in
whatever form they may be kept. Such records include computer tapes of the said records prepared by
the taxpayer in the course of business. In this era of developing information-storage technology, there is
no valid reason to immunize companies with computer-based, record-keeping capabilities from BIR
scrutiny. The standard is not the form of the record but where it might shed light on the accuracy of the
taxpayer’s return.

b. Net-worth Method of Investigation

Section 43

Section 43. General Rule. – The taxable income shall be computed upon the basis of the taxpayer’s
annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the
method of accounting regularly employed in keeping the books of such taxpayer, but if no such method
of accounting has been so employed, or if the method employed does not clearly reflect the income, the
computation shall be made in accordance with such method as in the opinion of the Commissioner
clearly reflects the income. If the taxpayer’s annual accounting period is other than a fiscal year, as
defined in Section 22(Q), or if the taxpayer has no annual accounting period, or does not keep books, or
if the taxpayer is an individual, the taxable income shall be computed on the basis of the calendar year.

Eugenio Perez v. The Court Of Tax Appeals, G. R. No. L-10507, 30 May 1958

- "The net worth technique for determining income may be expressed in the following formula: Increase
in Net Worth plus Non-Deductible Expenditures minus Non-Taxable Receipts equals Taxable Net
Income. The net worth expenditures method is based on the accounting formula that an increase in net
worth plus non-deductible disbursements, minus non-receipts equal taxable net income.

- "In a typical net worth prosecution, the Government, having concluded that the taxpayer's records are
inadequate as a basis for determining the income tax liability, attempts to establish an 'opening net
worth' or total net value of the taxpayer's assets at the beginning of a given year. It then proves
increases in the taxpayer's net worth for each succeeding year, during the period under examination and
calculates the difference between the adjusted net values of the taxpayer's assets at the beginning and
end of each of the years involved. The taxpayer's non-deductible expenditures, including living
expenses, are added to these increases, and if the resulting figure for any year is substantially greater

than the taxable income reported by the taxpayer for that year, the Government claims the excess
representing unreported taxable income (Spies vs. United States, 317 U. S. 492; 63 S. Ct. 364)."

- The decisions of the Supreme Court of the United States, in the recent cases of Holland vs. U. S., 343
U.S. 121; David Friedberg vs. U.S., 207 F. 2d 777; Daniel Smith vs. U. S., 210 F. 2d 496; and U.S. vs.
Edward Calderon, 207 F. 2d 377, all decided December 6, 1954, establish the following requisites for the
use of the Inventory (or Net Worth) Method:

First, the establishment, with reasonable certainty, of an opening net worth to serve as a starting point,
from which to calculate future increases in the taxpayer's assets (see also, Byer, "The Net Worth
Technique for Determining Income", supra). The Court of Tax Appeals fixed as the total assets of the
petitioner as of 1947 the amount of P66,530.93, based on the Amended Stipulation of Facts of the
parties. This opening net worth is not disputed by. them in this appeal.

Second, the net worth increases must be attributable to taxable income.

Requisites for a valid tax assessment

- Letter of Authority issued to the Revenue Officers authorizing them to conduct an assessment and
audit of taxpayer’s books and other relevant documents;

- Conduct of Notice for Informal Conference;

- Issuance of the Preliminary Assessment Notice (PAN) by the authorized Revenue

District Officer;

- Issuance of the Formal Letter of Demand and Final Assessment Notice (FLD/FAN) by the Commissioner
or his duly authorized representative;

- The Letter of Demand calling for the payment of the deficiency tax. The letter shall state the facts, law,
rules and regulations or jurisprudence on which the assessment is based.
Tax Assessments made by the BIR shall be prima facie presumed correct and made in good faith. The
taxpayer has the burden of proof of showing the incorrectness of such assessment.

An assessment is deemed made and the period to collect the assessed tax begins to run on the date the
Final Assessment Notice and Formal Letters of Demand (FAN/FLD) had been released, mailed or sent to
the taxpayer.

Notice of Discrepancy

a. Revenue Regulations No. 22-2020;

3.1.1 Notice of Discrepancy.- If a taxpayer is found to be liable for deficiency tax or taxes in the course
of an investigation conducted by a Revenue Officer, the taxpayer shall be informed through a Notice of
Discrepancy (Annex A). The Notice of Discrepancy aims to fully afford the taxpayer with an opportunity
to present and explain his side on the discrepancies found.

The Revenue Officer who audited the taxpayer’s records shall, among others, state in the initial report of
investigation his findings of discrepancies.

Based on the said Officer’s submitted initial report of investigation, the taxpayer shall be informed, in
writing, by the Revenue District Office or by the Assessment Division/Regional Investigation Division, as
the case may be (in case of Revenue Regional Offices) or by the Chief of Division concerned (in the case
of the BIR National Office) of the discrepancy or discrepancies in the taxpayer’s payment of his internal
revenue taxes, for the purpose of the “Discussion of Discrepancy”.

The Discussion of Discrepancy shall in no case extend beyond thirty (30) days from receipt of the Notice
of Discrepancy. It is during the Discussion of Discrepancy that the taxpayer is given the opportunity to
present his side of the case the explain the discrepancy found during the investigation of the Revenue
Officer assigned and submit documents to support the explanation or arguments.

If the taxpayer disagrees with the discrepancy/discrepancies detected during the audit/investigation,
the taxpayer must present an explanation and provide documents to support his explanation. The
documents must be submitted during the discussion. Should the taxpayer need more time to present
the documents, he may submit such documents after the discussion. The taxpayer must submit all
necessary documents that supports his explanation within thirty (30) days after receipt of the Notice of
Discrepancy.

If after being afforded the opportunity to present his side though the Discussion of Discrepancy, it is still
found that the taxpayer is still liable for deficiency tax or taxes and the taxpayer does not address the
discrepancy through payment of the deficiency taxes or the taxpayer does not agree with the findings,
the investigating office, shall endorse the case to the reviewing office and approving official in National
Office or the Revenue Regional Office, for issuance of a deficiency tax assessment in the form of a
Preliminary Assessment Notice within ten (10) days from the conclusion of the Discussion.Failure on the
part of Revenue Officers to comply with the periods indicated herein shall be meted with penalty as
provided by existing laws, rules and regulations.
b. Annex A of Revenue Memorandum Circular 15-2020;

Procedures in Responding to the Deficiency Tax Assessments

A. During the Discussion of Discrepancy

Any findings of discrepancies/disallowances that may lead to deficiency assessments that were
discovered during the audit/investigation by the Bureau of Internal Revenue (BIR) shall be sent through
a "Notice of Discrepancy" and the same shall be explained to you or your authorized representative
during the Discussion of Discrepancy.

- If you agree with the audit findings and the corresponding deficiency tax type/s as presented by the
Revenue Officer/Group Supervisor handling the audit/investigation of your case per electronic Letter of
Authority No. ____________ , dated _________ you can sign the Agreement Form and pay the
deficiency tax type/s, including the applicable penalties and interest.

- If you do not agree with the audit findings as presented during the discussion, the tax docket of your
case shall be transmitted to the reviewing office in the National Office or Revenue Region for the
issuance of deficiency tax assessment, as the case may be, pursuant to Revenue Regulations (RR) No. 12-
99, as amended.

B. Upon Receipt of the Deficiency Tax Assessment -Preliminary Assessment Notice

(PAN)/Formal Letter of Demand and Final Assessment Notice (FLD/FAN)

After review and evaluation by the reviewing office, the said Office shall issue a PAN, which should
contain the computation of deficiency tax, the facts, the law, rules and regulations or jurisprudence on
which the proposed deficiency assessment is based. If you fail to respond to or pay within fifteen (15)
days from the date of receipt of the PAN, an FLD and FAN shall be issued calling for payment of the
deficiency tax(es), inclusive of the applicable penalties.

The FLD/FAN calling for payment of your deficiency tax liabilities shall likewise state the facts, the law,
rules and regulations, or jurisprudence on which the assessment is based, otherwise the assessment
shall be considered void. In case you do not agree, you may file an administrative protest within thirty
(30) days from receipt of the FLD/FAN.

C. Filing of Administrative Protest

Filing of Administrative Protest with the Regional Director/Assistant Commissioner or Authorized

Higher Revenue Official

The protest on the FLD/FAN must be addressed to Assistant Commissioner/Regional Director or

Authorized Higher Revenue Official and filed with the office of the concerned aforementioned Revenue
Official (Office that issued the FLD/FAN) for proper recording and evaluation of your protest to
determine if it is filed in accordance with Section 228 of the National Internal Revenue Code of 1997, as
amended, and its implementing rules and regulations.

Your protest on the deficiency assessment may be a written request for reconsideration or
reinvestigation. A request for reconsideration is a plea for the re-evaluation of the deficiency tax
assessment on the basis of existing records you have already submitted prior to the issuance of the
FLD/FAN, whereas a request for reinvestigation is a plea for re-evaluation of your case on the basis of
newly-discovered or additional evidence that you intend to present in the reinvestigation of your case.

You must state in your written protest the following:

1. Date of the assessment notice;

2.The nature of the protest, whether reconsideration or reinvestigation. If it is reinvestigation, specify

the newly discovered or additional evidence you intend to present, which should be submitted within
sixty (60) days from the date of filing of your request for reinvestigation; and

3. Applicable law, rules and regulations or jurisprudence on which the protest is based.

Your protest shall be considered void and without force and effect without the aforementioned
information/condition.

In case you fail to file a valid protest against the FLD/FAN within the 30-day period, the deficiency tax
assessment shall become final, executory and demandable, and no request for reconsideration or
reinvestigation shall be granted after the said period. The Assistant Commissioner/Regional Director or
Authorized Higher Revenue Official shall issue a Final Decision on Disputed Assessment (FDDA) on your
protest which shall state the (i) facts, the applicable law, rules and regulations, or jurisprudence on
which the decision is based, and (ii) that the same is his final decision. If you do not agree with the
decision of the aforementioned Revenue Official as contained in the FDDA, you may file a request for
reconsideration with the Office of the Commissioner (CIR) or file a judicial protest with the Court of Tax
Appeals within 30 days from receipt of the FDDA.

Filing of Administrative Protest with the Commissioner of Internal Revenue (CIR)

Only inactions or adverse decisions of the Assistant Commissioner/Regional Director or Authorized

Higher Revenue Official shall be filed with the Office of the CIR. The said administrative protest/appeal
shall be evaluated and acted upon by the Appellate Division in the National Office.

Manner of Filing of Administrative Protest

Your protest may be filed in person or sent through registered mail with the Office mentioned in C.l
and/or C.2. ln case of the latter, the date of mailing, as shown by the post office stamp on the envelope,
shall be considered as the date of filing of protest. For this purpose, the envelope shall form part of the
docket of your case.

Filing of Appeal with the Court of Tax Appeals (CTA)

If your protest is not acted upon by the Commissioner's authorized representative (i.e.,

Assistant Commissioner, Regional Director) within one hundred eighty (180) days, you may file an appeal
with the CTA within thirty (30) days after the expiration of the said period. The 180-day period shall be
reckoned from the date of filing of the protest in case your protest is a request for reconsideration, or
from the date of submission of the required documents, which should be within the 60-day period as
mentioned in C.l hereof, in case you filed a protest for reinvestigation. Likewise, if your protest is not
acted upon by the CIR within 180 days counted from the date of filing of the protest, you may appeal
with the CTA within 30 days after the expiration of the 180-day period.
In case you choose to wait for the final decision of the BIR on the disputed assessment, you must file
your appeal with the CTA within 30 days from receipt of the FDDA issued by the Assistant
Commissioner/Regional Director or Authorized Higher Revenue Official, or 30 days from receipt of the
decision of the CIR. Failure on your part to appeal to the CTA within the said period shall render the
decision of the BIR as final, executory and demandable.

Removed: Notice of Informal Conference.

Presently, there is no requirement for the issuance of a Notice for Informal Conference. R.R. 18-2013
deleted such requirement.

Before: Notice of Informal Conference - It is a written notice informing a TP that the findings of the audit
conducted on his books of account and accounting records indicate that there is a discrepancy in his tax
payments which has to be paid.

Preliminary Assessment Notice

- Communication issued by the Regional Assessment Division or by the CIR or his duly authorized
representative informing a taxpayer who has been audited of the finding of the RO, following the review
and evaluation of these findings;

- The PAN shall be in writing, and show in detail the facts and the law, rules andregulations, or
jurisprudence on which the proposed assessment is based;

- PAN is issued to the taxpayer at least by registered mail;

- Instances when PAN is not required: WARME (Sec.228,NIRC);

Section 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.

See Revenue Regulations No. 12-99 as amended by Revenue Regulations No. 18-2013
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —

Mode of procedure in the issuance of a deficiency tax assessment: 3.1.1 Preliminary Assessment
Notice (PAN). — If after review and evaluation by the Commissioner or his duly authorized
representative, as the case may be, it is determined that there exists sufficient basis to assess the
taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer a Preliminary
Assessment Notice (PAN) for the proposed assessment. It shall show in detail the facts and the law, rules
and regulations, or jurisprudence on which the proposed assessment is based. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in
which case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued calling for
payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. If the taxpayer,
within fifteen (15) days from date of receipt of the PAN, responds that he/it disagrees with the findings
of deficiency tax or taxes, an FLD/FAN shall be issued within fifteen (15) days from filing/submission of
the taxpayer’s response, calling for payment of the taxpayer's deficiency tax liability, inclusive of the
applicable penalties.

Exceptions to Prior Notice of the Assessment. — Pursuant to Section 228 of the Tax Code, as amended,
a PAN shall not be required in any of the following

cases:

(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the
tax appearing on the face of the tax return filed by the taxpayer; or

(ii) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or

(iii) 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

(iv) When the excise tax due on excisable articles has not been paid; or

(v) When an article locally purchased or imported by an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-
exempt persons. In the above-cited cases, a FLD/FAN shall be issued outright.

Reply

This must be in writing to be filed within 15days from the date of the receipt of the PAN.

***Notes: Failure of the taxpayer to reply to a PAN makes the taxpayer in default and

authorizes the revenue officials to issue the FAN. However, no additional tax liability

or deficiency tax arises from such failure to reply to a PAN.

