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Taxation Law Golden Notes
Taxation Law Golden Notes
TAXATION LAW
Academics Committee
Faculty of Civil Law
University of Santo Tomas
España, Manila 1008
All rights reserved by the Academics Committee of the Faculty of Civil Law of the Pontifical and Royal
University of Santo Tomas, the Catholic University of the Philippines.
2023 Edition.
No portion of this material may be copied or reproduced in books, pamphlets, outlines or notes,
whether printed, mimeographed, typewritten, copied in different electronic devises or in any other
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A copy of this material without the corresponding code either proceeds from an illegal source or is in
possession of one who has no authority to dispose the same.
UST BAR-OPS
SECRETARIES-GENERAL
EXECUTIVE COMMITTEE
MEMBERS
STEPHEN NICOLE R. ARAN
THEA KLARISSE S. BALINAS
SHAIRA JONNE A. BAQUIRIN
GEMINA DALE C. BORREO
MELVIN C. BUMAGAT
DIANA M. DELA CRUZ
PRISCILLA LEE V. MORALES
JASMIN T. SANTIAGO
ADVISERS
ATTY. JAMIE ANDREA MAE ARLOS-MARTINEZ
DR. VIRGINIA JEANNIE P. LIM, LLM, Ed.D.
ATTY. KENNETH GLENN L. MANUEL, CPA
Faculty of Civil Law (1734)
ACADEMIC OFFICIALS
ATTY. NILO T. DIVINA REV. FR. ISIDRO C. ABAÑO, O.P.
DEAN REGENT
For being our guideposts in understanding the intricate sphere of Taxation Law.
– Academics Committee 2023
DISCLAIMER
No Private
Limited to the All persons, All persons, property upon
imposition;
No ceiling cost of property, and property, and payment of
the owner is
except regulation, excises. excises. just
paid just
inherent issuance of compensation.
compensation
limitations. license, or
for his
surveillance.
property. Similarities of the Inherent Powers
Unlike ordinary revenue laws, R.A. No. 6260 and The 20% discount is intended to improve the
P.D. 276 did not raise money to boost the welfare of senior citizens who, at their age, are less
government’s general funds but to provide means likely to be gainfully employed, more prone to
for the rehabilitation and stabilization of a illnesses and other disabilities, and thus, in need of
threatened industry, the coconut industry, which is subsidy in purchasing basic commodities. As to its
so affected with public interest as to be within the nature and effects, the 20% discount is a regulation
police power of the State. The subject laws are akin affecting the ability of private establishments to
to the imposed sugar liens. It cannot be likened to price their products and services relative to a
SSS Law which collects premium contributions that special class of individuals, senior citizens, for
are not taxes and not for public purpose. The SSS which the Constitution affords preferential concern.
members pay contributions in exchange for (Manila Memorial Park v. DSWD, G.R. No. 175356, 03
insurance protection and benefits like loans, Dec. 2013)
medical or health services, and retirement package.
(Pambansang Koalisyon ng mga Samahang
Magsasaka at Manggagawa sa Niyugan v. Executive B. INHERENT AND CONSTITUTIONAL
Secretary, G.R. Nos. 147036-37, 10 Apr. 2012) LIMITATIONS OF TAXATION
g. Prohibition on use of tax levied for special While the power of taxation is inherent to a State,
purpose (Sec. 29(3), Art. VI, 1987 such power is still subject to limitations. If there
Constitution) were no limitations imposed on the power, then the
State would be dangerous, rampant in wielding such
h. President’s veto power on appropriation, power. (Ingles, 2021)
revenue, tariff bills (Sec. 27 (2), Art. VI,
1987 Constitution) TERRITORIAL
k. Origin of Revenue and Tariff Bills (Sec. 24, GR: The taxing power of a country is limited to
Art. VI, 1987 Constitution) persons and property within and subject to its
jurisdiction.
l. No appropriation or use of public money
for religious purposes (Sec. 29(2), Art. VI, Rationale:
1987 Constitution)
1. Taxation is an act of sovereignty which could
only be exercised within a country’s territorial
2. Provisions indirectly affecting taxation
limits.
a. Due process (Sec. 1, Art. III, 1987
2. This is based on the theory that taxes are paid
Constitution)
for the protection and services provided by the
taxing authority which could not be provided
1. As the State can exercise its power to tax within A: NO. Under the law, an international air carrier
its territorial jurisdiction, it can tax sales within with no landing rights in the Philippines is a
foreign military zones as these military zones resident foreign corporation if its local sales agent
are not considered foreign territory. (Reagan v. sells and issues tickets in its behalf. An offline
CIR, G.R. No. L-26379, 27 Dec. 1969) international carrier selling package tickets in the
Philippines through a local general sales agent, is
2. The State can tax a transaction if the substantial considered a resident foreign corporation doing
elements of the contract are situated in the business in the Philippines. As such, it is subject to
Philippines. (Manila Electric Company v. Yatco, regular corporate income tax on income derived
G.R. No. 45697, 01 Nov. 1939) from sources within the Philippines and not on
Gross Philippines Billings subject to any applicable
3. Turnkey contracts relating to the installation of tax treaty. (Air Canada v. CIR, G.R. No. 169507, 11 Jan.
a wharf complex and an ammonia storage 2016)
complex were actually divisible contracts which
each had different stages, with each stage PUBLIC PURPOSE
having different tax implication. (CIR v.
Marubeni, G.R. No. 137377, 18 Dec. 2001) Concept of Public Purpose
Q: XYZ Air, a 100% foreign-owned airline Taxes are exacted only for a public purpose. They
company based and registered in Netherlands, cannot be used for purely private purposes or for
is engaged in the international airline business the exclusive benefit of private persons. The reason
and is a member signatory of the International for this is simple. The power to tax exists for the
Air Transport Association. Its commercial general welfare; hence, implicit in its power is the
airplanes neither operate within the Philippine limitation that it should be used only for a public
territory nor as its service passengers purpose. It would be robbery for the State to tax its
embarking from Philippine airports. citizens and use the funds generated for a private
Nevertheless, XYZ Air is able to sell its airplane purpose. (Planters Products, Inc., v. Fertiphil
tickets in the Philippines through ABC Agency, Corporation, G.R. No. 166006, 14 Mar. 2008)
its general agent in the Philippines. As XYZ Air’s
ticket sales, sold through ABC Agency for the Tax is Considered for Public Purpose if:
year 2013, amounted to P5,000,000, the BIR
assessed XYZ Air deficiency income taxes on the 1. It is for the welfare of the nation and/or for the
ground that the income from the said sales greater portion of the population;
Determination lies in the Congress. However, this 4. Public purpose may legally exist even if the
will not prevent the court from questioning the motive which impelled the legislature to
propriety of such statute on the ground that the law impose the tax was to favor one industry over
enacted is not for a public purpose; but once it is another. (Tio v. Videogram Regulatory Board,
settled that the law is for a public purpose, the court G.R. No. 75697, 19 June 1987)
may no longer inquire into the wisdom, expediency,
or necessity of such tax measure. (Dimaampao, 5. Public purpose is continually expanding. Areas
2021) formerly left to private initiative now lose their
boundaries and may be undertaken by the
NOTE: If the tax measure is not for public purpose, government if it is to meet the increasing social
the act amounts to confiscation of property. challenges of the times.
Tests in Determining Public Purpose 6. The public purpose of the tax law must exist at
the time of its enactment. (Pascual v. Secretary
1. Duty Test – whether the things to be furthered of Public Works, G.R. No. L-10405, 29 Dec. 1960)
by the appropriation of public revenue is
something which is the duty of the State, as a
Q: Are subsequent laws, which convert a public
government to provide.
fund to private properties, valid?
2. Promotion of General Welfare Test – whether
the statute enacted providing the tax promotes A: NO. Taxes could be exacted only for a public
the welfare of the community in equal measure. purpose; they cannot be declared private properties
of individuals although such individuals fall within
Principles Relative to Public Purpose a distinct group of persons. (Pambansang Koalisyon
ng mga Samahang Magsasaka at Manggagagawa sa
1. Inequalities resulting from the singling out of Niyugan v. Executive Secretary, G.R. Nos. 147036-37,
one particular class for taxation or exemption 10 Apr. 2012)
infringe no constitutional limitation because
the legislature is free to select the subjects of Q: Lutz assailed the constitutionality of Secs. 2
taxation. and 3 of C.A. 567, which provided for an increase
of the existing tax on the manufacture of sugar.
NOTE: The legislature is not required to adopt Lutz alleged such tax as unconstitutional and
a policy of “all or none” for the Congress has the void for not being levied for a public purpose but
power to select the object of taxation. (Lutz v. for the aid and support of the sugar industry
Araneta, G.R. No. L-7859, 22 Dec. 1955) exclusively. Is the tax law increasing the existing
tax on the manufacture of sugar valid?
2. As the State has the power to determine the
subjects of taxation, it is also free to select those A: YES. The protection and promotion of the sugar
who will be exempt from taxation. (Gomez v. industry is a matter of public concern. The
Palomar, G.R. No. L-23645, 29 Oct. 1968) legislature may determine within reasonable
bounds what is necessary for its protection and
3. The only benefit to which the taxpayer is expedient for its promotion. Legislative discretion
Tax treaties are entered into "to reconcile the 3. An Exchange of Notes is considered an
national fiscal legislations of the contracting parties executive agreement binding on states. Hence,
and, in turn, help the taxpayer avoid simultaneous an Exchange of Notes between the Philippines
taxations in two different jurisdictions." They are and Japan which states that the Philippine
entered into to minimize, if not eliminate, the Government will assume taxes initially to be
harshness of international juridical double taxation, paid by Japanese firms should be respected.
which is why they are also known as double tax (Mitsubishi Corporation-Manila Branch v. CIR,
treaty or double tax agreements. (Air Canada v. CIR, G.R. No. 175772, 05 June 2017)
G.R. No. 169507, 11 Jan. 2016)
Q: ABCD Corporation (ABCD) is a domestic
International Comity as a Limitation on the corporation with individual and corporate
Power to Tax shareholders who are residents of the United
States. For the 2nd quarter of 1983, these U.S.-
The Constitution expressly adopted the generally based individual and corporate stockholders
accepted principles of international law as part of received cash dividends from the corporation.
the law of the land. (Sec. 2, Art. II, 1987 Constitution) The corresponding withholding tax on dividend
income – 30% for individual and 35% for
Rationale: corporate non-resident stockholders – was
deducted at source and remitted to the BIR.