Final Assessment Notice or Final Letter of Demand

This is a declaration of deficiency taxes issued to a taxpayer who fails to respond to PAN within the
prescribed period of time or whose reply to the PAN was found to be without merit.

a. Requisites

i. In writing;

ii. Contains computation of tax liabilities;

iii. Demand for payment within the prescribed period;

iv. The facts, law, rules and regulations, jurisprudence on which the assessment is based;

v. Signals the time when penalties and interests begin to accrue against the taxpayer;

vi. Pursuant to a valid Letter of Authority;

vii. Signed by the Commissioner or his or her duly authorized representative; and

viii. Served on and received by the taxpayer;

ix. Made within the Sec.3.1.2.RR12-99 prescriptive period to make the assessment.

Compromise and Abatement

Compromise- it is a contract whereby the parties, by reciprocal concessions, avoid a litigation or to put
an end to one already commenced. It reduces the amount of taxpayer’s liability.

Abatement- it is the cancellation of the entire amount of tax payable because the tax appears to be
unjustly or excessively assessed or the costs do not the collection of the amount due.

Distinguish: Compromise v. Compromise Penalty

Compromise is a contract whereby the parties, by reciprocal concessions, avoid a litigation or to put an
end to one already commenced. It reduces the amount of taxpayer’s liability.

A compromise penalty is an amount of money paid by a taxpayer to compromise a tax violation that he
has committed, instead of the BIR instituting a criminal action against the taxpayer. A compromise is
consensual in character, hence, may not be imposed on the taxpayer without his consent. [Sec. 6, RR 12-
99]

Tax Credit and Tax Refund

FEBTC v. CIR, G.R. No. 149589, 15 September 2006

A tax refund is in the nature of a tax exemption which must be construed strictissimi juris against the
taxpayer. To stress, the taxpayer must present convincing evidence to substantiate a claim for refund.
Without any documentary evidence on record, petitioner failed to discharge the burden of proving its
right to a tax credit/tax refund. Therefore, the CTA and CA correctly denied its claim.
CIR v. Fortune Tobacco Corporation 559 SCRA 160 (2008)

Tax exemption is granted by the legislature thus, the one who claims an exemption from the burden of
taxation must justify his claim by showing that the legislature intended to exempt him by words too
plain to be mistaken. In the same manner, a claim for tax refund may also be based on statutes granting
tax exemption or tax refund. In this case, the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an exemption.

CIR v. PNB, G.R. No. 161997, 25 October 2005

Any excess of the total quarterly payments over the actual income tax computed and shown in the
adjustment or final corporate income tax return shall either (a) be refunded to the corporation, or (b)
may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding
taxable year. The corporation must signify in its annual corporate adjustment return its intention
whether to request for the refund of the overpaid income or claim for automatic tax credit to be applied
against its income tax liabilities for the quarters of the succeeding taxable year by filling the appropriate
box on the corporate tax return.

Philippine Phosphate Fertilizer Corp. v. CIR, G.R. No. 141973, 28 June 2005

The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their
claims. This is because tax refunds are in the nature of tax exemptions, the statutes of which are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Taxes are
the lifeblood of the nation, therefore statutes that allow exemptions are construed strictly against the
grantee and liberally in favor of the government.

Lu Do & Ym Corp. v. Central Bank, 108 Phil. 566

The two-year period within which suits for recovery of taxes erroneously or illegally collected should be
filed is a prescriptive period and not a jurisdictional fact.

Banco Filipino v. CA, CTA, and CIR, 155682, 27 March 2007

In fine, the document which may be accepted as evidence of the third condition, that is, the fact of
withholding, must emanate from the payor itself, and not merely from the payee, and must indicate the
name of the payor, the income payment basis of the tax withheld, the amount of the tax withheld and
the nature of the tax paid.

Systra Phils. Inc. vs. CIR, GR No. 176290, 21 September 2007

A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has
two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate
or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be
irrevocable for that taxable period. In exercising its option, the corporation must signify in its annual
corporate adjustment return (by marking the option box provided in the BIR form) its intention either to
carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the
alternative and the choice of one precludes the other.
This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax
Code. The phrase "such option shall be considered irrevocable for that taxable period" means that the
option to carry over the excess tax credits of a particular taxable year can no longer be revoked.

CIR vs. BPI, GR No. 178490, 7 July 2009

As to which option the taxpayer chose is generally a matter of evidence. It is axiomatic that a claimant
has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax
refunds, like tax exemptions, are construed strictly against the taxpayer.

CIR vs. Far East Bank & Trust Company, GR No. 173854, 15 March 2010

The burden is on the taxpayer to prove its entitlement to the refund. Moreover, the fact that the
petitioner failed to present any evidence or to refute the evidence presented by respondent does not
ipso facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a
taxpayer’s claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund
rests on the taxpayer. And while the petitioner has the power to make an examination of the returns
and to assess the correct amount of tax, his failure to exercise such powers does not create a
presumption in favor of the correctness of the returns. The taxpayer must still present substantial
evidence to prove his claim for refund. As we have said, there is no automatic grant of a tax refund.

Belle Corporation vs. CIR, GR No. 181298, 10 January 2011

The option to carry over excess income tax payments is irrevocable under Section 76 of the 1997 NIRC.
To repeat, under the new law, once the option to carry-over excess income tax payments to the
succeeding years has been made, it becomes irrevocable. Thus, applications for refund of the unutilized
excess income tax payments may no longer be allowed.

Winebrenner & Inigo Insurance Brokers, Inc. vs. CIR, GR No. 206526, 28 January 2015

What Section 76 requires, just like in all civil cases, is to prove the prima facie entitlement to a claim,
including the fact of not having carried over the excess credits to the subsequent quarters or taxable
year. It does not say that to prove such a fact, succeeding quarterly ITRs are absolutely needed. This
simply underscores the rule that any document, other than quarterly ITRs may be used to establish that
indeed the noncarry over clause has been complied with, provided that such is competent, relevant and
part of the records.

Metropolitan Bank & Trust Company v. The Commissioner of Internal Revenue, G.R. No. 182582, 17
April 2017

The right of Metrobank for refund has prescribed. A claimant for refund must first file an administrative
claim for refund before the CIR, prior to filing a judicial claim before the CTA. Notably, both the
administrative and judicial claims for refund should be filed within the two (2)-year prescriptive period
indicated therein, and that the claimant is allowed to file the latter even without waiting for the
resolution of the former in order to prevent the forfeiture of its claim through prescription.

Commissioner of Internal Revenue v. Univation Motor Philippines, Inc., G.R. No. 231581, 10 April 2019

No violation of the doctrine of exhaustion of administrative remedies. The law only requires that an
administrative claim be priorly filed. As long as the administrative claim and the judicial claim were filed
within the two-year prescriptive period, then there was exhaustion of the administrative remedies.2-
year prescriptive period to claim a refund actually commences to run, at the earliest, on the date of the
filing of the adjusted final tax return because this is where the figures of the gross receipts and
deductions have been audited and adjusted, reflective of the results of the operations of a business
enterprise.

Commissioner of Internal Revenue Vs. Philippine National Bank, G.R. No. 212699, 13 March 2019

If the excess tax credits of the preceding year were deducted, whether in whole or in part, from the
estimated income tax liabilities of any of the taxable quarters of the succeeding taxable year, the total
amount of the tax credits deducted for the entire taxable year should appear in the Annual ITR under
the item "Prior Year's Excess Credits." Otherwise, or if the tax credits were carried over to the
succeeding quarters and the corporation did not report it in the annual ITR, there would be a
discrepancy in the amounts of combined income and tax credits carried over for all quarters and the
corporation would end up shouldering a bigger tax payable. It must be remembered that taxes
computed in the quarterly returns are mere estimates. It is the annual ITR which shows the aggregate
amounts of income, deductions, and credits for all quarters of the taxable year. It is the final adjustment
return which shows whether a corporation incurred a loss or gained a profit during the taxable quarter.
Thus, the presentation of the annual ITR would suffice in proving that prior year's excess credits were
not utilized for the taxable year in order to make a final determination of the total tax due

VI. VAT REFUND

ZERO-RATED SALES OR GOODS SUBJECT TO 12% VAT RATE (Sec. 106[A][2])

a. Sale of raw materials or packaging materials to a nonresident 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 Bangko Sentral ng Pilipinas (BSP)

b. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production; and

c. Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws.

SECTION 108 (B) TRANSACTIONS SUBJECT TO ZERO PERCENT RATE

The following services performed in the Philippines by VAT- registered persons shall be subject to zero
percent (0%) rate.

(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph, rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);

(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero
percent (0%) rate;

(4) Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof: Provided, That these services shall be exclusive
for international shipping or air transport operations; [4]

(5) Services performed by subcontractors and/or contractors in processing, converting, or

manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual
production;

(6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; and

(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels.

(8) Services rendered to:

(i) Registered enterprises within a separate customs territory as provided under special law; and

(ii) Registered enterprises within tourism enterprise zones as declared by TIEZA subject to the provisions
under Republic Act No. 9593 or the Tourism Act of 2009.

Tax Credit Method

Tax credit method – Input taxes shifted by the sellers to the buyer are credited against the buyer’s
output taxes when he in turn sells the taxable goods, properties, or services.

Under the VAT method of taxation, which is invoice-based, an entity can credit against or subtract from
the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. [CIR v.
Seagate, G.R. No. 153866 (2005)].

The VAT payable is the excess of output tax over input tax:

OUTPUT VAT – INPUT VAT = VAT PAYABLE or EXCESS INPUT TAX

Note: If input VAT is higher than output VAT, the excess input tax is carried over to the succeeding
taxable quarter/s as tax credit. However, any input tax attributable to Zero rated sales may instead be
refunded or credited against other internal revenue taxes. [Sec. 4.110-7, RR 16-2005]

Section 112

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case of zero-rated sales under Section106(A)
(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds
thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively
zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions,
it shall be allocated proportionately on the basis of the volume of sales. Provided, finally, That for a
person making sales that are zero-rated under Section 108(B) (6), the input taxes shall be allocated
ratably between his zero-rated and nonzero-rated sales.

(B) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this
Code 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.

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. -In proper cases, the
Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of
submission of the official receipts or invoices and other documents in support of the application filed in
accordance with Subsections (A) and (B) hereof: Provided, That should the Commissioner find that the
grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the
denial. In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax
Appeals: Provided, however, That failure on the part of any official, agent, or employee of the BIR to act
on the application within ninety (90) days period shall be punishable under Section 269 of this Code.

(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or by
his duly authorized representative without the necessity of being countersigned by the Chairman,
Commission on audit, the provisions of the Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the
Commission on Audit.

Quantum of evidence needed to prove claim

CIR v. Mirant Pagbilao Corp., G.R. 172129, 12 September 2008

- Claim for refund or tax credit filed out of time – Sec. 112(A) of the NIRC clearly 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.
Proper party to claim refund/credit

Contex Corporation v. CIR, G.R. No. 151135, 2 July 2004

- Ecozone registered enterprise is not the proper party to claim VAT refund of the VAT inadvertently
passed on to it by its supplier of raw materials whose sale is a zero-rated sale. Rather, the proper party is
the supplier.

Philippine Geothermal v. CIR, 154028, 29 July 2005

- For indirect taxes like VAT, the proper party to question or seek a refund of the tax is the statutory
taxpayer/seller or the payor, not the end consumer.

Prescriptive Period (Section 112(C))

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. -In proper cases, the
Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of
submission of the official receipts or invoices and other documents in support of the application filed in
accordance with Subsections (A) and (B) hereof: Provided, That should the Commissioner find that the
grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the
denial. In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax
Appeals: Provided, however, That failure on the part of any official, agent, or employee of the BIR to act
on the application within ninety (90) days period shall be punishable under Section 269 of this Code.

Cases:

Contex Corporation v. CIR, G.R. No. 151135, 2 July 2004

- Ecozone registered enterprise is not the proper party to claim VAT refund of the VAT inadvertently
passed on to it by its supplier of raw materials whose sale is a zero-rated sale. Rather, the proper party is
the supplier

CIR v. Seagate Technology Phils., G.R. No. 153866, 11 February 2005

- A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the
effective zero rating of the transactions of the taxpayer. The nature of its business and transaction can
easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied
documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply for
their effective zero rating. Otherwise, their VAT exemption would be determined, not by their nature,
but by the taxpayer’s negligence – a result not at all contemplated. Administrative convenience cannot
thwart legislative mandate

- VAT registration indispensable to VAT refund

The BIR regulations additionally requiring an approved prior application for effective zero rating cannot
prevail over the clear VAT nature of respondent’s transactions.

- Compliance with all requisites for VAT refund or credit.

First, respondent is a VAT-registered entity. Second, the input taxes paid on the capital goods of
respondent are duly supported by VAT invoices and have not been offset against any output taxes. And
third, no question as to either the filing of such claims within the prescriptive period or the validity of
the VAT returns has been raised.

Philippine Geothermal v. CIR, 154028, 29 July 2005

- For indirect taxes like VAT, the proper party to question or seek a refund of the tax is the statutory
taxpayer/seller or the payor, not the end consumer.

Atlas Consolidated v. CIR, G.R. Nos. 141104 & 148763, June 8, 2007

- Although the Court agreed with the petitioner corporation that the two-year prescriptive period for the
filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly
VAT return, and that sales to EPZA-registered enterprises operating within economic processing zones
were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it still denies the
claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and
effectively zero-rated sales, for not being established and substantiated by appropriate and sufficient
evidence.

Revenue Regulations No. 3-88 also required it to present evidence proving actual zerorated VAT sales to
qualified buyers, such as

(1) photocopy of the approved application for zero-rate if filing for the first time;

(2) sales invoice or receipt showing the name of the person or entity to whom the goods or services
were delivered, date of delivery, amount of consideration, and description of goods or services
delivered; and

(3) the evidence of actual receipt of goods or services.

Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales
in the amount it had declared in its returns; whether all the input VAT subject of its applications for
refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the
input VAT against its output VAT liabilities, are all questions of fact which could only be answered after
reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and
which this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari
under Rule 45 of the revised Rules of Court.

CIR v. Mirant Pagbilao Corp., G.R. 172129, 12 September 2008

- Claim for refund or tax credit filed out of time – Sec. 112(A) of the NIRC clearly 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.

OR by itself sufficiently proves payment of VAT –The law considers a duly-executed VAT invoice or
official receipt referred to in the above provision as sufficient evidence to support a claim for input tax
credit.
San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345, 25 November
2009

- Effective zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as
petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect tax so as
to encourage the development of particular industries

Panasonic Communications Imaging Corporation of the Philippines v. CIR 612 SCRA 28, G.R. No.
178090, 8 February 2010

ISSUE: Whether the CTA en banc correctly denied Panasonics claim for refund of the VAT it paid as a
zero-rated taxpayer on the ground that its sales invoices did not state on their faces that its sales were
zero-rated.

RULING: YES. If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer
but it fails to comply with the invoicing requirements in the issuance of sales invoices (e.g., failure to
indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be denied considering that
the invoice it is issuing to its customers does not depict its being a VAT registered taxpayer whose sales
are classified as zerorated sales.

Further, the printing of the word zero-rated on the invoice helps segregate sales that are subject to 10%
(now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, petitioner
Panasonic has been unable to substantiate its claim for refund.

CIR v. Aichi Forging Co. of Asia, Inc., G.R. No. 184823, 6 October 2010

- The CIR has 120 days, from the date of the submission of the complete documents within which to
grant or deny the claim for refund/credit of input vat.

In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA
within 30 days from receipt of the decision of the CIR.

However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the
remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

- A taxpayer is entitled to a refund either by authority of a statute expressly granting

such right, privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the
return of taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his
entitlement to a refund but also his compliance with the procedural due process.

As between the Civil Code and the Administrative Code of 1987, it is the latter that must prevail being
the more recent law, following the legal maxim, Lex posteriori derogat priori.

- The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” under
Subsection (A) of Section 112 of the NIRC refers to applications for refund/credit filed with the CIR and
not to appeals made to the CTA.
J.R.A. Philippines, Inc. vs. CIR, GR No. 177127, 11 October 2010

- The failure to print the word “zero-rated” in the invoice/receipts is fatal to a claim for credit/refund of
input VAT on zero rated sales.

Silicon Philippines, Inc. vs. CIR, GR No. 172378 17 January 2011

- Upon the filing of an administrative claim, the CIR has 120 days to grant refund or issue TCC or to fully
or partially deny the claim. A judicial claim shall be filed within a period of 30 days after receipt of the
CIR's decision or after the expiration of the 120-day period, whichever is sooner.

Periods for appeal in tax cases are jurisdictional in nature. Any claim filed in a period less than or beyond
the 120-day period or the 30-day period provided by the Tax Code is outside the jurisdiction of the CTA.

Southern Philippines Power Corp. v. CIR, 179632, 19 October 2011

Issue: Whether or not the word “zero-rated” must be reflected on the official receipts for the petitioner
to be entitled to a tax credit of unutilized VAT input on its zero-rated transactions.

Ruling: No. NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be evidenced by
a VAT invoice "or" official receipt issued in accordance with Section 113. Section 113 does not
distinguish between an invoice and a receipt when used as evidence of a zero-rated transaction.
Consequently, the CTA should have accepted either or both of these documents as evidence of
petitioner’s zero-rated transactions. Section 237 of the NIRC also makes no distinction between receipts
and invoices as evidence of a commercial transaction. The Court held in Seaoil Petroleum Corporation v.
Autocorp Group that business forms like sales invoices are recognized in the commercial world as valid
between the parties and serve as memorials of their business transactions. The Supreme Court also
ruled that petitioner’s failure to indicate its zerorated sales in its VAT returns is not sufficient reason to
deny it its claim for tax credit or refund when there are other documents from which the CTA can
determine the veracity of SPP’s claim. Although such failure partakes of a criminal act under Section 255
of the NIRC could warrant the criminal prosecution of the responsible person/s, the omission does not
furnish ground for the outright denial of the claim for tax credit or refund if such claim is in fact justified.

Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485, 12 February
2013

- Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies and renders the petition premature and thus without
a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer’s petition.
Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles.

However, San Roque exempted taxpayers who had relied on the Bureau of Internal Revenue Ruling DA-
489-03 from the strict application of Section 112(C) of the National Internal Revenue Code. This Court
characterized the Bureau of Internal Revenue Ruling DA-489-03 as a general interpretative rule, which
has "misled all taxpayers into filing prematurely judicial claims with the Court of Tax Appeals." Although
the Bureau of Internal Revenue Ruling DA-489-03 is an "erroneous interpretation of the law," this Court
made an exception explaining, "taxpayers should not be prejudiced by an erroneous interpretation by
the Commissioner, particularly on a difficult question of law."
Pilipinas Total Gas, Inc. vs. CIR, GR No. 207112, 8 December 2015

- To summarize, for the just disposition of the subject controversy, the rule is that from the date an
administrative claim for excess unutilized VAT is filed, a taxpayer has thirty (30) days within which to
submit the documentary requirements sufficient to support his claim, unless given further extension by
the CIR. Then, upon filing by the taxpayer of his complete documents to support his application, or
expiration of the period given, the CIR has 120 days within which to decide the claim for tax credit or
refund. Should the taxpayer, on the date of his filing, manifest that he no longer wishes to submit any
other addition documents to complete his administrative claim, the 120-day period allowed to the CIR
begins to run from the date of filing.

CE Luzon Geothemal Power Company, Inc. v. Commissioner Internal Revenue, G.R. No. 197526, 26 July
2017

In the present case, only CE Luzon's second quarter claim was filed on time. Its claims for refund of
creditable input tax for the first, third, and fourth quarters of taxable year 2003 were filed prematurely.
It did not wait for the Commissioner of Internal Revenue to render a decision or for the 120-day period
to lapse before elevating its judicial claim with the Court of Tax Appeals.

However, despite its non-compliance with Section 112(C) of the National Internal Revenue Code, CE
Luzon's judicial claims are shielded from the vice of prematurity. It relied on the Bureau of Internal
Revenue Ruling DA-489-03,[121] which expressly states that "a taxpayer-claimant need not wait for the
lapse of the 120-day period before it could seek judicial relief with the [Court of Tax Appeals] by way of a
Petition for Review."San Roque exempted taxpayers who had relied on the Bureau of Internal Revenue
Ruling DA-489-03 from the strict application of Section 112(C) of the National Internal Revenue Code.
This Court characterized the Bureau of Internal Revenue Ruling DA489-03 as a general interpretative
rule, which has "misled all taxpayers into filing prematurely judicial claims with the Court of Tax
Appeals." Although the Bureau of Internal Revenue Ruling DA-489-03 is an "erroneous interpretation of
the law," this Court made an exception explaining that "taxpayers should not be prejudiced by an
erroneous interpretation by the Commissioner, particularly on a difficult question of law."

Taxpayers who have relied on the Bureau of Internal Revenue Ruling DA-489-03, from its issuance on
December 10, 2003 until its reversal on October 6, 2010 by this Court in Aichi, are, therefore, shielded
from the vice of prematurity. CE Luzon may claim the benefit of the Bureau of Internal Revenue Ruling
DA-489-03. Its judicial claims for refund of creditable input tax for the first, third, and fourth quarters of
2003 should be considered as timely filed.

San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 203249, 23 July 2018

- The 120-day and 30-day periods are mandatory and jurisdictional. Thus, noncompliance with the
mandatory 120+30-day period renders the petition before the CTA void. However, it is to be noted that
BIR Ruling No. DA-489-03 provides,

[A] taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial
relief with the CTA by way of Petition for Review. It is a general interpretative rule issued by the CIR
pursuant to its power under Section 4 of the NIRC, hence, applicable to all taxpayers. Thus, taxpayers
can rely on this ruling from the time of its issuance on 10 December 2003.
In other words, the 120+30-day period is generally mandatory and jurisdictional from the effectivity of
the 1997 NIRC on 1 January 1998, up to the present. By way of an exception, judicial claims filed during
the window period from 10 December 2003 to 6 October 2010, need not wait for the exhaustion of the
120-day period.

In this case, the two judicial claims filed by the petitioner fell within the window period, thus, the CTA
can take cognizance over them.

Steag State Power, Inc. v. Commissioner of Internal Revenue, G.R. No. 205282, 14 January 2019

- Since then, the 120+30-day periods have been applied to pending cases resulting in the denial of
taxpayers' claims due to late filing. This Court finds no reason to make an exception here.

A claim for unutilized input value-added tax is in the nature of a tax exemption. Thus, strict adherence to
the conditions prescribed by the law is required of the taxpayer. Refunds need to be proven and their
application raised in the right manner as required by law. Here, noncompliance with the 120+30-day
periods is fatal to the taxpayer's judicial claim.

Commissioner of Internal Revenue v. Team Energy Corporation, G.R. No. 230412, 27 March 2019

- Respondent's failure to submit a Certificate of Compliance issued by the Energy Regulatory

Commission does not disqualify it from claiming a tax refund or tax credit

- As correctly argued by the respondent, the basis for the VAT zero-rated treatment of the supplier is the
tax exemption of the purchaser of services, and not the qualification of the supplier itself, in order to
relieve the tax-exempt purchaser from tax burden considering that it may not be able to offset or utilize
any input tax passed on by its supplier of services, had the services it purchased been subject to VAT of
12%.

It bears emphasis that effective zero-rating is not intended as benefit to the person legally liable to .pay
the tax, such as the [respondent,] but to relieve certain exempt entities, such as the NPC, from the
burden of indirect tax so as to encourage the development of particular industries.

Commissioner of Internal Revenue v. Chevron, G.R. No. 233301, 17 February 2020

- The main issue resolved by the CTA-Special First Division in the Decision dated July 12, 2010 was
Chevron's entitlement to refund or credit because of its overpayment of excise taxes on imported
finished unleaded premium gasoline and diesel fuel. In its decision, the CTA-Special First Division found
sufficient basis for Chevron's claim and partially granted the petition. The BIR was ordered to refund.
Clearly, the CTA-Special First Division disposed of the case in its entirety and no other issues were left to
further rule upon. Therefore, the appropriate remedy to challenge the Resolution dated December 3,
2010 is an ordinary appeal, not a petition for certiorari.

For cases before the CTA, a decision rendered by a division of the CTA is appealable to the CTA En Banc
as provided by Section 18 of R.A. No. 1125, as amended. CTA En Banc has exclusive appellate jurisdiction
relative to the review of the court divisions' decisions or resolutions on motion for reconsideration or
new trial, in cases arising from administrative agencies such as the BIR.
Zuellig-Pharma Asia Pacific Ltd. Phils. ROHQ v. Commissioner of Internal Revenue, G.R. No. 244154, 15
July 2020

- It is not required that the requests for additional documents by the taxing authority be made in written
form. All subsequent verbal requests made by the tax authority are sufficient for the purpose of
determining the reckoning point of the 120-day period.

VII. Civil Penalties

Surcharge (Section 248)

This is a civil penalty imposed in addition to the tax required to be paid [Sec. 248, NIRC]Rates of
Surcharge (25% or 50%)

1. 25% of the amount due in the following cases:

a. Failure to file any return and pay the tax due on the prescribed date; or

b. Filing a return with an internal revenue officer other than those with whom the return is required to
be filed, unless the CIR authorizes otherwise; or

c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or

d. Failure to pay the full or part of the amount of tax due on or before the date prescribed for its
payment [Sec.248(A), NIRC] 2. 50% of the tax or of the deficiency tax in case any payment has been
made, in the following cases:

a. Willful neglect to file the return within the prescribed period; or

b. A false or fraudulent return is willfully made [Sec. 248(B), NIRC]

Prima facie evidence of a false or fraudulent return

• Substantial underdeclaration of sales, receipts or income – failure to report sales, receipts or income in
an amount exceeding 30% of that declared per return

• Substantial overstatement of deductions – a claim of deductions in an amount exceeding 30% of actual

deductions [Sec. 248(B), NIRC]

Interest (Section 249)

In general, interest is assessed and collected on any unpaid amount of tax at the rate of 12% or double
the legal interest rate for loans or forbearance of any money as set by the BSP from the date prescribed
for payment until the amount is fully paid. [Sec. 249(A), NIRC; Sec. 2, RR 21-2018]

Note: The rate of interest per BSP Circular No. 799 series of 2013 for loans or forbearance of any
money in the absence of an express stipulation is 6%. Thus, the interest rate imposable shall be 12%.
[Sec. 2, RR 21-2018]
Compromise Penalty

A compromise penalty is an amount of money paid by a taxpayer to compromise a tax violation that he
has committed, instead of the BIR instituting a criminal action against the taxpayer. A compromise is
consensual in character, hence, may not be imposed on the taxpayer without his consent.[Sec. 6, RR 12-
99]

Note: All criminal violations may be compromised except: (a) those already filed in court, or (b) those
involving fraud.

VIII. Collection
Administrative remedies

Tax Lien (Section 219)

A tax lien is a legal claim or charge on property, whether real or personal, established by law as a source
of security for the payment of tax obligations. [HSBC v. Rafferty, G.R. No. L-13188 (1918)]

Nature and extent of tax lien

1. When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand, the amount
so demanded shall be a lien in favor of the government from the time the assessment was made by the
CIR until paid with interests, penalties, and costs that may accrue in addition thereto upon all property
and rights to property belonging to the taxpayer.

2. The lien shall NOT be valid against any mortgagee, purchaser or judgment creditor until notice of such
lien shall be filed by the CIR in the office of the Register of Deeds of the province or city where the
property of the taxpayer is situated or located.

Actual Distraint [Section 207(A)]

Procedure for actual distraint

1. Commencement of distraint proceedings The warrant of distraint is issued by:

a. CIR or his duly authorized representative – where the amount involved is more than P1M

b. Revenue District Officer – where the amount involved is P1M or less [Sec. 207(A), NIRC]

Constructive Distraint (Section 206)

Grounds for Constructive Distraint:

When the taxpayer is:

1. delinquent; or

2. retiring from any business subject to tax; or

3. intending to leave the Philippines; or

4. intending to remove his property from the Philippines or to hide or conceal his property; or
5. planning to perform any act tending to obstruct the proceedings for collecting the tax due or which
may be due from him [Sec. 206, NIRC]

How constructive distraint is effected:

1. By requiring the taxpayer or any person having possession or control of such property to:

a. sign a receipt covering the property distrained;

b. obligate himself to preserve the same intact and unaltered; and

c. not to dispose of the same in any manner whatever, without the express authority of the CIR.