1. Par in parem non habet imperium. As between
equals, there is no sovereign. (Doctrine of On May 15, 1984, ABCD filed with the
Sovereign Equality)
NOTE: However, while government (o) Taxes, fees or charges of any kind on the
instrumentalities are exempt from real property National Government, its agencies and
taxes, government-owned or controlled instrumentalities and local government units.”
corporations (GOCC) are not exempt from real
property taxes. (MIAA v. CA, G.R. No. 155650, 20 July Q: PAGCOR is a duly created government
2006) instrumentality by virtue of PD 1869. Under its
Charter, no form of tax or charge shall attach in
Government Agency any way to the earnings of PAGCOR, except a
Franchise Tax of 5% of the gross revenue or
It refers to any of the various units of the earnings derived from its operation under this
government, including a department, bureau, office, Franchise. Further, such tax shall be in lieu of all
instrumentality, or government-owned or kinds of taxes, levies, fees, or assessments of any
controlled corporation, or a local government or a kind. The CIR issued an assessment against
distinct unit therein. PAGCOR for deficiency income tax, among
others, on the ground that PAGCOR is no longer
Taxability of Government Agencies exempt from the payment of income taxes
because its income tax exemption has been
1. Performing governmental functions – tax effectively withdrawn by the amendments to the
exempt unless expressly taxed 1997 NIRC introduced by R.A. No. 9337. Is the
contention of CIR correct?
2. Performing proprietary functions – subject to
tax unless expressly exempted A: NO. PAGCOR's income from gaming operations is
subject only to 5% franchise tax under PD 1869, as
Government Instrumentality amended, while its income from other related
services is subject to corporate income tax pursuant
It refers to any agency of national government, not to PD 1869, as amended, in relation to R.A. No. 9337.
integrated within the department framework, In PAGCOR v. BIR, the Court En Banc clarified that
vested with special functions or jurisdiction by law, R.A. No. 9337 did not repeal the tax privilege
endowed with some if not all corporate powers, granted to PAGCOR under PD 1869, with respect to
administering special funds, and enjoying its income from gaming operations. What R.A. No.
operational autonomy, usually through charter. 9337 withdrew was PAGCOR's exemption from
corporate income tax on its income derived from
A: YES. The properties of PNR are properties of NOTE: Upon enactment of the LGC, any exemption
public dominion owned by the Republic of the from real property tax given to all persons, whether
Philippines, which are exempt from real property natural or juridical, including all GOCCs, were
tax. (Sec. 234, LGC) withdrawn. (Sec. 193, LGC)
For classification to be valid, the following Q: Heeding the pronouncement of the President
requisites must concur: (B-A-G-S) that the worsening traffic condition in the
metropolis was a sign of economic progress, the
1. It must apply Both to present and future Congress enacted R.A. No. 10701, also known as
conditions; An Act Imposing a Transport Tax on the
2. It must apply to All members of the same class; Purchase of Private Vehicles.
3. It must be Germane to the purposes of the law;
and Under R.A. No. 10701, buyers of private vehicles
4. It must be based on Substantial distinctions. are required to pay a transport tax equivalent to
(Ormoc Sugar Company, Inc. v. The Treasurer of 5% of the total purchase price per vehicle
Ormoc City, G.R. No. L-23794, 17 Feb. 1968) purchased. R.A. No. 10701 provides that the
Land Transportation Office (LTO) shall not
Q: A law was passed exempting doctors and accept for registration any new vehicles without
lawyers from the operation of the value-added proof of payment of the 5% transport tax. R.A.
tax. Other professionals complained and filed a No. 10701 further provides that existing owners
suit questioning the law for being of private vehicles shall be required to pay a tax
discriminatory and violative of the equal equivalent to 5% of the current fair market
protection clause of the Constitution since value of every vehicle registered with the LTO.
complainants were not given the same However, R.A. No. 10701 exempts owners of
exemption. Is the suit meritorious or not? public utility vehicles and the Government from
Reason briefly. (2004 BAR) the coverage of the 5% transport tax.
A: YES. The VAT is designed for economic A group of private vehicle owners sued on the
efficiency. Hence, should be neutral to those who ground that the law is unconstitutional for
belong to the same class. Professionals are a class of contravening the Equal Protection Clause of the
taxpayers by themselves who, in compliance with Constitution.
the rule of equality of taxation, must be treated alike
Donations in favor of charitable and religious Under the 1987 Constitution, it must be proved that
institutions are generally exempt from tax; the properties are actually, directly, and exclusively
Provided, however, that not more than 30% of used for the purpose of the institution for the
the said donations shall be used by such exemption to be granted. (Sababan, 2008)
institutions for administration purposes. (Sec.
101, NIRC) Tax-Exempt Corporations and Organizations
All taxes and duties Real property tax In 2017, San Juan University earned income
from tuition fees and from leasing a portion of
its premises to various concessionaires of food,
The tax exemption granted by the Constitution to books, and school supplies.
non-stock, non-profit educational institutions is
conditioned only on the actual, direct, and exclusive a. Can the City Treasurer of Caloocan City
use of their assets, revenues, and income for collect real property taxes on the land and
educational purposes. A plain reading of the 1987 building of San Juan University? Explain
Constitution would show that Sec. 4(3), Art. XIV your answer.
does not require that the revenues and income
must have also been sourced from educational A: YES. The City Treasurer can collect real property
activities or activities related to the purposes of an taxes but on the leased portion. Sec. 4(3), Art. XIV of
educational institution. The phrase “all revenues” is the 1987 Constitution provides that a non-stock,
unqualified by any reference to the source of non-profit educational institution shall be exempt
revenues. (CIR vs. De La Salle University, Inc., G.R. No. from taxes and duties only if the same are used
196596, 09 Nov. 2016) actually, directly, and exclusively for educational
purposes. The test of exemption from taxation is the
NOTE: The test to determine exemption is the use use of the property for purposes mentioned in the
of both the revenues and assets. Hence, when the Constitution. The leased portion of the building
revenues are actually, directly and exclusively used may be subject to real property tax since such lease
for educational purposes, the non-stock, non-profit is for commercial purposes, thereby, it removes the
educational institution shall be exempt from asset from the property tax exemption granted
income tax, VAT, and local business tax. The under the Constitution. (CIR vs. De La Salle
revenues do not need to come from educational University, Inc., G.R. No. 196596, 09 Nov. 2016)
activities, as long as it used for educational
purposes. (La Sallian Educational Innovators b. Is the income earned by San Juan University
Foundation v. CIR, G.R. No. 202792, 27 Feb. 2019) for the year 2017 subject to income tax?
The Supreme Court shall have the power to review, Local government units may, through ordinances
revise, reverse, modify, or affirm on appeal on duly approved, grant tax exemptions, incentives or
certiorari as the laws or the Rules of Court may reliefs under such terms and conditions as they may
provide, final judgments or orders of lower courts in deem necessary. (Sec. 192, LGC)
all cases involving the legality of any tax, impost,
assessment, or toll, or any penalty imposed in Condonation or Reduction of Tax by the
relation thereto. (Sec. 5(2)(b), Art. VIII, 1987 President of the Philippines
Constitution)
The President may, when public interest so
These jurisdictions are concurrent with the requires, condone, or reduce the real property tax
Regional Trial Court (RTC). Thus, the petition and interest for any year in any province or city or a
should generally be filed with the RTC following the municipality within the Metropolitan Manila Area.
hierarchy of courts. However, questions on tax laws (Sec. 277, LGC)
are usually filed directly with the Supreme Court as
these are impressed with paramount public Q: May Congress, under the 1987 Constitution,
interest. abolish the power to tax of local governments?
The Local Government’s Power to Tax as the Rule on ABC Corp.’s second contention. (2019
Most Effective Instrument to Raise the Needed BAR)
Revenues
A: ABC CORP. IS INCORRECT. Under the LGC, LGUs
The right of LGUs to collect taxes due must always are empowered to enact ordinances that will aid in
be upheld to avoid severe tax erosion. This their revenue generation, which is in consonance
consideration is consistent with the State policy to with the principle of fiscal autonomy of LGUs.
guarantee the autonomy of the local government Although the tax to be imposed is akin to VAT, the
and the objective of the LGC that they enjoy genuine LGU may nevertheless impose such local business
and meaningful local autonomy to empower them tax.
to achieve their fullest development as self-reliant
communities and make them effective partners in ALTERNATIVE ANSWER:
the attainment of national goals. (Dimaampao,
2021) ABC CORP. IS INCORRECT. Under Sec. 133(i) of the
LGC, cities may not impose percentage or value-
NOTE: The power of local government units is added tax (VAT) on sales, barters or exchanges or
subject to limitations as Congress may provide, i.e., similar transactions on goods or services “except as
the Local Government Code. (Ingles, 2021) otherwise provided herein”. As an exception to the
said rule, Sec. 143(b) of the LGC allows the
No Power to Grant Franchises imposition of taxes on wholesalers, distributors, or
dealers in any article of commerce of whatever kind
Being mere creatures of the State, LGUs cannot or nature for municipalities. Moreover, Sec. 151 of
defeat national policies through enactments of the LGC provides that cities may impose whatever
contrary measures. In the absence of constitutional the municipality is imposing. Thus, City X may levy
or legislative authorization, municipalities have no the said tax.
power to grant franchises. Consequently, the
protection of the constitutional provision as to ORIGIN OF REVENUE AND TARIFF BILLS
impairment of the obligation of a contract does not
extend to privileges, franchises and grants given by All appropriation, revenue or tariff bills, bills
a municipality in excess of its powers, or ultra vires. authorizing increase of the public debt, bills of local
(Batangas CATV, Inc. v. Court of Appeals, G.R. No. application, and private bills shall originate
138810, 29 Sept. 2004) exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
Q: In 2018, City X amended its Revenue Code to (Sec. 24, Art VI, 1987 Constitution)
include a new provision imposing a tax on every
sale of merchandise by a wholesaler based on What is required to originate in the House of
the total selling price of the goods, inclusive of Representatives is not the law but the revenue bill
value-added taxes (VAT). ABC Corp., a which must “originate exclusively” in the lower
A: On the theory that, elected as they are from the b. Does R.A. 9337 violate Sec. 26(2), Art. VI of
districts, the members of the House of the Constitution on the “No-Amendment
Representatives can be expected to be more Rule”?
sensitive to the local needs and problems.