2. In case the taxpayer or the person having the possession and control of the property refuses or fails to
sign the receipt, the revenue officer effecting the constructive distraint shall proceed to prepare a list of
such property and, in the presence of 2 witnesses, leave a copy thereof in the premises where the
property distrained is located. [Sec. 206, NIRC]

Sale of property (Section 209, 213)

Notice of sale of distrained properties

a. A notice of the public sale shall be posted in not less than 2 public places in the municipality or city
(one of which is the Office of the Mayor) where the distraint was made.

b. The notice shall specify the time and place of the sale.

c. The time of sale shall not be less than 20 days after notice to the owner and the publication or posting
of such notice. [Sec. 209, NIRC]

Sale at public auction

a. At the time of the public sale, the revenue officer shall sell the goods, chattels, or effects, or other
personal property at a public auction, to the highest bidder for cash or with the approval of the CIR,
through a duly licensed commodity or stock exchanges.

b. In case of stocks and other securities, the officer shall execute a bill of sale which he shall deliver to
the buyer, and copy thereof to the corporation, company or association that issued the stocks or other
securities.

c. Any residue over and above what is required to pay the entire claim, including expenses of sale and
distraint, shall be returned to the owner of the property sold. The expenses shall be limited to actual
expenses of seizure and preservation of the property pending the sale, excluding charges for the
services of the local internal revenue officer or his deputy. [Sec. 209, NIRC]

Sale of real property

At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the
taxes, penalties and interest. Otherwise, the sale shall proceed. [Sec. 213, NIRC]
In case the proceeds of the sale exceed the claim and cost of sale, the excess shall be turned over to the
owner of the property. [Sec. 213, NIRC]

Forfeiture (Section 215)

Forfeiture in Favor of the Government

a. If there is no bidder for the real property OR

b. If the highest bid is not sufficient to pay the taxes, penalties and costs] The Register of Deeds shall
transfer the title of the property upon registration with his office of any declaration of forfeiture. The
taxpayer may redeem said property by paying the full amount of taxes and penalties, with interest
thereon and the costs of sale within 1 year from date of forfeiture. Otherwise, the forfeiture shall
become absolute. [Sec. 215, NIRC]

Compromise and Abatement

Compromise- it is a contract whereby the parties, by reciprocal concessions, avoid a litigation or to put
an end to one already commenced. It reduces the amount of taxpayer’s liability.

Abatement- it is the cancellation of the entire amount of tax payable because the tax appears to be
unjustly or excessively assessed or the costs do not the collection of the amount due.

Suspension of Business Operation

In addition to other administrative and penal sanctions, the CIR or his duly authorized representative
may order the suspension or closure of a business establishment for any of the following violations:

1. Failure to issue receipts and invoices;

2. Failure to file VAT returns as required under Sec. 114 of the NIRC;

3. Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipt for
the taxable quarter; [Sec. 115(a), NIRC]

4. Failure of any person to register as required under Sec. 236 of the NIRC, in which case, the closure
shall be for a duration of not less than 5 days and shall be lifted only upon compliance [Sec. 115(b),
NIRC]

IX. Judicial Remedies

Form and Mode of Proceeding:

Civil and criminal action and proceedings instituted in behalf of the Government under the authority of
this Code or other law enforced by the BIR:

a. shall be brought in the name of the Government of the Philippines;

b. shall be conducted by legal officers of the BIR; and

c. shall be filed in court only with the approval of the CIR. [Sec. 220, NIRC]
Civil Action

Two ways by which civil liability is enforced:

a. By filing a civil case for the collection of sum of money with the proper regular court; and

b. By filing an answer to the petition for review filed by the taxpayer with the CTA

Criminal Action

Any person convicted of a crime under the NIRC shall:

a. be liable for the payment of the tax, and

b. be subject to the penalties imposed under the NIRC. [Sec. 253(a), NIRC]

Prescriptive period for criminal action

All violations of any provision of the NIRC shall prescribe after 5 years:

a. from the day of the commission of the violation, or

b. if not known at the time, from the discovery thereof and the institution of judicial proceedings for its
investigation and punishment. [Sec. 281, NIRC]

When prescription is interrupted

a. when proceedings are instituted against the guilty persons and the period shall run again if the
proceedings are dismissed for reasons not constituting jeopardy;

or

b. when the offender is absent from the Philippines.

Assessment not necessary before filing a criminal charge for tax evasion

An assessment is not necessary before a criminal charge can be filed. The criminal charge need only be
proved by a prima facie showing of a willful attempt to file taxes, such as failure to file a required tax
return. [CIR v. Pascor, G.R. No. 128315 (1999)]

Payment of tax not a defense Payment of the tax due after a criminal case has been filed shall not
constitute a valid defense in any prosecution for violation of the provisions under the NIRC. [Sec. 253(a),
NIRC]

Liability of person who aids or abets Any person who willfully aids or abets in the commission of a crime
penalized under the NIRC or who causes the commission of any such offense by another shall be liable in
the same manner as the principal. [Sec. 253(b), NIRC].

UNGAB vs. CUSI

"An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat
and evade the income tax."
FACTS: The BIR filed six criminal charges against Quirico Ungab, a banana saplings producer, for allegedly
evading payment of taxes and other violations of the NIRC. Ungab, subsequently filed a motion to quash
on the ground that (1) the information are null and void for want of authority on the part of the State
Prosecutor to initiate and prosecute the said cases; and (2)that the trial court has no jurisdiction to take
cognizance of the case in view of his pending protest against the assessment made by the BIR examiner.
The trial court denied the motion prompting the petitioner to file a petition for certiorari and prohibition
with preliminary injunction and restraining order to annul and set aside the information filed.

ISSUE: Is the contention that the criminal prosecution is premature since the CIR has not yet resolved
the protest against the tax assessment tenable?

HELD: No. The contention is without merit. What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but
a criminal prosecution for violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been followed, there is no requirement for the
precise computation and assessment of the tax before there can be a criminal prosecution under the
Code.

An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat
and evade the income tax. A crime is complete when the violator has knowingly and wilfully filed a
fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded
upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the
government's failure to discover the error and promptly to assess has no connections with the
commission of the crime.

COURT OF TAX APPEALS

Cases:

CIR vs. Hambrecht & Quist Philippines, Inc., GR No. 169225, 17 November 2010

The term “other matters” is limited only by the qualifying phrase that follows it. The appellate
jurisdiction of the CTA is not limited to cases which involve the decisions of the CIR on matters relating
to assessments or refunds. It covers other cases that arise out of the NIRC or related laws administered
by the BIR. The issue of whether or not the BIR’s right to collect taxes had already prescribed is a subject
matter falling under the NIRC. In connection therewith, the NIRC also states that the collection of taxes
is one of the duties of the BIR. Thus, from the foregoing, 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.

CIR vs. CTA and Petron, GR No. 207843, 15 July 2015

The CTA has no jurisdiction to determine the validity of a ruling issued by the CIR or the COC in the
exercise of their quasi-legislative powers to interpret tax laws. The phrase "other matters arising under
this Code," as stated in the second paragraph of Section 4 of the NIRC, should be understood as
pertaining to those matters directly related to the preceding phrase "disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto". It cannot extend to
evaluating the soundness of the interpretation of tax laws by the CIR.

BDO vs. Republic, GR No. 198756, 16 August 2016

Under R.A. 1125, as amended by R.A. 9282 grants the CTA the exclusive appellate jurisdiction to review
by appeal the decisions of the Commissioner of Internal Revenue in cases involving disputes arising from
the tax laws administered by the BIR. These include Revenue Memorandum Orders and Revenue
Memorandum Circulars because these are actually rulings or opinions of the CIR. However, the SC took
cognizance of the case because of the nature and importance of the issues raised.

Commissioner of Internal Revenue v. Lancaster Philippines, G.R. No. 183408, 12 July 2017

Sec. 7. Jurisdiction. - The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

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 or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial; x x x." (emphasis supplied)

Is the question on the authority of revenue officers to examine the books and records of any person
cognizable by the CTA?

From the foregoing, it is clear that the issue on whether the revenue officers who had conducted the
examination on Lancaster exceeded their authority pursuant to LOA No. 00012289 may be considered as
covered by the terms "other matters" under Section 7 of R.A. No. 1125 or its amendment, R.A. No. 9282.
The authority to make an examination or assessment, being a matter provided for by the NIRC, is well
within the exclusive and appellate jurisdiction of the CTA.

Whether the CTA can resolve an issue which was not raised by the parties.

Yes. Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA, or the Revised Rules of the Court of Tax
Appeals, the CTA is not bound by the issues specifically raised by the parties but may also rule upon
related issues necessary to achieve an orderly disposition of the case. The text of the provision reads:

SECTION 1. Rendition of judgment. - x x x In deciding the case, the Court may not limit itself to the issues
stipulated by the parties but may also rule upon related issues necessary to achieve an orderly
disposition of the case.

The above section is clearly worded. On the basis thereof, the CTA Division was, therefore, well within
its authority to consider in its decision the question on the scope of authority of the revenue officers
who were named in the LOA even though the parties had not raised the same in their pleadings or
memoranda, The CTA En Banc was likewise correct in sustaining the CTA Division's view concerning such
matter.

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION, PETITIONER, V.

COMMISSIONER OF INTERNAL RESPONDENT. [G.R. No. 198146, August 08, 2017].

FACTS: Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a
government-owned and controlled corporation created under Republic Act No. 9136 (RA 9136), also
known as the Electric Power Industry Reform Act of 2001 (EPIRA). Section 50 of RA 9136 states that the
principal purpose of PSALM is to manage the orderly sale, disposition, and privatization of the National
Power Corporation (NPC) generation assets, real estate and other disposable assets, and Independent
Power Producer (IPP) contracts with the objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner.

PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric
Power Plant (Pantabangan-Masiway Plant) and Magat Hydroelectric Power Plant (Magat Plant) on 8
September 2006 and 14 December 2006, respectively. First Gen Hydropower Corporation with its $129
Million bid and SN Aboitiz Power Corporation with its $530 Million bid were the winning bidders for the
Pantabangan-Masiway Plant and Magat Plant, respectively.

On 28 August 2007, the NPC received a letter dated 14 August 2007 from the Bureau of Internal
Revenue (BIR) demanding immediate payment of P3,813,080,472 deficiency value-added tax (VAT) for
the sale of the Pantabangan-Masiway Plant and Magat Plant. The NPC indorsed BIR's demand letter to
PSALM.

On 30 August 2007, the BIR, NPC, and PSALM executed a Memorandum of Agreement (MOA).

On 21 September 2007, PSALM filed with the Department of Justice (DOJ) a petition for the adjudication
of the dispute with the BIR to resolve the issue of whether the sale of the power plants should be
subject to VAT. The case was docketed as OSJ Case No. 2007-3.

On 13 March 2008, the DOJ ruled in favor of PSALM.

The BIR moved for reconsideration, alleging that the DOJ had no jurisdiction since the dispute involved
tax laws administered by the BIR and therefore within the jurisdiction of the Court of Tax Appeals (CTA).
Furthermore, the BIR stated that the sale of the subject power plants by PSALM to private entities is in
the course of trade or business, as contemplated under Section 105 of the National Internal Revenue
Code (NIRC) of 1997, which covers incidental transactions. Thus, the sale is subject to VAT. On 14
January 2009, the DOJ denied BIR's Motion for Reconsideration.

The BIR went up to the Court of Appeals which held that the petition filed by PSALM with the DOJ was
really a protest against the assessment of deficiency VAT, which under Section 204 of the NIRC of 1997 is
within the authority of the Commissioner of Internal Revenue (CIR) to resolve. In fact, PSALM's objective
in filing the petition was to recover the P3,813,080,472 VAT which was allegedly assessed erroneously
and which PSALM paid under protest to the BIR.
Quoting paragraph H of the MOA among the BIR, NPC, and PSALM, the Court of Appeals stated that the
parties in effect agreed to consider a DOJ ruling favorable to PSALM as the latter's application for refund.

Citing Section 4 of the NIRC of 1997, as amended by Section 3 of Republic Act No. 8424 (RA 8424) and
Section 7 of Republic Act No. 9282 (RA 9282), the Court of Appeals ruled that the CIR is the proper body
to resolve cases involving disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under the NIRC or other laws
administered by the BIR. The Court of Appeals stressed that jurisdiction is conferred by law or by the
Constitution; the parties, such as in this case, cannot agree or stipulate on it by conferring jurisdiction in
a body that has none.

In conclusion, the Court of Appeals found that the DOJ Secretary gravely abused his discretion
amounting to lack of jurisdiction when he assumed jurisdiction over OSJ Case No. 2007-3. PSALM moved
for reconsideration, which the Court of Appeals denied in its 3 August 2011 Resolution. Hence, this
petition.

ISSUE: Whether the sale of the power plants is subject to VAT?

To resolve the issue of whether the sale of the Pantabangan-Masiway and Magat Power Plants by
petitioner PSALM to private entities is subject to VAT, the Court must determine whether the sale is "in
the course of trade or business" as contemplated under Section 105 of the NIRC, which reads:

SEC 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 to 108 of this Code. xxx

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental thereto, by any person regardless of whether or
not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the
disposition of its net income and whether or not it sells exclusively to members or their guests), or
government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade
or business. (Emphasis supplied)

Under Section 50 of the EPIRA law, PSALM's principal purpose is to manage the orderly sale, disposition,
and privatization of the NPC generation assets, real estate and other disposable assets, and IPP
contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an
optimal manner.

PSALM asserts that the privatization of NPC assets, such as the sale of the Pantabangan-Masiway and
Magat Power Plants, is pursuant to PSALM's mandate under the EPIRA law and is not conducted in the
course of trade or business. PSALM cited the 13 May 2002 BIR Ruling No. 020-02, that PSALM's sale of
assets is not conducted in pursuit of any commercial or profitable activity as to fall within the ambit of a
VAT-able transaction under Sections 105 and 106 of the NIRC.
On the other hand, the CIR argues that the previous exemption of NPC from VAT under Section 13 of
Republic Act No. 6395 (RA 6395) was expressly repealed by Section 24 of Republic Act No. 9337 (RA
9337).