A: NO. The “no-amendment rule” refers only to the
Q: R.A. 9337 is a consolidation of three procedure to be followed by each house of Congress
legislative bills namely, H.B. Nos. 3555 and with regard to bills initiated in each of said
3705, and S.B. No. 1950. Because of the respective houses, before said bill is transmitted to
conflicting provisions of the proposed bills, the the other house for its concurrence or amendment.
Senate agreed to the request of the House of Verily, to construe said provision in a way as to
Representatives for a committee conference. proscribe any further changes to a bill after one
The Conference Committee on the Disagreeing house has voted on it would lead to absurdity as this
Provisions of House Bill recommended the would mean that the other house of Congress would
approval of its report, which the Senate and the be deprived of its Constitutional power to amend or
House of the Representatives did. introduce changes to said bill. Thus, Sec. 26(2), Art.
VI of the Constitution cannot be taken to mean that
a. Does R.A. 9337 violate Sec. 24, Art. VI of the the introduction by the Bicameral Conference
Constitution on exclusive origination of Committee of amendments and modifications to
revenue bills? disagreeing provisions in bills that have been acted
upon by both houses of Congress is prohibited.
A: NO. It was H.B. Nos. 3555 and 3705 that initiated (ABAKADA Guro v. Executive Secretary, G.R. Nos.
the move for amending provisions of the NIRC 168056, 168207, 168461, 168463 & 168730, 01 Sept.
dealing mainly with the VAT. Upon transmittal of 2005)
said House bills to the Senate, the Senate came out
with S.B. No. 1950 proposing amendments not only NO APPROPRIATION OR USE OF PUBLIC MONEY
to NIRC provisions on the VAT but also amendments FOR RELIGIOUS PURPOSES
to NIRC provisions on other kinds of taxes.
No public money or property shall be appropriated,
Since there is no question that the revenue bill applied, paid, or employed directly or indirectly for
exclusively originated in the House of the use, benefit, or support of any sect, church,
Representatives, the Senate was acting within its denomination, sectarian institution, or system of
Constitutional power to introduce amendments to religion or of any priest, preacher, minister, or other
the House bill when it included provisions in S.B. No. religious teacher or dignitary as such, except when
A: YES. It complies with the requisites of equal NOTE: Under Sec. 30 of the NIRC, income of
protection. It is not limited to existing conditions religious organizations from activities conducted
only, as future installation managers will be subject for profit or from any of their property, regardless
to the tax. (Shell v. Vaño, G.R. No. L-6093, 24 Feb. of disposition of such income is subject to income
1954) tax. (Ingles, 2021)
Q: The City Council of Ormoc enacted Ordinance Q: Is the imposition of fixed license fee a prior
No. 4, Series of 1964 taxing the production and restraint on the freedom of the press and
exportation of only centrifugal sugar at the religious freedom?
Ormoc Sugar Company, Inc. At the time of the
enactment, Ormoc Sugar Co. was the only sugar A: YES. As a license fee is fixed in the amount and
central in Ormoc. Petitioner alleged that said unrelated to the receipts of the taxpayer, the license
Ordinance is unconstitutional for being fee, when applied to a religious sect, is actually
violative of the equal protection clause. Is the being imposed as a condition for the exercise of the
Ordinance valid? sect’s right under the Constitution. (Tolentino v.
Secretary of Finance, G.R. No. 115873, 25 Aug. 1994)
A: NO. Equal protection clause applies only to
persons or things identically situated and does not Q: Is a municipal license tax on the sale of bibles
bar a reasonable classification of the subject of and religious articles by a non-stock, non-profit
legislation. The classification, to be reasonable, missionary organization at minimal profits
should be in terms applicable to future conditions as valid?
well. The taxing ordinance should not be singular
and exclusive as to exclude any substantially A: NO. Such imposition of license tax constitutes
established sugar central, of the same class as curtailment of religious freedom and worship
Ormoc Sugar Co., from the coverage of the tax. which is guaranteed by the Constitution.
NOTE: VAT registration is not restrictive of NOTE: This applies only where one party is the
religious and press freedom. The VAT registration government and the other party is a private person.
fee, although fixed in amount, is not imposed for the
exercise of a privilege but only for defraying part of Rules regarding Non-impairment of Obligation
the cost of registration. (Tolentino v. Secretary of and Contract with respect to the Grant of Tax
Finance, G.R. No. 115873, 25 Aug. 1994) Exemptions
Instances when there is Impairment of the NOTE: A license conferring a tax exemption can
Obligations of Contract be revoked at any time since it does not confer
an absolute right, even if these were granted as
When the law changes the terms of the contract by: inducement to invest in the country. (Republic v.
Caguioa, G.R. No. 168584, 15 Oct. 2007)
1. Making new conditions;
2. Changing conditions in the contract; or
2. Franchise – if it is without payment of any
3. Dispenses with the conditions expressed
consideration or the assumption of any new
therein.
burden by the grantee, it is a mere gratuity and
exemption may be revoked.
Contractual Tax Exemptions
The parties to a contract cannot fetter the exercise A: NO. Even with due recognition of its high estate
of the taxing power of the State. For not only are and its importance in a democratic society,
existing laws read into contracts in order to fix however, the press is not immune from general
obligations as between parties, but the reservation regulation by the State. It has been held that the
of essential attributes of sovereign power is also publisher of a newspaper has no immunity from the
read into contracts as a basic postulate of the legal application of general laws. He has no special
order. privilege to invade the rights and liberty of others.
He must answer for libel. He may be punished for
The Contract Clause has never been thought as a contempt of court. Like others, he must pay
limitation on the exercise of the State’s power of equitable and nondiscriminatory taxes on his
taxation save only where a tax exemption has been business. (Tolentino v. Secretary of Finance, G.R. No.
granted for a valid consideration. (Tolentino v. 115873, 25 Aug. 1994)
Secretary of Finance, G.R. No. 115455, 25 Aug. 1994)
PROHIBITION ON RIDERS
Q: X Corporation was the recipient in 1990 of
two tax exemptions both from Congress, one No provision or enactment shall be embraced in the
law exempting the company’s bond issues from general appropriations bill unless it relates
taxes and the other exempting the company specifically to some particular appropriation
from taxes in the operation of its public utilities. therein. Any such provision or enactment shall be
The two laws extending the tax exemptions limited in its operation to the appropriation to
were revoked by Congress before their expiry which it relates. (Sec. 25(1), Art. VI, 1987
dates. Were the revocations constitutional? Constitution)
(1997 BAR)
Limited to the A: NO. The refusal of the mayor is not justified. The
Generally, amount is
necessary expenses of impositions are of different nature and character.
unlimited
regulation and control The fixed annual fee is in the nature of a license fee
imposed through the exercise of police power while
As to Subject
the 5% tax on purchase or consumption is a local tax
Imposed on the imposed through the exercise of taxing powers.
Imposed on persons, exercise of a right or Both a license fee and a tax may be imposed on the
properties, rights or privilege, such as the same business or occupation, or for selling the same
transactions commencement of a article and this is not in violation of the rule against
business or profession double taxation. (Campania General de Tabacos de
Filipinos v. City of Manila, G.R. No. L-16619, 29 June
As to the Effect of Non-Payment 1963)
As to Prescription
A: Direct taxes are demanded from the very person
Governed by the special Governed by the who, as intended, should pay the tax which he
prescriptive periods ordinary periods of cannot shift to another; while indirect taxes are
provided for in the NIRC prescription demanded in the first instance from one person
with the expectation that he can shift the burden to
someone else, not as a tax but as a part of the
purchase price. (Maceda v. Macaraig, Jr., G.R. No.
E. KINDS OF TAXES
88291, 08 June 1993)
Admittedly the government is not estopped from BIR Rules and Regulations that Revoke, Modify,
collecting taxes legally due because of mistakes or or Reverse a Ruling or Circular
errors of its agents. But like other principles of law,
this admits of exceptions in the interest of justice GR: Those BIR Rules and Regulations shall not be
and fair play, as where injustice will result to the given retroactive application if the revocation,
taxpayer. (CIR v. CA, G.R. No. 117982, 06 Feb. 1997) modification, or reversal will be prejudicial to the
taxpayers.
Penal Provisions of Tax Laws
XPNs: (MO-M-B-E)
In criminal cases, statutes of limitations are acts of
grace, a surrendering by the sovereign of its right to 1. It may be given retroactive effect even if such
prosecute. They receive strict construction in favor would be prejudicial to the taxpayer in the
of the Government and limitations in such cases will following cases:
not be presumed in the absence of clear legislation.
(Lim v. CA, G.R. Nos. 48134-37, 18 Oct. 1990) a. Where the taxpayer deliberately Misstates
or Omits material facts from his return, or
2. PROSPECTIVITY OF TAX LAWS any document required of him by the BIR;
Refer to discussion on “Powers of the BIR” – p. 51 1. The same property is taxed Twice when it
should be taxed only once; and
3. IMPRESCRIPTIBILITY OF TAXES
2. Both taxes are imposed:
GR: Taxes are imprescriptible by reason that it is the a. within the same Jurisdiction;
lifeblood of the government. b. for the same Purpose;
c. during the same taxing Period;
XPN: Tax laws may provide for statute of d. by the same taxing Authority;
limitations. In particular, the NIRC and LGC provide e. the taxes must be of the same kind or
for the prescriptive periods for assessment and Character; and
collection. f. on the same Subject matter. (City of Manila v.
Coca Cola Bottlers Philippines, G.R. No.
Tax laws provide for statute of limitations in the 181845, 04 Aug. 2009)
collection of taxes for the purpose of safeguarding
taxpayers from any unreasonable examination, All the elements must be present in order to apply
investigation or assessment. (CIR v. B.F. Goodrich double taxation in its strict sense.