As a consequence, the CIR posits that the VAT exemption accorded to PSALM under BIR Ruling No. 020-
02 is also deemed revoked since PSALM is a successor-in-interest of NPC. Furthermore, the CIR avers
that prior to the sale, NPC still owned the power plants and not PSALM, which is just considered as the
trustee of the NPC properties. Thus, the sale made by NPC or its successors-in-interest of its power
plants should be subject to the 10% VAT beginning 1 November 2005 and 12% VAT beginning 1 February
2007.

We do not agree with the CIR's position, which is anchored on the wrong premise that PSALM is a
successor-in-interest of NPC. PSALM is not a successor-in-interest of NPC. PSALM, a government-owned
and controlled corporation, was created under the EPIRA law to manage the orderly sale and
privatization of NPC assets with the objective of liquidating all of NPC's financial obligations in an
optimal manner. Clearly, NPC and PSALM have different functions. Since PSALM is not a successor-in-
interest of NPC, the repeal by RA 9337 of NPC's VAT exemption does not affect PSALM.

In any event, even if PSALM is deemed a successor-in-interest of NPC, still the sale of the power plants is
not "in the course of trade or business" as contemplated under Section 105 of the NIRC, and thus, not
subject to VAT. The sale of the power plants is not in pursuit of a commercial or economic activity but a
governmental function mandated by law to privatize NPC generation assets. PSALM was created
primarily to liquidate all NPC financial obligations and stranded contract costs in an optimal manner. The
purpose and objective of PSALM are explicitly stated in Section 50 of the EPIRA law.

PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by PSALM is
not "in the course of trade or business" but purely for the specific purpose of privatizing NPC assets in
order to liquidate all NPC financial obligations. Thus, it is very clear that the sale of the power plants was
an exercise of a governmental function mandated by law for the primary purpose of privatizing NPC
assets in accordance with the guidelines imposed by the EPIRA law.

The CIR argues that the Magsaysay case, which involved the sale in 1988 of NDC vessels, is not
applicable in this case since it was decided under the 1986 NIRC. The CIR maintains that under Section
105 of the 1997 NIRC, which amended Section 99 of the 1986 NIRC, the phrase "in the course of trade or
business" was expanded, and now covers incidental transactions. Since NPC still owns the power plants
and PSALM may only be considered as trustee of the NPC assets, the sale of the power plants is
considered an incidental transaction which is subject to VAT.

We disagree with the CIR's position. PSALM owned the power plants which were sold. PSALM's
ownership of the NPC assets is clearly stated under Sections 49, 51, and 55 of the EPIRA law.

Under the EPIRA law, the ownership of the generation assets, real estate, IPP contracts, and other
disposable assets of the NPC was transferred to PSALM. Clearly, PSALM is not a mere trustee of the NPC
assets but is the owner thereof. Precisely, PSALM, as the owner of the NPC assets, is the government
entity tasked under the EPIRA law to privatize such NPC assets.
The CIR alleges that the sale made by NPC and/or its successors-in interest of the power plants is an
incidental transaction which should be subject to VAT. This is erroneous. As previously discussed, the
power plants are already owned by PSALM, not NPC. Under the EPIRA law, the ownership of these
power plants was transferred to PSALM for sale, disposition, and privatization in order to liquidate all
NPC financial obligations.

Unlike the Mindanao II case, the power plants in this case were not previously used in PSALM's business.
The power plants, which were previously owned by NPC were transferred to PSALM for the specific
purpose of privatizing such assets. The sale of the power plants cannot be considered as an incidental
transaction made in the course of NPC's or PSALM's business. Therefore, the sale of the power plants
should not be subject to VAT.

Nippon v. Commissioner of Internal Revenue, G.R. No. 191495, 23 July 2018

The CTA law expressly provides that when the CIR fails to take action on the administrative claim, the
"inaction shall be deemed a denial" of the application for tax refund or credit. The taxpayer-claimant
must strictly comply with the mandatory period by filing an appeal with the CTA within thirty days from
such inaction, otherwise, the court cannot validly acquire jurisdiction over it.

PAL v. Commissioner of Internal Revenue, G.R. No. 206079-80, 17 January 2018

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.

Republic Act No. 9282, mending Republic Act No. 1125, is the governing law on the jurisdiction of the
Court of Tax Appeals. Section 7 provides that the Court of Tax Appeals has exclusive appellate
jurisdiction over tax refund claims in case the Commissioner fails to act on them.

This means that while the Commissioner has the right to hear a refund claim first, if he or she fails to act
on it, it will be treated as a denial of the refund, and the Court of Tax Appeals is the only entity that may
review this ruling.

Whether or not evidence not presented in the administrative claim for refund in the Bureau of
Internal Revenue can be presented in the Court of Tax Appeals.

The Court of Tax Appeals is not limited by the evidence presented in the administrative claim in the
Bureau of Internal Revenue. The claimant may present new and additional evidence to the Court of Tax
Appeals to support its case for tax refund.

The power of the Court of Tax Appeals to exercise its appellate jurisdiction does not preclude it from
considering evidence that was not presented in the administrative claim in the Bureau of Internal
Revenue. Republic Act No. 1125 states that the Court of Tax Appeals is a court of record.

Association of Non-Profit Clubs, Inc. (ANPC), herein represented by its authorized representative, Ms.
Felicidad M. Del Rosario Vs. Bureau of Internal Revenue (BIR), herein represented by Hon.
Commissioner Kim S. JacintoHenares, G.R. No. 228539, 26 June 2019
The BIR, through the OSG, seeks the dismissal of the present petition on the ground that ANPC violated
the doctrine of hierarchy of courts due to its direct resort before the Court. Moreover, it asserts that
ANPC violated the doctrine of exhaustion of available administrative remedies, pointing out that ANPC
should have first elevated the matter to the Secretary of Finance for review pursuant to Section 4,32
Title I of the 1997 NIRC.

Is the BIR correct?

There was no violation of the doctrine of hierarchy the courts because the present petition for review on
certiorari, filed pursuant to Section 2 ( c ), Rule 41 in relation to Rule 45 of the Rules of Court, is the sole
remedy to appeal a decision of the RTC in cases involving pure questions of law. The doctrine of
hierarchy of courts is violated only when relief may be had through multiple fora having concurrent
jurisdiction over the case, such as in petitions for certiorari, mandamus, and prohibition, which are
concurrently cognizable by either the Regional Trial Courts, the Court of Appeals, or the Supreme Court.

Anent the issue of exhaustion of administrative remedies, the Court likewise holds that the said
doctrine was not transgressed.

As dictated by the rule on exhaustion of administrative remedies, the validity of RMC No. 35-2012
should have been first subjected to the review of the Secretary of Finance before ANPC sought judicial
recourse with the RTC. However, as exceptions to this rule, when the issue involved is purely a legal
question or when there are circumstances indicating the urgency of judicial intervention -as in this case
where membership fees, assessment dues, and the like of all recreational clubs would be imminently
subjected to income tax and VAT - then the doctrine of exhaustion of administrative remedies may be
relaxed.

Commissioner of Internal Revenue v. Lancaster Philippines, G.R. No. 183408, 12 July 2017

Sec. 7. Jurisdiction. - The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

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 or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial; x x x." (emphasis supplied)

Is the question on the authority of revenue officers to examine the books and records of any person
cognizable by the CTA?

From the foregoing, it is clear that the issue on whether the revenue officers who had conducted the
examination on Lancaster exceeded their authority pursuant to LOA No. 00012289 may be considered as
covered by the terms "other matters" under Section 7 of R.A. No. 1125 or its amendment, R.A. No. 9282.
The authority to make an examination or assessment, being a matter provided for by the NIRC, is well
within the exclusive and appellate jurisdiction of the CTA.

Whether the CTA can resolve an issue which was not raised by the parties.

Yes. Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA, or the Revised Rules of the Court of Tax
Appeals, the CTA is not bound by the issues specifically raised by the parties but may also rule upon
related issues necessary to achieve an orderly disposition of the case. The text of the provision reads:

SECTION 1. Rendition of judgment. - x x x

In deciding the case, the Court may not limit itself to the issues stipulated by the parties but may also
rule upon related issues necessary to achieve an orderly disposition of the case.

The above section is clearly worded. On the basis thereof, the CTA Division was, therefore, well within
its authority to consider in its decision the question on the scope of authority of the revenue officers
who were named in the LOA even though the parties had not raised the same in their pleadings or
memoranda, The CTA En Banc was likewise correct in sustaining the CTA Division's view concerning such
matter.

CIR vs. Standard Insurance Co., Inc. G.R. No. 219340 promulgated on April 28, 2021

(Section 218 of the Tax Code expressly provides that no court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by the
code. An exception to this rule, provided under Section 11 of RA 1125 obtains only when in the opinion
of the CTA the collection thereof may jeopardize the interest of the government and/or the taxpayer.)

Facts:

Standard Insurance received a Final Decision on Disputed Assessments (FDDA) for taxable year 2011
from the CIR and sought reconsideration thereto, objecting the tax imposed pursuant to Section 184 of
the Tax Code as violative of the constitutional limitations on taxation. Meanwhile, Standard Insurance
also received a demand for the payment of its deficiency taxes for taxable year 2012 which it protested
in its letter on the ground that the VAT rate and DST rate imposed on premiums charged on non-life
property insurance pursuant to Sections 108 and 184 of the Tax Code are violative of the constitutional
limitations on taxation. Subsequently, Standard Insurance commenced a civil case in the Regional Trial
Court (RTC) with prayer for the issuance of a temporary restraining order(TRO) and a writ of preliminary
injunction (WPI) for the judicial determination of the constitutionality of Sections 108 and 184 of the Tax
Code with respect to the taxes charged against the non-life insurance companies.

Standard Insurance contended that the facts of the case must be appreciated in light of the effectivity of
RA 10001 entitled An Act Reducing the Taxes on Life Insurance Policies, whereby the tax rate for life
insurance premiums was reduced from 5% to 2%; and the pendency of deliberations on House Bill 3235,
whereby an equal treatment for both life and non-life companies was being sought as a response to the
supposed inequality generated by the enactment of RA 10001. The RTC issued a TRO enjoining the BIR,
its agents, representatives, assignees, or any persons acting for and on its behalf from implementing the
provisions of the Tax Code adverted to with respect to the FDDA.
Issue:

Does the RTC have the jurisdiction to take cognizance of the petition for declaratory relief and issue
injunctive relief against the implementation of Sections 108 and 184 of the Tax Code?

Ruling:

No. The RTC acted without jurisdiction in taking cognizance of the Petition for Declaratory Relief and
issuing an injunction against the collection of taxes. Petitions for declaratory relief do not apply to cases
where a taxpayer questions his liability for the payment of any tax under any law administered by the
BIR. Commonwealth Act No. 55 (CA 55) Thus, the courts have no jurisdiction over petitions for
declaratory relief against the imposition of tax liability or validity of tax assessments. taxes being the
lifeblood of the government should be collected promptly, without unnecessary hindrance or delay. In
line with this principle, Section 218 of the Tax Code expressly provides that no court shall have the
authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or
charge imposed by the code.

An exception to this rule, provided under Section 11 of RA 1125 obtains only when in the opinion of the
CTA the collection thereof may jeopardize the interest of the government and/or the taxpayer.

Local Government Taxation

Governing Law/s
Sections 130-294 of Republic Act No. 7160 or the Local Government Code.

1. Fundamental Principles

a. Section 130: Fundamental Principles.

Fundamental principles which shall govern the exercise of the taxing and other revenue

raising powers of a local government unit (LGU):

1. Taxation shall be uniform in each LGU;

2. Taxes, fees, charges and other impositions shall:

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 the restraint of trade;

3. The collection of local taxes, fees, charges and other impositions shall in no case be left to any private
person;

4. The revenue collected shall inure solely to the benefit of, and be subject to the disposition by, the LGU
levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and,
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

b. Sections 133 to 150

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -

Specific Provisions on the Taxing and Other Revenue-Raising Powers of Local Government Units

ARTICLE I

Provinces

Section 134. Scope of Taxing Powers.

Section 135. Tax on Transfer of Real Property Ownership.

Section 137. Franchise Tax.

Section 138. Tax on Sand, Gravel and Other Quarry Resources.

Section 139. Professional Tax.

Section 140. Amusement Tax.

Section 141. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers,
Wholesalers of, Dealers, or Retailers in, Certain Products.

ARTICLE II

Municipalities

Section 142. Scope of Taxing Powers.

Section 143. Tax on Business. -

Section 144. Rates of Tax within the Metropolitan Manila Area.

Section 145. Retirement of Business.

Section 146. Payment of Business Taxes

Section 147. Fees and Charges.

Section 148. Fees for Sealing and Licensing of Weights and Measures.

Section 149. Fishery Rentals, Fees and Charges.

Section 150. Situs of the Tax.

2. Authority to Tax

Section 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to generate revenue
under this Code shall be exercised by the sanggunian of the local government unit concerned through an
appropriate ordinance.
Section 186 Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the
power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein
or taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable
laws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or
contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or
charges shall not be enacted without any prior public hearing conducted for the purpose.

-Pursuant to the Local Government Code, a LGU shall exercise the power to create its own sources of
revenue and to levy taxes, fees and charges consistent with the basic policy of local autonomy. This
includes the authority to issue local tax ordinances, prescribe exemptions and penalties.

-A LGU may exercise this power to tax through a local sanggunian and an appropriate and duly approved
ordinance.

-For penalties, surcharge may not exceed twenty five percent (25%) of the amount of taxes, fees and
charges due and unpaid, Interest may not exceed two percent (2%) per month of the above unpaid
items until full payment which in no case shall exceed thirty six (36) months.

-Adjustments to the local tax rates can be made not oftener than every five (5) years but in no case shall
adjustments exceed ten percent (10%). A LGU can only exercise the power on any base or subject not
otherwise taxed under the NIRC, as amended. Provided that such taxes shall not be unjust, excessive,
oppressive, confiscatory or contrary to national policy.

3. Scope of Taxing Power

a. Province

Section 134. Scope of Taxing Powers.

Provinces Limited only to:

- Transfer of Real Property Ownership;

- Business of Printing and Publication;

- Franchise Tax;

- Tax on Sand, Gravel and Other Quarry services/resources;

- Professional Tax;

- Amusement Tax;

- Annual Fixed Tax for every delivery truck or van;

- Service fees and charges;

b. Municipality

Section 142. Scope of Taxing Powers.

Municipality May levy taxes, fees and charges not otherwise levied by provinces.
- Tax on businesses;

- Fees and charges for regulation and licensing of business and occupation;

- Fees and charges for sealing and licensing of weights and measures;

- Fishery rentals, fees and charges;

- Community tax;

- Service fees and charges;

- Public utility charges;

- Toll fees or charges; and

- Real Property Tax.

c. City

City May levy taxes, fees and charges which the province or municipality may impose

- Tax on transfer of real property ownership;

- Tax on business of printing and publication;

- Franchise Tax;

- Tax on sand, gravel and other quarry services/resources;

- Professional Tax;

- Amusement Tax;

- Annual Fixed Tax for every delivery truck or van;

- Tax on businesses;

- Fees and charges for regulation and licensing of business and occupation;

- Fees and charges for sealing and licensing of weights and measures

- Fishery rentals, fees and charges

- Community tax;

- Service fees and charges;

- Public utility charges;

- Toll fees or charges Province; and

- Real Property Tax.

d. Barangay

Barangay Limited only to:

- Taxes on stores or retailers;

- Service fees or charges;

- Barangay clearance; and,

- Other fees and charges

4. Community tax

Section 156. Community Tax. - Cities or municipalities may levy a community tax in accordance with the
provisions of this Article.

Note: Income generated from this are usually added to finance local programs and projects of the
Municipality.

Place of Payment: The community tax shall be paid in the place of residence of the individual, or in the
place where the principal office of the juridical entity is located. (Section 160)

Time of Payment:

- For individuals, the community tax shall accrue on the first (1st) day of January of each year which shall
be paid not later than the last day of February of each year.

- Corporations established and organized on or before the last day of June shall be liable for the
community tax for that year. But corporations established and organized on or before the last day of
March shall have twenty (20) days within which to pay the community tax without becoming delinquent.
Corporations established and organized on or after the first day of July shall not be subject to the
community tax for that year.Penalty for Nonpayment: If the tax is not paid within the time prescribed,
there shall be added to the unpaid amount an interest of twenty-four percent (24%) per annum from
the due date until it is paid.

Section 162. Community Tax Certificate. - A community tax certificate shall be issued to every person or
corporation upon payment of the community tax. A community tax certificate may also be issued to any
person or corporation not subject to the community tax upon payment of One peso (P1.00).

Community Tax Certificate (CTC) popularly known as residence certificate or cedula, is usually used for
documentation purposes.

Uses of Community Tax Certificate:

- It is required to be presented every time an individual acknowledges any document before a notary
public;

- takes the oath of office upon election or appointment to any position in the government service;

- receives any license, certificate, or permit from any public authority;

- pays any tax or fees;

- receives any money from any public fund;

- transacts other official business; or receives any money from any public fund.
Persons Liable for Community Tax:

Individuals (Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly
employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar
year, or who is engaged in business or occupation, or who owns real property with an aggregate
assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an
incometax return) (Section 157)

- Basic Community Tax of Php. 5.00

- An annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of income
regardless of whether from business, exercise of profession or from property which in no case shall
exceed Five thousand pesos (P5,000.00). In the case of husband and wife, the additional tax herein
imposed shall be based upon the total property owned by them and the total gross receipts or earnings
derived by them. Corporations (no matter how created or organized, whether domestic or resident
foreign, engaged in or doing business in the Philippines) (Section 158)

- Basic Community Tax of Php. 500.00

-Annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance
with the following schedule:

-For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during
the preceding year based on the valuation used for the payment of real property tax under existing laws,
found in the assessment rolls of the city or municipality where the real property is situated: Two pesos
(P2.00); and

-For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in
the Philippines during the preceding year: Two pesos (P2.00).

-The dividends received by a corporation from another corporation however shall, for the purpose of
the additional tax, be considered as part of the gross receipts or earnings of said corporation.

Exempted from Community Tax (Section 159)

- Diplomatic and consular representatives; and

- Transient visitors when their stay in the Philippines does not exceed three (3)

months.

5. Collection

a. Sections 165 to 170

Section 165. Tax Period and Manner of Payment.

Section 166. Accrual of Tax.

Section 167. Time of Payment.

Section 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges

Section 169. Interests on Other Unpaid Revenues.

Section 170. Collection of Local Revenue by Treasurer.

Tax Period and Manner of Payment. –

- Unless otherwise provided, the tax period of all local taxes, fees and charges shall

be the calendar year.

- It may be paid in quarterly installments.

Accrual of Tax.

- Unless otherwise provided, all local taxes, fees, and charges shall accrue on the first

(1st) day of January of each year.

- New taxes, fees or charges, or changes in the rates thereof, shall accrue on the first

(1st) day of the quarter next following the effectivity of the ordinance imposing such

new levies or rates.

Time of Payment.

- Unless otherwise provided, all local taxes, fees, and charges shall be paid within the

first twenty (20) days of January or of each subsequent quarter, as the case may be.

- The sanggunian concerned may, for a justifiable reason or cause, extend the time for

payment without surcharges or penalties.

- The extension period shall not exceed six (6) months.

Surcharges and Penalties on Unpaid Taxes, Fees, or Charges.

Surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or charges not

paid on time and an interest at the rate not exceeding two percent (2%) per month of the

unpaid taxes, fees or charges including surcharges, until such amount is fully paid but

in no case shall the total thirty-six (36%) months.

Interests on Other Unpaid Revenues.

Where the amount of any other revenue due a local government unit, except voluntary

contributions or donations, is not paid on the date fixed in the ordinance, or in the

contract, expressed or implied, or upon the occurrence of the event which has given rise

to its collection, there shall be collected as part of that amount an interest thereon at the

rate not exceeding two percent (2%) per month from the date it is due until it is paid,
but in no case shall the total interest on the unpaid amount or a portion thereof exceed

thirty-six (36) months.

Collection of Local Revenue by Treasurer.

- All local taxes, fees, and charges shall be collected by the provincial, city, municipal,

or barangay treasurer, or their duly authorized deputies.

- The provincial, city or municipal treasurer may designate the barangay treasurer as

his deputy to collect local taxes, fees, or charges.

- In case a bond is required for the purpose, the provincial, city or municipal

government shall pay the premiums thereon in addition to the premiums of bond that

may be required under this Code.

6. Tax ordinance

a. Requisites

1. Prior conducted public hearings

2. Enactment of ordinance and revenue measures

3. Publication in newspaper of local circulation in full for three (3) consecutive days

within ten (10) days from approval or enactment of all tax ordinances. Provided, that if

there are no newspapers of local circulation, the same may be posted in at least two (2)

conspicuous and publicly available space

4. Any question on constitutionality or legality may be raised on appeal to the Secretary

of Justice within thirty (30) days from effectivity of the tax ordinance

5. Any question must be resolved by the Secretary of Justice within sixty (60) days from

receipt of the appeal. The appeal will not suspend the effectivity of the ordinance

pending decision of the Secretary of Justice

6. The question may be raised to a court of competent jurisdiction within thirty (30) days

after

receipt of the decision or after the lapse of the 60-day period without any action from

the Secretary of Justice

The enforcement of any tax ordinance or revenue measure after due notice of the

disapproval or suspension thereof shall be sufficient ground for administrative

disciplinary action against the local officials and employees responsible therefor

(Section 190)

b. Sections 187 to 190

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue

Measures; Mandatory Public Hearings. -

Section 188. Publication of Tax Ordinances and Revenue Measures. -

Section 189. Furnishing of Copies of Tax Ordinances and Revenue Measures. -

Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and revenue

measures. -

7. Assessment Process

a. Section 171.

Examination of Books of Accounts and Pertinent Records of Businessmen by Local

Treasurer.

Section 171. Examination of by Local Treasurer. - may, by himself or, examine the

books, accounts, and other pertinent records of any person, partnership, corporation, or

association subject to local taxes, fees and charges in order to ascertain. assess, and

collect the correct amount of the tax, fee, or charge.

Who may examine the Books of Accounts and Pertinent Records of Businessmen?

- The provincial, city, municipal or barangay treasurer; or

- Through any of his deputies duly authorized in writing.

When shall the examination be made?

- During regular business hours; and

- Only once for every tax period.

Examination shall be certified to by the examining official. which shall be made of

record in the books of accounts of the taxpayer examined. In case the examination herein

authorized is made by a duly authorized deputy of the local treasurer, the written

authority of the deputy concerned shall specifically state the name, address, and business

of the taxpayer whose books, accounts, and pertinent records are to be examined, the

date and place of such examination and the procedure to be followed in conducting the
same.

For the purpose of examination, the records of the revenue district office of the Bureau

of Internal Revenue shall be made available to the examining official.

b. Sections 194, 195, 196

CHAPTER VI: Taxpayer's Remedies

Section 194. Periods of Assessment and Collection.

Section 195. Protest of Assessment.

Section 196. Claim for Refund of Tax Credit.

Periods of Assessment and Collection.

- Local taxes, fees, or charges shall be assessed within five (5) years from the date

they became due. No action for the collection, whether administrative or judicial,

shall be instituted after the expiration of such period.

- In case of fraud or intent to evade the payment of taxes, fees or charges, the same

may be assessed within ten (10) years from discovery of the fraud or intent to evade

payment.

- Local, taxes, fees or charges may be collected within five (5) years from the date of

assessment by administrative or judicial action. No such action shall be instituted

after the expiration of said period.

- The running of the periods of prescription provided in the preceding paragraphs shall

be suspended for the time during which: (1) the treasurer is legally prevented from

making the assessment of collection; (2) the taxpayer requests for a reinvestigation

and executes a waiver in writing before expiration of the period within which to

assess or collect; and, (3) the taxpayer is out of the country or otherwise cannot be

located.

No assessment, no collection – no action for collection of the tax shall be instituted

after the expiration of five (5) years without such assessment having been made.

Protest of Assessment

• Notice of Assessment – issued when the local treasurer or his duly authorized

representative
finds that correct taxes, fees, or charges have not been paid. It will state the nature of

the tax, fee or charge; the amount of deficiency; and, the surcharges, interests and other

penalties.

• Written Protest – filed within sixty (60) days from the receipt of the notice of

assessment and filed with the local treasurer. Without a protest, the assessment shall

become final and executory.

• Evaluation and decision – the local treasurer shall decide the protest within sixty (60)

days from the time of its filing.

- If the protest is wholly or partly meritorious, local treasurer shall issue a notice

cancelling wholly or partially the assessment.

- If the assessment to be wholly or partly correct, local treasurer shall deny the protest

wholly or partly with notice to the taxpayer.

• Appeal – taxpayer has thirty (30) days from the receipt of the denial of the protest or

from the

lapse of the sixty (60) day period to appeal with the court of competent jurisdiction.

Payment under protest is not necessary.

Claim for Refund of Tax Credit for erroneously or illegally collected tax, fee or

charge

In order to be entitled to a refund or credit, the following procedural requirements must

concur:

• Must file a written claim for refund or credit with the local treasurer – no case or

proceeding shall be maintained in any court for the recovery of any tax, fee or charge

erroneously or illegally collected until a written claim for refund or credit has been filed

with the local treasurer.

• The case or proceeding for refund has to be filed within two (2) years from the date of

payment of the tax, fee or charge or from the date the taxpayer is entitled to a refund or

credit. No case or proceeding shall be entertained in any court after the expiration of

two (2) years.

8. Civil Remedies

a. Sections 173 to 185

Section 173. Local Government's Lien. - Local taxes, fees, charges and other revenues

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 interest.

Section 174. Civil Remedies. - The civil remedies for the collection of local taxes, fees,

or charges, and related surcharges and interest resulting from delinquency shall be:

(a) By administrative action thru distraint of goods, chattels, or effects, and other

personal property of whatever character, including stocks and other securities, debts,

credits, bank accounts, and interest in and rights to personal property, and by levy upon

real property and interest in or rights to real property;

(b) By judicial action.

Either of these remedies or all may be pursued concurrently or simultaneously at the

discretion of the local government unit concerned.

REAL PROPERTY TAXATION

Real property tax is a direct tax on ownership of lands and buildings or other improvements thereon not specially
exempted, and is payable regardless of whether the property is used or not, although the value may vary in
accordance with such factor.

NOTE: Real property tax is a fixed proportion of the assessed value of the property being taxed and requires,
therefore, the intervention of assessors.

The present law on real property taxation (R.A. 7160, LGC) adopts actual use of real property as basis of
assessment (Sec. 199[b], LGC), even if the user is not the owner

(Province of Nueva Ecija v. Imperial Mining Co., Inc. G.R. No. 59463, November 19, 1982).

1. Fundamental Principles

a. Section 198

Section 198. Fundamental Principles. - The appraisal, assessment, levy and collection
of real property tax shall be guided by the following fundamental principles:

(a) Real property shall be appraised at its current and fair market value;

(b) Real property shall be classified for assessment purposes on the basis of its actual use;

(c) Real property shall be assessed on the basis of a uniform classification within each local government unit;

(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and

(e) The appraisal and assessment of real property shall be equitable.

b. Actual Use as Basis of Assessments – Section 217

Section 217. Actual Use of Real Property as Basis for Assessment. - Real property shall be classified, valued and
assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.

c. Valuation of Property – Section 220

Section 220. Valuation of Real Property. - In cases where (a) real property is declared and listed for taxation
purposes for the first time; (b) there is an ongoing general revision of property classification and assessment; or (c)
a request is made by the person in whose name the property is declared, the provincial, city or municipal assessor
or his duly authorized deputy shall, in accordance with the provisions of this Chapter, make a classification,
appraisal and assessment or taxpayer's valuation thereon: Provided, however, That the assessment of real
property shall not be increased oftener than once every three (3) years except in case of new improvements
substantially increasing the value of said property or of any change in its actual use.

d. Effectivity of Assessment – Section 221

SEC. 221. Date of Effectivity of Assessment or Reassessment. - All assessments or reassessments made after the
first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year:
Provided, however, That the reassessment of real property due to its partial or total destruction, or to a major
change in its actual use, or to any great and sudden inflation or deflation of real property values, or to the gross
illegality of the assessment when made or to any other abnormal cause, shall be made within ninety (90) days from
the date any such cause or causes occurred, and shall take effect at the beginning of the quarter next following the
reassessment.