Phils., G.R. No. 104171, 24 Feb. 1999)
Rationale: It constitutes double taxation in the
NOTE: Although the NIRC provides for the objectionable or prohibited sense since it violates
limitation in the assessment and collection of taxes the equal protection clause of the Constitution.
imposed, such prescriptive period will only be
applicable to those taxes that were returnable. The NOTE: Imposition of a penalty and a tax on one
prescriptive period shall start from the time the taxpayer does not amount to double taxation.
taxpayer files the tax return and declares his (Republic Bank v. CTA, G.R. No. 62554, 02 Sept. 1992)
liability. (Collector of Internal Revenue v. Bisaya Land
Transportation Co., Inc., G.R. Nos. L-12100 & L-11812, INDIRECT (BROAD SENSE)
29 May 1959)
It is a permissible double taxation wherein some
i. full exemption – where the state of Taxes exempted or reduced are considered fully
residence does not account for the paid. Consequently, a non-resident may obtain a
income from the state of source for tax tax credit for the taxes that have been "spared"
purposes; or under the incentive program of the state of
source, preserving the economic benefits
ii. with progression – where the income granted by the state of source.
taxed in the state of source is not taxed
by the state of residence, but the state of Another form of tax sparing is the Matching
residence retains the right to consider Credit wherein the state of residence agrees, as
A: NO. The exchange of the real estate property for 1. Failure of taxpayer to declare for taxation
the shares of stocks is considered as a legitimate tax purposes his true and actual income derived
avoidance scheme. (Sec. 40(C)(2)(b), NIRC) The sale from business for two (2) consecutive years.
of the shares of stocks of domestic corporation, (Republic v. Gonzales, G.R. No. L-17744, 30 Apr.
which is a capital asset, is subject to a final tax of 1965)
15% on the net capital gains realized. (Sec. 24(C),
NIRC) 2. Substantial under-declaration of income in the
income tax return for four (4) consecutive
c) TAX EVASION years coupled by intentional overstatement of
deductions. (Perez v. CTA, G.R. No. L-10507, 30
Tax evasion is a scheme where the taxpayer uses May 1958)
illegal or fraudulent means to defeat or lessen
payment of a tax. Q: HSBC transferred the assets of its Merchant
Acquiring Business in the Philippines to GPAP
It is a scheme used outside of those lawful means Phils., Inc. The CIR issued a Final Assessment
and when availed of, it usually subjects the taxpayer Notice (FAN) against HSBC for deficiency Income
to further or additional civil or criminal liabilities. Tax on the sale of "Goodwill" of its Merchant
(CIR v. The Estate of Benigno Toda Jr., G.R. No. 30554, Acquiring Business (MAB). HSBC filed its
28 Feb. 2004) Administrative Protest. CIR issued a Final
Decision on Disputed Assessment (FDDA). HSBC,
Elements in Determining Tax Evasion (U-S-E) thus, filed the present Petition for Review with
the CTA Division. In its Answer, CIR claimed that
1. Course of action or failure of action is Unlawful; the Deed of Assignment did not pertain to a sale
of shares but to a sale or transfer of business or
2. Accompanying State of mind, which is “evil”, in "Goodwill," which is subject to ordinary income
“bad faith”, “willful”, or “deliberate and not tax and not capital gains tax. CTA Division
accidental”; and granted HSBC’s petition and cancelled the FDDA
and FAN. The CTA Division found that, contrary
3. End to be achieved, i.e., payment of less than to CIR's assertion, the evidence bears that the
that known by the taxpayer to be legally due, or transaction in question is a sale or transfer of
non-payment of tax when it is shown that the capital asset, and not a sale of an ordinary asset
tax is due. (CIR v. Estate of Benigno Toda, G.R. which the CTA En Banc affirmed. Is the act of the
No. 147188, 14 Sept. 2004) respondent one that falls as tax evasion?
Tax Avoidance and Tax Evasion Distinguished A: NO. A taxpayer has the legal right to decrease the
amount of what otherwise would be his taxes or
altogether avoid them by means which the law
TAX AVOIDANCE TAX EVASION
permits. This is called tax avoidance. It is the use of
As to Validity legal means to reduce tax liability. However, this
method should be used by the taxpayer in good faith
Legal and not subject Illegal and subject to
and at arm’s length.
to criminal penalty criminal penalty
A: YES. The Supreme Court, in its resolution, NOTE: It is the legislature, unless limited by a
affirmed the conviction of a taxpayer for tax evasion provision of the state constitution, which has full
due to non-filing of income tax returns (ITR). The power to exempt any person, corporation, or class
accused Gloria Kintanar was not able to of property from taxation; its power to exempt
satisfactorily convince the court that she did not being as broad as its power to tax. Other than
deliberately and willfully neglect to file her ITR, Congress, the Constitution may itself provide for
considering that she entrusted the filing to her specific tax exemptions, or local governments may
husband who caused the filing through an pass ordinances on exemption only from local
accountant. The court believed that the accused taxes. (John Hay Peoples Alternative Coalition v. Lim,
was not relieved from her criminal liability. As G. R. No. 119775, 24 Oct. 2003)
principal, she must assume responsibility over the
acts of her accountant. (Sec. 51(f), NIRC) NOTE: Taxation is the rule and exemption is the
exception. (FELS Energy Inc. v. Province of Batangas,
The Doctrine on Willful Blindness simply means G.R. No. 168557, 16 Feb. 2007) The burden of proof
that an individual or corporation can no longer say rests upon the party claiming exemption to prove
that the errors on their tax returns are not their that it is, in fact, covered by the exemption so
responsibility or that it is the fault of the accountant claimed. As a rule, tax exemptions are construed
they hired. strongly against the claimant. Exemptions must be
shown to exist clearly and categorically and
Hence, the natural presumption is that the supported by clear legal provision. (PAGCOR v. BIR,
petitioner knows what her tax obligations under the G.R. No. 172087, 15 Mar. 2011)
law are. As a businesswoman, she should have taken
ordinary care of her tax duties and obligations and Principles Governing Tax Exemptions
she should know that their ITRs should be filed and
should have made sure that their ITRs were filed. 1. Tax exemptions are highly disfavored in law.
She cannot just leave entirely to her husband the
filing of her ITR. Petitioner also testified that she 2. Tax exemptions are personal and non-
does not know how much her tax obligations was, transferable.
nor did she bother to inquire or determine the facts
surrounding the filing of her ITR. Such neglect or 3. He who claims an exemption must justify that
omission as aptly found by the former second the legislature intended to exempt him by
division is tantamount to “deliberate ignorance or words too plain to be mistaken. He must
conscious avoidance.” Further, such non- convincingly prove that he is exempted.
compliance with the BIR’s notices clearly shows
11. Implies a waiver on the part of the government c. Contractual – agreed to by the taxing
of its right to collect what otherwise would be authority in contracts lawfully entered into
due. by them under enabling laws.
12. Exemptions are not presumed. The burden is d. Implied – when particular persons,
upon the claimant to establish right to properties or excises are deemed exempt
exemption beyond reasonable doubt. However, as they fall outside the scope of the taxing
the strict interpretation does not apply in the provision.
case of exemptions running to the benefit of the
government itself or its agencies. NOTE: The law looks with disfavor on tax
exemptions and he who would seek to be
NOTE: Since the power to tax includes the power to thus privileged must justify it by words too
exempt thereof which is essentially a legislative plain to be mistaken and too categorical to
prerogative, it follows that a municipal mayor who be misinterpreted. (Western Minolco Corp.
is an executive officer may not unilaterally v. CIR, G.R. No. L-61632, 16 Aug. 1983)
withdraw such an expression of a policy thru the
enactment of a tax. (Philippine Petroleum e. Treaty
Corporation v. Municipality of Pililla, G.R. No. 90776, f. Licensing ordinance
Q: Pursuant to Sec. 11 of the “Host Agreement” The exception is when the buyer (or whoever the
between the United Nations and the Philippine burden of tax falls to) is specifically exempted from
government, it was provided that the World payment of indirect taxes. (CIR v. John Gotamco &
Health Organization (WHO), “its assets, income Sons, Inc., G.R. No. L-31092, 27 Feb. 1987)
and other properties shall be: (a) exempt from
all direct and indirect taxes.” Precision Rationale or Grounds for Exemption
Construction Corporation (PCC) was hired to
construct the WHO Medical Center in Manila. The inherent power of the State to impose taxes
Upon completion of the building, the BIR naturally carries with it the power to grant tax
assessed a 12% VAT on the gross receipts of exemptions.
PCC derived from the construction of the WHO
building. The BIR contends that the 12% VAT is The rationale or grounds for tax exemption are the
not a direct nor an indirect tax on the WHO but same as the non-revenue/special or regulatory
A: YES. SMC is exempt from the payment of VAT on Since taxation is the rule and exemption is the
the sale of coal produced under its COC, because Sec. exception, the exemption may thus be withdrawn at
16 (a) of PD 972, a special law, grants SMC the pleasure of the taxing authority. (Mactan Cebu
exemption from all national taxes except income International Airport Authority v. Marcos, G.R. No.
tax. 120082, 11 Sept. 1996)
SMC's claim for VAT exemption is anchored not on By granting exemptions, the State does not forever
the paragraph deleted by RA No. 9337 from the list waive the exercise of its sovereign prerogative.
of VAT exempt transactions under Sec. 109 of the Thus, in withdrawing the exemption of the press
NIRC of 1997, as amended, but on the tax incentives (media) from VAT, the law merely subjects the
granted to operators of COCs executed pursuant to same to the same tax burden to which other
1. Delinquent accounts;
9. COMPROMISE AND TAX AMNESTY
2. Cases under Administrative protest after
COMPROMISE issuance of the Final Assessment Notice to the
taxpayer which are still pending in the
Definition Regional Offices, Revenue District Offices,
Legal Service, Large Taxpayer Service (LTS),
A compromise is a contract whereby the parties, by Collection Service, Enforcement Service and
making reciprocal concessions, avoid a litigation or other offices in the National Office;
put an end to one already commenced. (Art. 2028,
New Civil Code) 3. Civil tax cases being disputed before the
courts;
NOTE: A compromise penalty could not be imposed
by the BIR, if the taxpayer did not agree. A 4. Collection cases filed in courts; and
compromise being, by its nature, mutual in essence
requires agreement. The payment made under 5. Criminal violations, other than those already
protest could only signify that there was no filed in court or those involving criminal tax
agreement that had effectively been reached fraud. (Sec. 2, Rev. Regs. No. 30-2002)
between the parties. (Vda. de San Agustn, v. CIR, G.R.
No. 138485, 10 Sept. 2001) Tax Cases that may NOT be the Subject Matter of
Compromise
Persons Allowed to Enter into Compromise of
Tax Obligations 1. Withholding tax cases, unless the applicant-
taxpayer invokes provisions of law that cast
1. BIR Commissioner – as expressly authorized by doubt on the taxpayer’s obligation to withhold;
the NIRC, and subject to the following
conditions: 2. Criminal tax fraud cases confirmed as such by
the Commissioner of Internal Revenue or his
a. When a reasonable doubt as to validity of duly authorized representative;
the claim against the taxpayer exists; or
3. Criminal violations already filed in court;
b. The financial position of the taxpayer
demonstrates a clear inability to pay the 4. Delinquent accounts with duly approved
assessed tax. (Sec. 204(A), NIRC) schedule of installment payments;
1. Tax amnesty is a general pardon to taxpayers Q: Can a taxpayer claim tax amnesty if he is a
who want to start a clean tax slate. withholding tax agent?
2. It also gives the government a chance to collect A: The claim of a taxpayer under a tax amnesty shall
uncollected tax from tax evaders without be allowed when the liability involves the deficiency
having to go through the tedious process of a in payment of income tax. However, it must be
disallowed when the taxpayer is assessed on his
Q: The BIR assessed Garments Co deficiencies on A: NO. It remains undisputed that Transfield
taxes for non-payment of VAT on its undeclared complied with all the requirements pertaining to its
sales. While the case was pending before the SC, application for tax amnesty. A tax amnesty operates
Garment Co filed a Manifestation and Motion as a general pardon or intentional overlooking by
that it had availed and was able to comply with the State of its authority to impose penalties on
the government’s tax amnesty program under persons otherwise guilty of evasion or violation of a
the 2007 Tax Amnesty Law. However, BIR revenue or tax law. It is an absolute forgiveness or
contends that Garment Co is disqualified per waiver by the government of its right to collect what
“BIR RMC 19-2008” or “A Basic Guide on the Tax is due it and to give tax evaders who wish to relent
Amnesty Act of 2007” which disqualifies a chance to start with a clean slate. A tax amnesty,
taxpayers with issues and cases that were ruled much like a tax exemption, is never favored nor
by any court (even without finality) in favor of presumed in law. The grant of a tax amnesty is akin
the BIR prior to amnesty availment of the to a tax exemption. Thus, it must be construed
taxpayer. Did Garment Co qualify for the tax strictly against the taxpayer and liberally in favor of
amnesty program? the taxing authority. It is a basic precept of statutory
construction that the express mention of one
A: YES. While tax amnesty, similar to a tax person, thing, act, or consequence excludes all
exemption, must be construed strictly against the others as expressed in the maxim Expressio unius est
taxpayer and liberally in favor of the taxing exclusio alterius. In implementing tax amnesty laws,
authority. It is also a well-settled doctrine that the the CIR cannot now insert an exception where there
rule-making power of administrative agencies is none under the law. Indeed, a tax amnesty must
cannot be extended to amend or expand statutory be construed strictly against the taxpayer and
requirements or to embrace matters not originally liberally in favor of the taxing authority. However,
encompassed by the law. Administrative the rule-making power of administrative agencies
regulations should always be in accord with the cannot be extended to amend or expand statutory
provisions of the statute they seek to carry into requirements or to embrace matters not originally
effect, and any resulting inconsistency shall be encompassed by the law. Administrative
resolved in favor of the basic law. Thus, BIR RMC 19- regulations should always be in accord with the
2008 is invalid as the exception goes beyond the provisions of the statute they seek to implement,
scope of the provisions of the 2007 Tax Amnesty and any resulting inconsistency shall be resolved in
Law. (CS Garment, Inc. v. CIR, G.R. No. 182399, March favor of the basic law. (CIR v. Transfield Philippines,
12, 2014) Inc., G.R. 211449, 16 Jan. 2019)
Powers and Duties of the BIR (J-En-A-ReS) Q: In 2008, Apo Cement availed of the tax
amnesty under Republic Act No. 9480 which
1. Execution of Judgments in all cases decided in affects its 1999 deficiency documentary stamp
its favor (by the CTA and regular courts); taxes. It filed a Motion to Cancel Tax Assessment
which was granted by the CTA. The CTA found
2. Enforcement of all forfeitures, penalties, and that Apo Cement is a qualified tax amnesty
fines; applicant under Republic Act No. 9480 and fully
compliant with the requirements of the law. The
3. Assessment and collection of all national Commissioner of Internal Revenue filed a
internal revenue taxes, fees, and charges; Motion for Reconsideration on October 19,
2009. It disputes the correctness of Apo
4. Recommend to the Secretary of Finance all Cement’s 2005 SALN because it allegedly did not
needful rules and regulations for the effective include in its declaration of assets in the SALN
enforcement of the provision of the NIRC; and the 57,500,000 shares of stocks it acquired in
1999 from its subsidiary. Does the CIR have the
5. Give effect and administer the Supervisory and
standing to question the SALN of Apo Cement?
police powers conferred to it by the NIRC and
other laws. (Sec. 2, NIRC)
A: NO. Under Sec. 4 of Republic Act No. 9480, there
is a presumption of correctness of the SALN and
Composition of the BIR
only parties other than the Bureau of Internal
Revenue or its agents may dispute the correctness
The BIR is headed by the CIR and 4 Deputy
of the SALN. Even assuming that petitioner has the
Commissioners, who lead the following divisions:
standing to question the SALN, Republic Act No.
9480 provides that the proceeding to challenge the
1. Operations group;
SALN must be initiated within one year following
2. Legal Inspection Group;
the date of filing of the Tax Amnesty documents.
3. Resource and Management Group; and
Respondent asserts that it availed of the tax
4. Information Systems Group. (Sec. 3, NIRC)
amnesty program on January 25, 2008. Hence,
petitioner’s challenge made only in April 2009, was
Q: Is the BIR authorized to collect estate tax
already time-barred. (CIR v. APO, G.R. No. 193381, 08
deficiencies by the summary remedy of levy
Feb. 2017)
upon and sale of real properties of the decedent
without first securing the authority of the court
sitting in probate over the supposed will of the 1. JURISDICTION, POWER, AND FUNCTIONS OF
decedent? (1998 BAR) THE COMMISSIONER OF INTERNAL REVENUE
A: YES. The BIR is authorized to collect estate tax Jurisdiction of the CIR
deficiency through the summary remedy of levying
upon and sale of real properties of a decedent 1. Exclusive and original jurisdiction to interpret
without the cognition and authority of the court the provisions of NIRC and other tax laws,
10. The manner in which internal revenue taxes, Q: GHI, Inc. is a corporation authorized to engage
such as income tax, including withholding tax, in the business of manufacturing ultra-high
estate and donor's taxes, value-added tax, density microprocessor unit packages. After its
other percentage taxes, excise taxes and registration on July 5, 2005, GHI, Inc.
documentary stamp taxes shall be paid constructed buildings and purchased
through the collection officers of the BIR or machineries and equipment. As of December 31,
through duly authorized agent banks which 2005, the total cost of the machineries and
are hereby deputized to receive payments of equipment amounted to P250,000,000.00.
such taxes and the returns, papers and However, GHI, Inc. failed to commence
statements that may be filed by the taxpayers operations. Its factory was temporarily closed
in connection with the payment of the tax: effective September 15, 2010. On October 1,
Provided, however, that notwithstanding the 2010, it sold its machineries and equipment to
other provisions of the NIRC prescribing the JKL Integrated for P300,000,000.00. Thereafter,
place of filing of returns and payment of taxes, GHI, Inc. was dissolved on November 30, 2010.
the CIR may, by rules and regulations require
that the tax returns, papers and statements and Is the sale of the machineries and equipment to
taxes of large taxpayers be filed and paid, JKL Integrated subject to normal corporate
respectively, through collection officers or income tax or capital gains tax? Explain. (2019
through duly authorized agent banks: BAR)
Provided, further, that the CIR can exercise this
power within 6 years from the approval of R.A. A: The sale of machineries and equipment to JKL
No. 7646 or the completion of its Integrated subject to normal corporate income tax.
comprehensive computerization program, Under Sec. 27(D)(5) of the NIRC, a corporation is
whichever comes earlier: Provided, finally, only subject to capital gains tax for the sale of land
that separate venues for the Luzon, Visayas and buildings. In this case, GHI Inc., a corporation,
and Mindanao areas may be designated for the sold machineries and equipment. Hence, the sale is
filing of tax returns and payment of taxes by subject to normal corporate income tax.
said large taxpayers. (Sec. 245, NIRC)
Income Tax System
Income tax is a tax on all yearly profits arising from 2. Schedular tax system – system employed
property, profession, trade, or business, or a tax on where the income tax treatment varies and is
person’s income, emoluments, profits and the like. made to depend on the kind or category of
(Fisher v. Trinidad, G.R. No. L-19030, 20 Oct. 1922) taxable income of the taxpayer. (Tan v. Del
Rosario, Jr., G.R. Nos. 109289 & 109446, 03 Oct.
Income taxation is in the nature of an excise taxation 1994)
system, or taxation on the exercise of privilege, the
privilege to earn yearly profits from various 3. Semi-schedular or semi-global tax system.
1. Direct tax
NOTE: Only resident citizens and domestic
corporations are taxable on worldwide income.
Tax burden is borne by the income recipient
upon whom the tax is imposed. It is a tax
WITHIN OUTSIDE
demanded from the very person who, it is
THE PH THE PH
intended or desired, should pay it (i.e., income
tax, donor’s tax, estate tax). RC ✓ ✓
NRC ✓ X
2. Progressive tax
RA ✓ X
Tax base increases as the tax rate increases. It is NRA ✓ X
founded on the “ability to pay” principle.
DC ✓ ✓
3. Comprehensive
FC ✓ X
1. Citizenship – a citizen of the Philippines is 2. An NRC is taxable only on income derived from
subject to Philippine income tax: sources within the Philippines.
Q: When is the deadline for the filing of a 1. Those who are citizens of the Philippines at the
corporation's final adjustment return for a time of the adoption of the 1987 Constitution;
calendar year? How about for a fiscal year? 2. Those whose fathers or mothers are citizens of
(2019 BAR) the Philippines;
3. Those born before January 17, 1973, of Filipino
A: For a calendar year, the final return should be mothers, who elect Philippine Citizenship upon
filed on or before the 15th day of April following the reaching the age of majority; and
close of the taxable year. For a fiscal year, the final 4. Those who are naturalized in the accordance
return is filed on or before the 15th day of the 4th with law. (Sec. 1, Art. IV, 1987 Constitution)
month following the close of the taxable year.