General rule: All assessments or reassessments made after the first day of January of any year shall take effect on
the first day of January of any year

Exceptions: Reassessments due to

1. partial or total destruction

2. major change in actual use;

3. great and sudden inflation or deflation of real property values;

4. gross illegality of the assessment when made; or

5. any other abnormal cause shall be made within ninety (90) days from the date of any cause and shall take effect
at the beginning of the quarter next following the reassessment.
e. Assessment of Property Subject to Back Taxes – Section 222

SEC. 222. Assessment of Property Subject to Back Taxes. - Real property declared for

the first time shall be assessed for taxes (back taxes) for the period during which it

would have been liable but in no case for more than ten (10) years prior to the date of

initial assessment: Provided, however, That such taxes shall be computed on the basis

of the applicable schedule of values in force during the corresponding period. If such

taxes are paid on or before the end of the quarter following the date the notice of

assessment was received by the owner or his representative, no interest for delinquency

shall be imposed thereon; otherwise, such taxes shall be subject to an interest at the rate

of two percent (2%) per month or a fraction thereof from the date of the receipt of the

assessment until such taxes are fully paid.

f. Power to Levy Real Property Tax – Section 232

SEC. 232. Power to Levy Real Property Tax. - A province or city or a municipality

within the Metropolitan Manila Area may levy an annual ad valorem tax on real property

such as land, building, machinery, and other improvement not hereinafter specifically

exempted.

The following may levy real property tax:

1. Province

2. City

3. A municipality within the Metro Manila area

Coverage; for a Province, or a City or Municipality within Metro Manila

1. Land

2. Building

3. Machinery

4. Other improvements not specifically exempted

2. Imposition

a. Rate of Levy – Section 233

SEC. 233. Rates of Levy. - A province or city or a municipality within the Metropolitan Manila Area shall fix a
uniform rate of basic real property tax applicable to their respective localities as follows:

(a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of real property; and
(b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two
percent (2%) of the assessed value of real property.

b. Exemptions from Real Property Tax – Section 234

SEC. 234. Exemptions from Real Property Tax. - The following are exempted from

payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and
government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation
and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein,
any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons,
whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn
upon the effectivity of this Code.As to (a), this exemption shall not apply to real properties the beneficial use of
which has been granted, for consideration or otherwise, to a taxable person. (Testate Estate of

C.T. Lim v. City of Manila, G.R. No. 90639, February 21, 1990)

As to (b), the tax exemption herein rests on the premise that they are actually, directly and exclusively used by said
entities or institutions for their stated purposes and not necessarily because they are owned by religious,
charitable or educational institutions.

Charitable Institutions

A charitable institution does not lose its character and its exemption simply because it derives income from paying
patients so long as the money received is devoted to the charitable object it was intended to achieve, and no
money inures to the benefit of persons managing the institution. (Lung Center of the Philippines vs. Quezon City,
G.R. No. 144104 (2004))

Property leased to private entities is not exempt from RPT, as it is not actually, directly and exclusively used for
charitable purposes. Portions of the land occupied by the hospital and portions used for its patients, whether
paying or non-paying, are exempt from real property taxes.

A claim for exemption under Sec. 234 (e) should be supported by evidence that the property sought to be exempt
is actually, directly and exclusively used for pollution control and environmental protection. (Provincial Assessor of
Marinduque v. CA, G.R. No. 170532 (2009))

Pollution control and infrastructure devices refers to infrastructure, machinery, equipment and/or improvements
used for impounding, treating or neutralizing, precipitating, filtering, conveying and cleansing mine industrial
waste and tailings as well as eliminating or reducing hazardous effects of solid particles, chemicals, liquids, or other
harmful by-products and gases emitted from any facility utilized in mining operations for their disposal (RA No.
7942, Sec. 3).
Proof of Exemption

1. Documentary evidence such as affidavits, bylaws, contract, articles of incorporation

2. Given to local assessor

3. Within 30 days from date of declaration

4. Failure to file, will be listed as in Assessment Rolls as taxable

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

A taxpayer claiming exemption must submit sufficient documentary evidence to the local assessor within 30 days
from the date of the declaration of real property; otherwise, it shall be listed as taxable in the Assessment Roll
(Sec. 206, LGC).

Other properties exempt from real property tax

1. Real property in any one city or municipality belonging to a single owner, the entire assessed valuation of which
is not in excess of P1,000.00.

2. Land acquired by grant, purchase, or lease from the public domain for conversion into dairy farms for a period of
5 years from the time of such conversion.

3. Machinery of a pioneer and preferred industry as certified by the Board of Investments used or operated for
industry, agriculture, manufacturing, or mining purposes, during the first 3 years of the operation of the
machinery.

4. Perennial trees and plants of economic value except where the land upon which they grow is planted principally
to such growth.

5. Properties owned by non-stock or non-profit educational institutions, the total assessed value of which does not
exceed P3,000.00, including those owned by Educational Foundations organized under R.A. No. 6055.

Collection
a. Accrual of Tax – Section 246

SEC. 246. Date of Accrual of Tax.- The real property tax for any year shall accrue on the first day of January and
from that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or
encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax.

b. Collection of Tax – Section 247

SEC. 247. Collection of Tax. - The collection of the real property tax with interest thereon and related expenses,
and the enforcement of the remedies provided for in this Title or any applicable laws, shall be the responsibility of
the city or municipal treasurer concerned. The city or municipal treasurer may deputize the barangay treasurer to
collect all taxes on real property located in the barangay: Provided, That the barangay treasurer is properly bonded
for the purpose: Provided, further, That the premium on the bond shall be paid by the city or municipal
government concerned.
4. Remedies
a. Section 252 – Payment Under Protest

SEC. 252. Payment Under Protest. –(a) No protest shall be entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed within
thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a
municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph (a),
the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of this Code.

Refund or Credit of Real Property Tax

PAYMENT UNDER PROTEST

This is resorted to when the taxpayer questions the excessiveness of the amount of tax imposed on him.

Procedure

a. No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax
receipts the words "paid under protest."

b. The protest in writing must be filed within thirty (30) days from payment of the tax with the local treasurer.

c. The treasurer shall decide the protest within sixty (60) days from receipt.

d. In the event that the protest is denied or upon the lapse of the 60-day period, the taxpayer may avail of the
procedure in questioning an assessment:

• Appeal to the LBAA within 60 days;

• Then appeal to the CBAA within 30 days;

• Appeal to the CTA En Banc within 30 days. (Sec. 252, LGC)

The protest contemplated in Section 252 of the LGC is needed when there is a question as to the reasonableness of
the amount assessed, not where the question raised is on the very authority and power of the assessor to impose
the assessment and of the treasurer to collect the tax. (Ty v. Trampe, G. R. No. 117577, December 1, 1995)

By posting the surety bond, a taxpayer may be considered to have substantially complied with Section 252 of the
LGC for the said bond already guarantees the payment to the Office of the Local Treasurer of the total amount of
real property taxes and penalties due. (Camp John Hay Development Corporation v. Central Board of Assessment
Appeals, G.R. No. 169234, October 2, 2013)

b. Section 253 – Refund

SEC. 253. Repayment of Excessive Collections. - When an assessment of basic real property tax, or any other tax
levied under this Title, is found to be illegal or erroneous and the tax is accordingly reduced or adjusted, the
taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city treasurer
within two (2) years from the date the taxpayer is entitled to such reduction or adjustment. The provincial or city
treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt thereof. In case the
claim for tax refund or credit is denied, the taxpayer may avail of the remedies as provided in Chapter 3, Title II,
Book II of this Code.

Repayment of excessive collections

When an assessment of real property tax is found to be illegal or erroneous and the tax is accordingly reduced or
adjusted, the taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city
treasurer within two (2) years from the date the taxpayer is entitled to such reduction or adjustment. The local
treasurer shall decide the claim within sixty (60) days from receipt thereof. In case the claim for tax refund or
credit is denied, the taxpayer may follow the procedure in questioning an assessment (Appeal to LBAA, and then
CBAA, and then CTA En Banc).

Erroneous Assessment vs. Illegal Assessment

An erroneous assessment presupposes that the taxpayer is subject to the tax but is disputing the correctness of
the amount assessed. With an erroneous assessment, the taxpayer claims that the local assessor erred in
determining any of the items for computing the real property tax, i.e., the value of the real property or the portion
thereof subject to the tax and the proper assessment levels.

In case of an erroneous assessment, the taxpayer must exhaust the administrative remedies provided under the
LGC. On the other hand, an assessment is illegal if it was made without the authority under the law. In case of an
illegal assessment, the taxpayer may directly resort to judicial action without paying under protest the assessed tax
and filing an appeal with the Local and Central Boards of Assessment Appeals. (City of LapuLapu v. PEZA, G.R. Nos.
184203 and 187583 (2014))

c. Sections 254 – 270

Period Within Which to Collect Real Property Tax

Within five years from the date they become due.

Within ten years from discovery of fraud, in case there is fraud or intent to evade. It shall be suspended when:

1. The local treasurer is legally prevented to collect tax.

2. The owner or property requests for reinvestigation and writes a waiver before expiration of period to collect.

3. The owner of property is out of the country or cannot be located. (Sec. 270, LGC)

Remedies of LGUs for Collection of Real Property Tax

1. Issuance of notice of delinquency for real property tax payment

2. Local Government’s Lien — The basic real property tax shall constitute a lien on the property subject to tax,
superior to all liens, charges or encumbrances in favor of any person, irrespective of the owner or possessor
thereof, enforceable by administrative or judicial action and may only be extinguished upon payment of the tax
and the related interests and expenses. (Sec. 257, LGC)

3. Levy Upon the failure to pay the tax when due, the local treasurer shall issue a warrant levying the real property
subject to tax. The warrant shall include a duly authenticated certificate showing the name of the owner or person
having legal interest therein, description of the property, amount of the tax due and interest thereon. Warrant
must be mailed or served to owner or person having legal interest in the property.
Written notice of levy must be mailed or served to the assessor and the Register of Deeds where the property is
located. The Register of Deeds must annotate the levy on the tax declaration and certificate of title. (Sec. 258, LGC)

Failure to issue or execute the warrant of levy within one year from the time the tax becomes delinquent or within
thirty days from the date of the issuance thereof shall be dismissed from service. (Sec. 259, LGC)

4. Resale of real estate taken for taxes, fees or charges The Sanggunian concerned may, by ordinance duly
approved, and upon notice of not less than twenty (20) days, sell and dispose of the real property acquired under
the preceding section at public auction. The proceeds of the sale shall accrue to the general fund of the local
government unit concerned. (Sec. 264, LGC)

5. Further levy until full payment of amount due Levy may be repeated if necessary until the full due, including all
expenses, is collected. (Sec. 265, LGC)Assailing the validity of a tax sale

No court shall entertain any action assailing the validity of any sale at public auction until the taxpayer shall have
deposited with the court the amount for which the real property was sold, together with interest of two percent
per month from the date of sale to the time of the institution of the action. (Sec. 267, LGC)

Available remedies to the taxpayer under real property taxation

1. Dispute assessment (Protest)

a. Any owner or person having legal interest in the property who is not satisfied with the action of the assessor in
the assessment of his property; or

b. Any owner of real property affected by a special levy or any person having legal interest therein may protest the
assessment by filing an appeal to the LBAA within 60 days from receipt of notice of the assessment.

2. Claim for refund or tax credit

3. Redemption of Real Property (Sec. 261, LGC)

4. Judicial

A. Court Action

i. Appeal to the CTA en banc within 15 days from receipt in case of adverse decision by the CBAA

ii. Appeal by certiorari with the SC within 15 days from notice in case of adverse decision by the CTA.

B. Suit assailing the validity of the tax sale (Sec. 267, LGC) Deposit of amount for which the real property was sold
together with interest of 2% per month from date of sale to the time of institution of action.

Appeals
a. Local Board of Assessment Appeals (LBAA) – Section 226

SEC. 226. Local Board of Assessment Appeals. - Any owner or person having legal interest in the property who is
not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of
Assessment appeals of the province or city by filing a petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

Under Section 226 of R.A. No 7160, the last action of the local assessor on a particular assessment shall be the
notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA.
The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration
before the local assessor. [Fels Energy v. Province of Batangas, G.R. No. 168557 (2007)]

The failure to appeal within the statutory period renders the assessment final and unappealable. [Victorias Milling
v. CTA, G.R. No. L-24213 (1968)]

A taxpayer who is not satisfied with the assessment of his property should appeal to the Local Board of Assessment
Appeals within 60 days from receipt of the written notice of assessment. The filing of a petition for injunction in
the RTC upon the issuance of a warrant of levy is not in accordance with the remedies provided in the LGC.
[Republic vs. City of Kidapawan, G.R. No. 166651 (2005)]

b. Powers of the LBAA – Section 227

SEC. 227. Organization, Powers, Duties, and Functions of the Local Board of Assessment Appeals. - (a) The Board of
Assessment appeals of the province or city shall be composed of the Registrar of Deeds, as Chairman, the
provincial or city prosecutor and the provincial, or city engineer as members, who shall serve as such in an ex
officio capacity without additional compensation.

(b) The chairman of the Board shall have the power to designate any employee of the province or city to serve as
secretary to the Board also without additional compensation.

(c) The chairman and members of the Board of Assessment appeals of the province or city shall assume their
respective positions without need of further appointment or special designation immediately upon effectivity of
this Code. They shall take an oath or affirmation of office in the prescribed form.