Resident Citizen (RC) and Non-Resident Citizen
d) KINDS OF TAXPAYERS (NRC) Distinguished
1. Individuals RC NRC
A citizen of the A citizen of the
a. Citizen Philippines who stays in Philippines who:
i. Resident Citizen (RC) the Philippines without
ii. Non-Resident Citizen (NRC) the intention of 1. Establishes to the
transferring his physical satisfaction of the
b. Aliens presence abroad CIR the fact of his
i. Resident Alien (RA) whether to stay physical presence
ii. Non-Resident Alien (NRA) permanently or abroad with a
(1) Engaged in Trade or Business temporarily as an definite intention to
(NRA-ETB) overseas contract reside therein;
(2) Not Engaged in Trade or Business worker.
(NRA-NETB)
NRA-ETB NRA-NETB
NOTE: “Most of the
An alien who stays in An alien who stays in
time during the
the Philippines for an the Philippines for
taxable year” has
aggregate period of 180 days or less. (Sec.
been interpreted to
more than 180 days. 25(B), NIRC)
be at least 183 days.
(Sec. 25(A), NIRC)
4. Has been previously
considered as a non- Minimum Wage Earner
resident citizen and
who arrives in the A worker in the private sector paid the statutory
Philippines at any minimum wage or to an employee in the public
time during the sector with compensation income of not more than
taxable year to the statutory minimum wage in the non-agricultural
reside permanently sector where he is assigned. (Sec. 24(HH), NIRC)
in the Philippines.
Domestic Corporation
NOTE: Treated as
NRC with respect to Corporations created or organized in the
income derived from Philippines or under its laws. (Sec. 22(C), NIRC)
sources abroad until
the date of his arrival. Foreign Corporation
3. Petroleum service contractors and sub- Tax treatments for those enumerate above varies
contractors in the Philippines. from one taxpayer to another.
NOTE: When a special alien leases a property, he The classification of a taxpayer will determine the
shall be taxed under NRA-EBT and NRA-NEBT, applicable: (G-R-E-E-D)
depending on the number of stay.
1. Gross income
Special aliens are not required to submit ITR 2. Income tax Rates
because the obligation to file income ITR rests upon 3. Exclusions from gross income
his employer. 4. Exemptions
5. Deductions
Instances where Alternative Taxation may be
Applied
b. Constructive receipt – Occurs when A: NO. Mr. X did not derive any income from the
money consideration or its equivalent is cancellation or condonation of his indebtedness.
placed at the control of the person who Since it is obvious that the creditor merely desired
rendered the service without restriction to benefit the debtor in view of the absence of
by the payor. (Sec. 4.108-4, RR 16-2005) consideration for the cancellation, the amount of the
debt is considered as a gift from the creditor to the
The income is credited to the account of debtor and need not be included in the latter’s gross
the taxpayer and set apart for him which income.
he can withdraw at any time without
restrictions and/or conditions although Q: Petitioner condominium corporation filed a
not yet actually received by him physically case seeking to invalidate RMC No. 65-2012,
or reduced to his possession is already which subjects condominium association dues,
taxable to him. membership fees and other assessments to
income tax and VAT. Petitioner contends that
Examples of income constructively membership fees, assessment dues, and other
received: (B-I2-T-S) fees of similar nature only constitute
contributions to and/or replenishment of the
a. Deposits in Banks which are made funds for the maintenance and operations of the
available to the seller of services facilities offered by recreational clubs to their
without restrictions exclusive members and thus, they do not
constitute profit or gain. Are the petitioners
b. Issuance by the debtor of a notice to correct?
offset any debt or obligation and
acceptance thereof by the seller as A: YES. Condominium corporations are not engaged
payment for services rendered in activities that generate profit. The collection of
Refer to previous discussion on “When Income is The all-events test requires the right to income or
Taxable” – p.64 liability be fixed, and the amount of such income or
liability be determined with reasonable accuracy.
Claim of Right Doctrine or Doctrine of However, the test does not demand that the amount
Ownership, Command or Control of income or liability be known absolutely, only that
a taxpayer has at his disposal the information
A taxable gain is conditioned upon the presence of necessary to compute the amount with reasonable
a claim of right to the alleged gain and the absence accuracy. The amount of liability does not have to
of a definite unconditional obligation to return or be determined exactly; it must be determined with
repay. (CIR v. Javier, G.R. 78953, 31 July 1991) "reasonable accuracy."
2. Property Tax
i. Franchise which must be exercised in the
Philippines;
a. Real property – taxed upon the location of
the property (lex rei sitae/lex situs),
ii. Shares, obligations, or bonds issued by any
regardless of whether the owner is a
corporation Sociedad anonima organized
resident or a non-resident.
or constituted in the Philippines in
accordance with its laws;
Rationale:
i. The taxing authority has control
iii. Shares, obligations, or bonds by any
because of the stationary and fixed
foreign corporation 85% of its business is
character of the property; and
located in the Philippines;
Refer to previous discussion on “Criteria on 1. Interests derived from sources within the
Imposiing Philippine Income Tax Law”. Philippines;
NOTE: The source of an income is the property, 2. Dividends from domestic and foreign
activity or service that produces the income. For corporations, if more than 50% of its gross
the source of income to be considered as coming income for the three-year period ending with
from the Philippines, it is sufficient that the the close of the taxable year prior to the
income is derived from activity within the declaration of dividends was derived from
Philippines. (CIR v. British Overseas Airways sources within the Philippines;
Corp., G.R. Nos. L-65773-74, 30 Apr. 1987)
3. Compensation for services performed within
b. Donor’s Tax and Estate Tax the Philippines;
A: The ground is unmeritorious. Sec. 32 of the NIRC The tax implication when there is exchange of
includes within the purview of gross income all services without compensation is that both parties
income from whatever source derived. Hence, the are taxable as if both each sold their services.
illegality of the income will not preclude the
imposition of the income tax thereon. Self-help income is the amount saved for doing a
work by the taxpayer himself instead of hiring
b. Lao’s receipts from his swindling did not someone to do the work. Self-help income is exempt
constitute income because he was under from tax. For example, a person wants to repaint his
obligation to return the amount he had house. Instead of hiring a painter, that person did
swindled, hence, his receipt from swindling the painting job himself to save money.
was similar to a loan, which is not income,
because for every peso borrowed he has a d) SOURCES OF INCOME SUBJECT TO TAX
corresponding liability to pay one peso; and
(1) COMPENSATION INCOME
A: The ground is unmeritorious. When a taxpayer
acquires earnings, lawfully or unlawfully, without
Definition
the consensual recognition, express or implied, of
an obligation to repay and without restriction as to
Compensation income includes all remuneration for
their disposition, he has received taxable income,
services rendered by an employee for his employer
even though it may still be claimed that he is not
unless specifically excluded under the NIRC. (Sec.
entitled to retain the money, and even though he
2.78.1, RR No. 2-1998)
may still be adjudged to restore its equivalent. To
treat the embezzled funds as not taxable income
Q: As a way to augment the income of the
would perpetuate injustice by relieving embezzlers
employees of DEF, Inc., a private corporation,
of the duty of paying income taxes on the money
the management decided to grant a special
they enrich themselves with, by embezzlement,
stipend of P50,000.00 for the first vacation leave
while honest people pay their taxes on every
that any employee takes during a given calendar
conceivable type of income. (James v. U.S., 202 US
year. In addition, the senior engineers were also
401)
given housing inside the factory compound for
the purpose of ensuring that there are available
c. If he has to pay the deficiency income tax
engineers within the premises every time there
assessment there will be hardly anything
is a breakdown in the factory machineries and
left to return to the victims of the swindling.
equipment.
How will you rule on each of the three
grounds for the protest? (1995 BAR)
a. Is the special stipend part of the taxable
income of the employees receiving the
A: The ground is unmeritorious. The deficiency
same? If so, what tax is applicable and what
income tax assessment is a direct tax imposed on
is the tax rate? Explain.
the owner which is an excise on the privilege to earn
an income. It will not necessarily be paid out of the A: YES, the special stipend is part of the taxable
same income that was subjected to the tax. Lao’s income of the employees since the same may very
liability to pay the tax is based on him having well be considered income on his part.
Q: Capt. Canuto is a member of the Armed Forces NOTE: Professional income shall be subject to
of the Philippines. Aside from his pay as captain, creditable withholding tax rates prescribed. (RR No.
the government gives him free uniforms, free 3-1998)
living quarters in whatever military camp he is
assigned, and free meals inside the camp. Are
these benefits income of Capt. Canuto? Explain.
(1995 BAR)
Q: May a capital asset be reclassified as ordinary Rules on Determining Adjusted Basis or Cost of
asset? the Property Sold (Sec. 40(B), NIRC)
Holding period
Not applicable
available
Extent of recognition (taxability) Capital Gains Subject to Final Tax and Capital
Gains Reported in the Income Tax Return
Distinguished
The percentages of
gain or loss to be SUBJECT TO FINAL REPORTED IN THE
taken into account TAX ITR
shall be the ff.: As to deductions
Capital gains and
100% - if the capital
losses are taxable to
assets have been held
the extent of 100%
for 12 months or less;
and
50% - if the capital
asset has been held The capital gains are
for more than 12 aggregated with
months There is a fixed rate other income to
for the tax constitute gross
income subject to
Deductibility of capital losses deductions
GR: Non-deductibility
of Net Capital losses
Thus, under this capital loss limitation rule, Under this rule, only ordinary and necessary
capital loss is deductible only up to the extent expenses are deductible from gross income or
of capital gain. The taxpayer can only deduct ordinary income. Capital loss is a non-business
capital loss from capital gain. If there is no connected expense as it can be sustained only
capital gain, then no deduction is allowed from capital transactions. To allow that capital
because you cannot deduct capital loss from loss as a deduction from ordinary income
ordinary gain. would run counter to the rule on matching cost
against revenue.
Rationale: To allow the deduction of non-
business (capital) losses from business 2. Loss carry-over rule/Net Capital Loss
(ordinary) income or gain could mean the Carry Over (NCLCO) – If any taxpayer,
reduction or even elimination of taxable income other than a corporation, sustains in any
of the taxpayer through personal, non-business taxable year a net capital loss, such loss (in
related expense, resulting in substantial losses an amount not in excess of the net income
of revenue to the government. (Mamalateo, for such year) shall be treated in the
2014) succeeding taxable year as a loss from the
sale or exchange of a capital asset held for
Where the Capital Loss Limitation Rule will not more than 12 months. (Sec. 39(D), NIRC)
NOT Apply
Rules on NCLCO
1. If a bank or trust company is incorporated
under the laws of the Philippines; 1. NCLCO is allowed only to individuals,
including estates and trusts;
2. A business whose substantial part is the
receipt of deposits; 2. The net loss carry-over shall not exceed the
net income for the year sustained and is
3. Sells any bond, debenture, note or deductible only for the succeeding year;
certificate or other evidence of
indebtedness issued by any corporation, 3. The capital assets must not be real
with interest coupons or in registered property or stocks listed and traded in the
form; and stock exchange; and
4. Any losses resulting from such sale shall 4. Capital asset must be held for not more
not be subject to the above limitations and than 12 months.
shall not be included in determining the
NCLCO NOLCO
As to source NET CAPITAL GAIN NET CAPITAL LOSS
Excess of the gains Excess of the losses
Arises from ordinary
Arises from capital from sales or from sales or
transactions meaning
transactions meaning exchanges of capital exchanges of capital
involving ordinary
involving capital asset assets over the losses assets over the gains
asset
from such sales or from such sales or
As to who can avail exchanges exchanges
Can be availed of by Can be availed of by
individual taxpayer individual and Recognition of Gain or Loss in Exchange of
only corporate taxpayer Property
As to period of carry-over
Refer to previous discussion on “Tax-free
Allows carryover of Exchanges” – p. 68
May be carried over operating loss in 3
only in the next succeeding taxable Tax Treatment of Capital Gains and Losses
succeeding taxable years or 5 years, in the
year case of mining
companies SOURCE TAX TREATMENT
1. Stocks Traded in the
3. Holding period rule (long-term capital gain Stock Exchange –
vis-à-vis short-term capital gain) – subject to six-tenths of
Where the taxpayer held the capital asset sold for one percent (6/10 of
more than 12 months, the gain derived 1%) of the gross selling
therefrom is taxable only to the extent of 50%. price or gross value in
Consequently, if the taxpayer held the capital money of the shares of
asset sold for a year or less, the whole gain shall stock sold, bartered,
be taxable. The same also applies to capital loss. exchanged or otherwise
It is a form of tax avoidance since the taxpayer disposed which shall be
can exploit it in order to reduce his tax due. (Sec. paid by the seller or
39(B), NIRC) transferor (Sec. 127(A),
From Sale of
NIRC)
Stocks of
However, holding period does not find
Corporations
application in the case of disposition of: 2. Stocks Not Traded in the
Stock Exchange –
a. Shares of stock of a domestic subject to capital gains
corporation held as capital asset; and tax
b. Real property considered as capital
asset, whether the seller is an NOTE: Under R.A. No. 11534
individual, trust, estate or a private or CREATE Act, foreign
corporation. corporations are now
subject to 15% capital gains
NOTE: Only individual taxpayers can avail tax on from the sale, barter,
of the holding period rule. It is not allowed exchange or other
to corporations. disposition of shares of
Rules in Determining the Selling Price of the 1. No capital loss carry-over for capital losses
Shares Disposed sustained during the year (not listed and
traded in a local stock exchange) shall be
1. In case of cash sale – the selling price is the total allowed but capital losses may be deducted on
consideration as indicated in the deed of sale. the same taxable year only.
2. If the consideration is partly in money and 2. The entire amount of capital gains and capital
partly in kind – the selling price is the cash or loss (not listed and traded in a local stock
money received plus the fair market value of exchange) shall be considered without taking
the property received. into account the holding period irrespective of
the type/kind of taxpayer.
3. In case of exchange – the selling price is the fair
market value (FMV) of the property received.
Q: What is meant by “income subject to final 5. From bank Deposits. The recipient must be any
tax?” (2001 BAR) following tax-exempt recipients:
a. Foreign government
A: Income subject to final tax refers to an income b. Financing institutions owned, controlled,
wherein the tax due is fully collected through the or financed by foreign government
withholding tax system. Under this procedure, the
payor of the income withholds the tax and remits it
Deposit Substitute
Interest derived by
depositary bank under
the expanded foreign
currency deposit system
from foreign currency
loans granted to
residents other than
offshore banking units
10% 10% Exempt
(OBUs)
Interest received by
NRFC on foreign loans – – 20%
(NIRC, Sec. 28 (5a))
NOTE: Under R.A. No. 11534 or CREATE, interest income derived by a resident foreign corporation from a
depository bank under the expanded foreign currency deposit system shall be subject to a final income tax at
15% (previously taxed at 7.5%). (Sec. 7, R.A. No. 11534 amending Sec. 28, NIRC)
NATURE OF
RC NRC NRAETB NRANETB
INCOME
Interests from any
currency bank
deposits, yield, or
any other
monetary benefits
20% 20% 20% 25%
from deposit
substitutes and
from trust fund
and similar
arrangement
Interest received
from a depository
bank under the
15% Exempt Exempt Exempt
expanded foreign
currency deposit
system
Interest income
from long term
deposit or
investment Exempt Exempt Exempt –
NOTE: If pre-
terminated before
the 5th year, the final
tax would be:
5% 5% 5% –
4 years to less than 12% 12% 12% –
5 years 20% 20% 20% –
3 years to less than
4 years
Less than 3 years
20% FWT ON 5% GROSS RECEIPTS b. Is the bank correct in withholding the 20%
INTEREST INCOME TAX ON BANKS final tax on the entire interest income?
Explain.
It is an income tax It is a business tax
under Title II of the (percentage tax) under
A:
NIRC (Tax on Title V (Other
Income). Percentage Taxes). a. YES. The interest income from the peso bank
deposit is subject to 20% final withholding tax.
FWT is imposed on Gross Receipts Tax
The interest income from the dollar deposit is
the gross interest (GRT) is measured by a
subject to 15% final withholding tax but only on
income realized in a certain percentage on
the portion of the interest attributable to Judy
taxable year. the gross receipts or
or $500. The interest on the dollar deposit
earnings.
attributable to Renato, a non-resident is exempt
FWT is a withholding GRT is not a from income tax. (Sec. 24(B)(1), NIRC)
tax. withholding tax.
b. NO. Only the interest income on a peso deposit
is subject to 20%. The interest income from a
NOTE: The 20% final tax withheld on a bank’s dollar deposit is subject to 15% if the earner is
passive income should be included in the a resident individual. (Sec. 24(B), NIRC)
computation of GRT. (China Banking Corporation v.
CIR, G.R. No. 175108, 27 Feb. 2013) Q: What is the tax treatment of the following
interest on deposits with:
Q: Maribel, a retired public school teacher, relies a. BPI Family Bank?
on her pension from the GSIS and the Interest b. A local offshore banking unit of a foreign
Income from a time deposit of P500,000 with bank? (2005 BAR)
ABC Bank. Is Maribel liable to pay any tax on her
income? A:
a. It is a passive income subject to a withholding
A: YES. Maribel is exempt from tax on the pension tax rate of 20%.
from the GSIS (Sec. 32(B)(6)(f), NIRC). However,
with her time deposit, the interest she receives b. It is a passive income subject to final
thereon is subject to 20% final withholding tax. withholding tax rate of15% (Sec. 24(B)(1),
NIRC)
Q: In 2007, spouses Renato and Judy Garcia
opened peso and dollar deposits at the Both interests are not to be declared as part of gross
Philippine branch of the Hong Kong Bank in income in the income tax return.
Manila. Renato is an overseas worker in Hong
Kong while Judy lives and works in Manila. Q: In 2004, Edison Bataan Cogeneration
Corporation (EBCC) received from the CIR a
During the year, the bank paid interest income Formal Letter of Demand and Final Assessment
of P10,000 on the peso deposit and US$1,000 on Notice assessing EBCC of deficiency Final
the dollar deposit. The bank withheld final Withholding Tax (FWT) for the taxable year
income tax equivalent to 20% of the entire 2000. Upon the CIR’s inaction to the letter-
interest income and remitted the same to the protest filed by EBCC, the latter elevated the case
BIR. to the CTA. The CTA Division held, among others,
SOURCE OF DIVIDENDS
RECIPIENT
DC RFC NRFC
Regular income tax Regular income tax (0-
RC 10% final tax
(0- 35%) 35%)
Less than 50% of income of RFC/NRFC is from PH:
RA 10% final tax
Non-taxable Income from sources outside PH are
not taxable for RA, NRC, NRAETB, and NRANETB)
NRC 10% final tax
If more than 50% of income of RFC/NRFC is from
NRAETB 20% final tax PH, a proportion of the income is considered as
income within the Philippines, subject to regular
NRANETB 25% final tax income tax (or 25% final tax for NRANETB)
No definition was provided for royalty income It is a fixed sum, either in cash or in property
under the NIRC. Nonetheless, Webster Dictionary equivalent, to be paid at a definite period for the use
defined the same as a share of the earnings as from or enjoyment of a thing or right. All rentals derived
invention, book or play, paid to the inventor, writer, from lease of real estate or personal property, of
etc. for the right to make, use or publish the same. copyrights, trademarks, patents and natural
(Tabag, 2015) resources under lease.
Moreover, in Universal Food Corporation vs. CA, it Prepaid Rent or Advance Rental
was defined to be the compensation for the use of a
patented invention.
It is taxable income to the lessor in the year
Tax Treatment of Royalty Income (Tabag, 2015) received, if received under a claim of right and
TAX without restriction as to its use, regardless of
SOURCE OF INCOME method of accounting employed.
TREATMENT
Royalties on books,
Security Deposits
other literary works
and musical
GR: Security deposits are not taxable as these are
composition from
sources within the refundable in nature.
10% final tax
Philippines.
Security deposit applied to the rental of terminal
NOTE: The tax rate month or period of contract must be recognized as
income at the time it is applied. The purpose of
only applies if the
security deposit is to ensure contract compliance. It
income earner is an
individual taxpayer is not income to the lessor until the lessee violates
any provision of the contract.
other than a NRANETB.