(d) In provinces and cities without a provincial or city engineer, the district engineer shall serve as member of the
Board. In the absence of the Registrar of Deeds, or the provincial or city prosecutor, or the provincial or city
engineer, or the district engineer, the persons performing their duties, whether in an acting capacity or as a duly
designated officer-in-charge, shall automatically become the chairman or member, respectively, of the said Board,
as the case may be.

c. Action by the LBAA – Section 229

SEC. 229. Action by the Local Board of Assessment appeals. - (a) The Board shall decide the appeal within one
hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its
decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accept as
adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The
proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts without necessarily
adhering to technical rules applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein
and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city assessor
concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or the person
having legal interest therein of such fact using the form prescribed for the purpose. The owner of the property or
the person having legal interest therein or the assessor who is not satisfied with the decision of the Board, may,
within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment
Appeals, as herein provided. The decision of the Central Board shall be final and executory.

d. Central Board of Assessment Appeals (CBAA) – Section 230

SEC. 230. Central Board of Assessment appeals.- The Central Board of Assessment appeals shall be composed of a
chairman and two (2) members to be appointed by the President, who shall serve for a term of seven (7) years,
without reappointment. Of those first appointed, the chairman shall hold office for seven (7) years, one member
for five (5) years, and the other member for three (3) years. Appointment to any vacancy shall be only for the
unexpired portion of the term of the predecessor. In no case shall any member be appointed or designated in a
temporary or acting capacity. The chairman and the members of the Board shall be Filipino citizens, at least forty
(40) years old at the time of their appointment, and members of the Bar or Certified Public Accountants for at least
ten (10) years immediately preceding their appointment. The chairman of the Board of Assessment appeals shall
have the salary grade equivalent to the rank of Director III under the Salary Standardization Law exclusive of
allowances and other emoluments. The members of the Board shall have the salary grade equivalent to the rank of
Director II under the Salary Standardization Law exclusive of allowances and other emoluments. The Board shall
have appellate jurisdiction over all assessment cases decided by the Local Board of Assessment appeals.

There shall be Hearing Officers to be appointed by the Central Board of Assessment appeals pursuant to civil
service laws, rules and regulations, one each for Luzon, Visayas and Mindanao, who shall hold office in Manila,
Cebu City and Cagayan de Oro City, respectively, and who shall serve for a term of six (6) years, without
reappointment until their successors have been appointed and qualified. The Hearing Officers shall have the same
qualifications as that of the Judges of the Municipal Trial Courts.

The Hearing Officers shall each have the salary grade equivalent to the rank of Director I under the Salary
Standardization Law exclusive of allowances and other emoluments.

The Hearing Officers shall try and receive evidences on the appealed assessment cases as may be directed by the
Board.

The Central Board Assessment appeals, in the performance of its powers and duties, may establish and organize
staffs, offices, units, prescribe the titles, functions and duties of their members and adopt its own rules and
regulations. Unless otherwise provided by law, the annual appropriations for the Central Board of Assessment
appeals shall be included in the annual budget of the Department of Finance in the corresponding General
Appropriations Act.

Jurisdiction of the CBAA

The Board shall have appellate jurisdiction over all assessment cases decided by the LBAA (Sec. 230, LGC).

NOTE: The CBAA can be appointed by the SC to act as a court-appointed fact finding commission to assist the Court
in resolving the factual issues raised in the cases before it. In that regard, the CBAA is not acting in its appellate
jurisdiction. [Mathay v. Undersecretary of Finance, En banc Minute Resolution, Nov. 5, 1991]

CBAA has NO authority to hear purely legal issues

Such authority is lodged with the regular courts. Thus, the issue of whether R.A. 7160 repealed P.D. 921, is an issue
which does not find referral to the CBAA before resort is made to the courts. [Ty, v. Trampe, G.R. No. 117577.
December 1, 1995]

e. Effect of Appeal – Section 231

SEC. 231. Effect of appeal on the Payment of Real Property Tax. - appeal on assessments of real property made
under the provisions of this Code shall, in no case, suspend the collection of the corresponding realty taxes on the
property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment
depending upon the final outcome of the appeal.

NOTE: No court shall have the authority to enjoin or restrain the collection of any tax, fee, or charge collected by
the provincial, city or municipal treasurer. “No injunction
rule”

Q: A Co., a Philippine corporation, is the owner of machinery, equipment and fixtures located at its plant
in Muntinlupa City. The City Assessor characterized all these properties as real properties subject to the
real property tax. A Co. appealed the matter to the Muntinlupa Board of Assessment Appeals. The Board
ruled in favor of the City. A Co. brought a petition for review before the CTA to appeal the decision of
the City Board of Assessment Appeals. Is the Petition for Review proper? Explain. (1999 Bar)

A: NO. The CTA’s devoid of jurisdiction to entertain appeals from the decision of the City Board of
Assessment Appeals. Said decision is instead appealable to the Central Board of Assessment Appeals,
which under the LGC, has appellate jurisdiction over decisions of LBAA. (Caltex Phils. v. CBAA, G.R. No.
L50466, May 31, 1982)

Instances where CTA (En Banc) has exclusive appellate jurisdiction over cases filed with CBAA

1. In the exercise of its appellate jurisdiction

2. Over cases involving the assessment and taxation of real property

3. Originally decided by the provincial or CBAA

Exception when prior resort to administrative action is not required

In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest before allowing any resort to a judicial action,
except when the assessment itself is alleged to be illegal or is made without legal authority. For
example, prior resort to administrative action is required when among the issues raised is an allegedly
erroneous assessment, like when the reasonableness of the amount is challenged, while direct court
action is permitted when only the legality, power, validity or authority of the assessment itself is in
question. Stated differently, the general rule of a prerequisite recourse to administrative remedies
applies when questions of fact are raised, but the exception of direct court action is allowed when
purely questions of law are involved. (Capitol Wireless, Inc. vs. Provincial Treasurer of Batangas, G.R. No.
180110. May 30, 2016)

CASES

Caltex Phils. Inc. v. Central Board of Assessment Appeals, 114 SCRA 296, G.R. No. L-50466, 31May
1982

Facts:

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its
gas stations located on leased land. The machines and equipment consist of underground tanks,
elevated tank, elevated water tanks, water tanks, gasoline pumps, computing pumps, water pumps, car
washer, car hoists, truck hoists, air compressors and tireflators. The city assessor of Pasay City
characterized the said items of gas station equipment and machinery as taxable realty. The CBAA
overruled the decision of the city board of tax appeals and ruled that they are real property .

Question:
Whether the pieces of gas station equipment and machinery already enumerated are subject to realty
tax?

Answer:

Yes. This issue has to be resolved primarily under the provisions of the Assessment Law and the Real
Property Tax Code. Under, Sec. 38 of the said law: “Machinery shall embrace machines, mechanical
contrivances, instruments, appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant service facilities, together
with all other equipment designed for or essential to its manufacturing, industrial or agricultural
purposes.”

The equipment and machinery, are considered as appurtenances to the gas station building or shed
owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation
of the gas station, for without them the gas station would be useless, and which have been attached or
affixed permanently to the gas station site or embedded therein, are taxable improvements and
machinery within the meaning of the Assessment Law and the Real Property Tax Code. Improvements
on land are commonly taxed as realty even though for some purposes they might be considered
personalty. "It is a familiar phenomenon to see things classed as real property for purposes of taxation
which on general principle might be considered personal property"

Capitol Wireless, Inc. v. The Provincial Treasurer of Batangas, G.R. No. 180110, 30 May 2016

Facts:

Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of providing
international telecommunications services. As such provider, Capwire has signed agreements with other
local and foreign telecommunications companies covering an international network of submarine cable
systems such as the Asia Pacific Cable Network System (APCN); the Brunei-Malaysia-Philippines Cable
Network System (BMP-CNS), the Philippines-Italy (SEA-ME-WE-3 CNS), and the Guam Philippines (GP-
CNS) systems. The agreements provide for co-ownership and other rights among the parties over the
network. Petitioner Capwire claims that it is co-owner only of the so-called “Wet Segment” of the APCN,
while the landing stations or terminals and Segment E of APCN located in Nasugbu, Batangas are
allegedly owned by the Philippine Long Distance Telephone Corporation (PLDT). Moreover, it alleges
that the Wet Segment is laid in international, and not Philippine, waters. Capwire contends that such
submarine cables cannot be assessed with RPT as it lies in the international waters.

Question:

Whether submarine wires or cables used for communications may be taxed like other real estate.

Answer:

Submarine or undersea communications cables are akin to electric transmission lines which are “no
longer exempted from real property tax” and may qualify as “machinery” subject to real property tax
under the LGC. Both electric lines and communications cables, in the strictest sense, are not directly
adhered to the soil but pass-through posts, relays or landing stations, but both may be classified under
the term “machinery” as real property under Article 415(5) of the Civil Code because such pieces of
equipment serve the owner’s business or tend to meet the needs of his industry or works that are on
real estate.

Metropolitan Waterworks and Sewerage System v. The Local Government of Quezon City, G.R. No.
194388, 07 November 2018

Facts:

MWSS was created by Congress “to insure an uninterrupted and adequate supply and distribution of
potable water for domestic and other purposes and the proper operation and maintenance of sewerage
systems.” It was initially created as a corporation without capital stock, but in 1974, then President
Ferdinand Marcos authorized MWSS to have an authorized capital stock to be subscribed exclusively by
the government. Sometime in 2007, MWSS received several Final Notices of Real Property Tax (RPT)
Delinquency from the Local Government of Quezon City (QC) covering various taxable years on real
properties owned by MWSS in QC. Upon MWSS’s failure to pay, the QC Treasurer issued warrants of
levy and notices of sale of MWSS’s real properties.

Question:

Is MWSS liable for RPT?

Answer:

No, MWSS is not liable for RPT. The LGC provides two specific limitations on the power of taxation of
local government units (LGUs). First, Section 133(o) provides that LGUs cannot levy any tax, fee or
charge of any kind on the national government or its agencies and instrumentalities, unless otherwise
provided in the LGC. Second, Section 234 enumerates the properties that are specifically exempted from
the payment of RPT. Thus, real property owned by the Republic or any of its political subdivisions are
exempt from RPT except when the beneficial use of the real property was granted, for consideration or
otherwise, to a taxable person.

Executive Order No. 596 categorizes Metropolitan Waterworks and Sewerage System (MWSS) as a
government instrumentality vested with corporate powers. Republic Act No. 10149 or the GOCC
Governance Act of 2011 adopted the same categorization and explicitly lists MWSS as exempt from the
payment of RPT. Thus, the real properties of the MWSS are exempt from real properties taxes, except if
the beneficial use of its properties has been extended to a taxable person.

National Power Corporation v. Province of Pangasinan, G.R. No. 210191, 4 March 2019

Facts:

NPC is a GOCC mandated to undertake production of electricity from nuclear, geothermal, other
sources, and transmission of electricity power nationwide. It entered into an Energy Conversion
Agreement (ECA) with CEPA Pangasinan Electric Limited (Mirant) for construction, operation and
maintenance of Sual Coal Fired Thermal Power Plant on a build-operate-transfer basis. Under the
agreement, NPC was made responsible for all real estate taxes and assessments. NPC religiously paid
real property taxes from 1998 up to the first quarter of 2003 for the land, buildings, machinery, and
equipment pertaining to the power plant. Notably, said machinery and equipment weredeclared in the
name of Mirant under Tax Declaration No. 3694. On the second quarter of 2003, NPC stopped paying
said taxes, purportedly pursuant to the provisions of R.A. No. 7160, which grants certain exemptions
from real property tax liabilities.This prompted the Office of the Municipal Treasurer of Sual, Pangasinan
to issue a Notice of Assessment dated September 10, 2003 for the payment of real property taxes
thereon.

Question:

Whether NPC has legal personality and interest to claim for such exemption.

Answer:

The tax exemptions and privileges claimed by NPC cannot be recognized since it is not the actual, direct,
and exclusive user of the facilities, machineries and equipment subject of the cases. Real property tax
liability rests on the owner of the property or the person with the beneficial use thereof such as taxes on
government property leased to private persons or when tax assessment is made on the basis of the
actual use of the property. In either case, the unpaid realty tax attaches to the property but it is directly
chargeable against the taxable person who has actual and beneficial use and possession of the property
regardless of whether or not that person is the owner. NPC is neither the owner nor the possessor or
beneficial user of the subject facilities.

Likewise, to successfully claim for differential treatment or a lower assessment level under Section 216,
in relation to Section 218 of the same Act, the claimant must prove that the subject lands, buildings, and
other improvements are (a) actually, directly, and exclusively used for hospitals, cultural, or scientific
purposes; or (b) owned and used by local water districts and government-owned and controlled
corporations rendering essential public services in the supply and distribution of water and/or
generation and transmission of electric power.

It is important to emphasize that the government-owned and controlled corporation claiming

exemption and entitlement to the privilege must be the entity actually, directly, and exclusively using
the real properties, and the use must be devoted to the generation and transmission of electric power.
As can be gleaned from the above disquisition, NPC miserably failed to satisfy said requirements.
Although the subject machinery and equipment are devoted to generation of electricity, the ownership,
use, operation, and maintenance thereof pertain to Mirant.

University of the Philippines v. City Treasurer of Quezon City, G.R. No. 214044, 19 June 2019

Facts:

In 2006, the University of the Philippines (UP) entered into a Contract of Lease with Ayala Land
Corporation (ALI) over a parcel of land situated in Quezon City, where the UP-Ayala Technohub is now
located. In 2008, Republic Act (RA) No. 9500 or the UP Charter of 2008 was signed into law, which
provided that “(A)ll revenues and assets of the University of the Philippines used for educational
purposes or in support thereof shall be exempt from all taxes and duties; xxx.”

In 2012 and 2013, the Quezon City Treasurer issued Statements of Delinquency to UP, demanding
payment of real property tax (RPT) on the subject property for the years 2009 to 2013. In his letter to
the City Treasurer, then UP President Alfredo Pascual requested the postponement of any proceeding
related to the Statement of Delinquency.
However, in July 2014, UP received the Final Notice of Delinquency from the City Treasurer demanding
payment of RPT to include the period up to the first quarter of 2014. UP appealed to the Supreme Court.

Question:

Is UP liable for RPT on the property leased to ALI?

Answer:

No. UP is a chartered academic institution with specific legislated tax exemptions. These tax exemptions
are granted by the Local Government Code (LGC) and its legislative charter, RA No. 9500. Section 133(0)
of the LGC states that unless otherwise provided by the Code, the exercise of taxing powers of the local
government units shall not extend to levy of taxes, fees or charges of any kind on government
instrumentalities.

Considering that the subject land and the revenue derived from the lease thereof are used by UP for
educational purposes and in support of its educational purposes, UP should not be assessed, and should
not be made liable for real property tax on the land. Under Republic Act No. 9500, this tax exemption,
however, applies only to “assets of the University of the Philippines,” referring to assets owned by UP.
Under the Contract of Lease between UP and ALI, all improvement~ on the leased land “shall be owned
by, and shall be for the account of the LESSEE [ ALI]” during the term of the lease. The improvements are
not “assets” owned by UP; and thus, UP’s tax exemption under Republic Act No. 9500 does not extend
to these improvements during the term of the lease.