Royalties derived
Rent Subject to Special Rate
from sources within
the Philippines other 20% final tax
than royalties subject 1. Those paid to non-resident Cinematographic
to 10% to final tax Film owner or lessor or distributor – 25% of its
Royalties derived by gross income from all sources within the
RC and DC from Philippines. (Sec. 28(B)(2), NIRC)
Basic tax
sources without the
Philippines. 2. Those paid to non-resident owner or lessor of
vessels chartered by Philippine national – 4.5%
Rent and Royalty Distinguished of gross rentals. (Sec. 28(B)(3), NIRC)
RENT ROYALTY
3. Those paid to non-resident owner or lessor of
As to reporting
aircraft, machineries, and other equipment –
Need not be reported
Must be reported as 7.5% of gross rental or fees. (Sec. 28(B)(4),
since subject to final
part of gross income NIRC)
tax.
As to tax rate
Regular progressive Additional Rent Income may be Grouped into
Final tax
tax if individual
1. Obligations of Lessors to 3rd parties assumed by
Where the lease contract provides that the lessee FMV of the building in the
P 6,000,000
will erect a permanent improvement on the rented year of completion
property and after the term of the lease, the Add: Annual rental 600,000
improvement shall become the property of the Total rental income P 6,600,000
lessor, the lessor may, at his option, report the
income therefrom upon either of the following b. If X reports his income on the improvements
methods: using the spread out method, his total rental
income shall be:
1. Outright Method or Lumpsum-Method – the
fair market value of the building or Cost of the building P 6,000,000
improvement shall be reported as additional Less: Accumulated
rent income at the time when such building or depreciation at the end of
improvements are completed; and lease term 2,000,000
(P6,000,000/30 years x 10
2. Spread Out Method or Annual-Method – years)
allocate over the life of the lease the estimated Book value of the building
4,000,000
book value of such buildings or improvements at the expiration of lease
at the termination of the lease and report as Divided by: Lease term 10
additional rent for each year of the lease an Annual income of X on the 400,000
Generally, prizes exceeding P10,000 and other 4. Prizes and winnings from sources outside the
winnings from sources within the Philippines shall Philippines
be subject to 20% final withholding tax, if received
by a citizen, resident alien or non-resident engaged NOTE: These are only taxable for DC and RC.
in trade or business in the Philippines. If the
recipient is a non-resident alien not engaged in Prizes and Awards Exempt from Income Tax
trade or business in the Philippines, the prizes and
other winnings shall be subject to 25% final 1. Prizes and awards made primarily in
withholding tax. If the recipient is a corporation recognition of religious, charitable, scientific,
(domestic or foreign), the prizes and other winnings educational, artistic, literary, or civic
are added to the corporation’s operating income achievement provided, the following
and the net income is subject to 30% corporate conditions are met:
income tax.
a. The recipient was selected without any
Pension being part of gross income is taxable to the 6. Money received under Solutio indebiti;
extent of the amount received except if there is a
BIR approved pension plan. (Sec. 32(B)(6), NIRC) Rationale: Under the claim of right doctrine,
the recipient, even if he has the obligation to
The amounts that do not qualify as exclusions are return the same, has a voidable title to the
considered as part of income subject to tax. money received through mistake.
(Domondon, 2013)
7. Condonation of indebtedness for a
Refer to discussion on “Inclusions and Exclusions consideration.
for Taxation on Compensation Income” – p. 152
Nature of Deductions
On the other hand, tax deductions are the amounts Any income payment which is otherwise
which the law allows to be subtracted from gross deductible shall be allowed as a deduction from
income in order to arrive at net income.
3. The withholding agent erroneously The amount representing return of capital should
underwithheld the tax but pays the difference be deducted from the proceeds from the sales of
between the correct amount and the amount of assets and should not be subject to income tax.
tax withheld, including the interest, incident to
such error, and surcharges, if applicable, at the Cost of goods purchased for resale, with proper
time of the original audit and investigation. (Sec. adjustment for opening and closing inventories are
2.58.5, RR 2-98) deducted from gross sales in computing gross
income. (Sec. 65, RR No. 2)
Persons Not Allowed to Claim Deductions from
Gross Income Cost of Goods Sold (CGS)
1. Subject to final tax on their gross income CGS shall include the purchase price or cost to
derived from sources within the Philippines, produce the merchandise and all expenses directly
hence, no deductions allowed to them: incurred in bringing them to their present location
a. NRANETB and use.
b. NRFC
For trading or merchandising concern, CGS means
2. When their income is purely compensation the invoice cost of goods sold, plus import duties,
income they are not entitled to deductions: freight in transporting the goods to the place where
a. RC the goods are actually sold, including insurance
b. NRC while the goods are in transit.
c. RA
For manufacturing concern, CGS means all costs
incurred in the production of the finished goods
such as raw materials used, direct labor and
3. Rental and other payments for the continued Under this principle, taxpayers may use estimates
use or possession of property, for the purpose when they can show that there is some factual
of trade, business or profession; and foundation on which to base a reasonable
approximation of the expense, they can prove that
4. Entertainment, amusement and recreation they had made a deductible expenditure but just
expenses during the taxable year. cannot prove how much that expenditure was.
(Cohan v. CIR, 39 F (2d) 540)
Ordinary Expenses and Capital Expenditures It is the use of estimates or approximations of the
Distinguished amount of cash and other assets where the taxpayer
lacks adequate records.
Ordinary expenses are those which are common to NOTE: If there is showing that expenses have been
incur in trade or business. These are usually incurred but the exact amount thereof cannot be
incurred during a taxable year and benefits such ascertained due to the absence of receipts and
taxable year. On the other hand, capital vouchers of the expenditures involved, the BIR will
expenditures are those incurred to improve assets make an estimate of deduction that may be
and benefits for more than one (1) taxable year. allowable in computing the taxpayer's taxable
income bearing heavily against the taxpayer whose
Substantiation Rule inexactitude is of his own making. That
disallowance of 50% of the taxpayer’s claimed
The taxpayer shall substantiate the expense being deduction is valid. (RMC No. 23-2000)
deducted with sufficient evidence such as official
receipts or other adequate records showing: Examples of Ordinary and Necessary Expenses
1. Salaries, wages and other forms of
1. The amount of the expense being deducted;
compensation for personal services actually
and
rendered;
2. The direct connection or relation of the
2. Travelling expenses;
expense being deducted to the development,
3. Rental expenses;
management, operation and/or conduct of the
4. Entertainment, amusement and recreation;
trade, business or profession of the taxpayer.
5. Advertising and promotional expenses;
(Sec. 34(A)(1)(B), NIRC)
6. Cost of materials and supplies; and
7. Repairs.
It means away from the location of the employee’s 1. Actual consumption method or inventory
principal place of employment regardless of where method; or
the family residence is maintained. (Sec. 2. Direct purchase method.
34(A)(1)(a)(ii), NIRC)
Q: Assuming the taxpayer purchases materials
Rules in Deducting Travel Expenses but has no record of consumption, is it
deductible?
1. The employer cannot claim as a deduction the
excess over the cost of a business plane ticket A: YES, provided the net income is clearly reflected
or its equivalent, whether paid directly by the by direct purchase method.
employer to the airline company or
reimbursed to the employee; If a taxpayer carries incidental materials or supplies
on hand for which no record of consumption is kept
2. Deductions to be claimed by the employer for or of which physical inventories at the beginning
the allowance which are pre-computed by the and end of the year are not taken, it will be
employer on a daily basis, or reimbursement permissible for the taxpayer to include in his
for the cost of meals and lodging in foreign expenses and deduct from gross income the total
trips by the employee for the pursuit of cost of such supplies and materials as were
employer’s trade or business may not exceed; purchased during the year for which the return is
made, provided the net income is clearly reflected
3. Reimbursement for travel taxes, airport fees by this method. (Sec. 67, RR No. 2)
and other charges, if duly receipted or
substantiated, may be deducted by the Rentals and/or Other Payments for Use or
employer as business expenses; and Possession of Property
4. Subject to the above rules, expenses incurred The following are the requisites for its deductibility:
in attending two foreign professional
conventions a year shall constitute a 1. Payment was made as a condition to the
deductible expense. continuous use of or possession of the
property;
NOTE: These maybe considered as fringe benefit 2. Taxpayer has not taken or is not taking title to
subject to fringe benefits tax. In such cases, it is the property or has no equity other than that of
deductible from the employer’s gross income. a lessee, user or possessor;
(Domondon, 2009) 3. Property must be used in the trade or business;
and
4. The withholding tax must have been withheld
and paid.
3. Annual depreciation of the cost of the The costs of leasehold improvements are not
leasehold improvements introduced by the considered business expenses since they are capital
lessee over the remaining period of the lease, investments.
or over the life of the improvements,
whichever period is shorter. In order to return to such taxpayer his investment
of capital, an annual deduction may be made from
NOTE: It is not the cost of the leasehold gross income of an amount equal to the cost of such
improvements but only its annual depreciation that improvements divided by the number of years
is considered as rental expense. remaining of the term of the lease, and such
deduction shall be in lieu of a deduction for
Repairs and Maintenance depreciation. If the remainder of the term of lease is
greater than the probable life of the building
Repairs are allowed as deduction when it is minor erected, or of the improvements made, this
and ordinary, and keeps the asset in its ordinary deduction shall take the form of an allowance for
working condition. Major and extraordinary depreciation. (Sec. 74, RR No. 2)
repairs are capitalized and included in determining
depreciation expense because they tend to prolong Expenses of Professionals
the life of the asset.
1. Supplies expense;
Expenses under Lease Agreements 2. Expenses paid in the operation and repair of
transportation equipment used in making
Expenses under the lease agreement which may be professional calls
allowed as deductions by the lessor. 3. Membership dues to professional associations
or societies and subscriptions to journals;
Since the rentals are considered as income of the 4. Office rentals;
lessor (owner of the property), such lessor may 5. Utilities expense for water and electricity
deduct all ordinary and necessary expenses paid or consumed in connection with the exercise of
incurred during the taxable year to the earning of the profession;
the income. (Sec. 2.01, RR No. 19-86) 6. Communication expense;
7. Expenses for hiring employees or office
Among such deductions may be cost of repairs and assistants; and
maintenance, salaries and wages of employees 8. Expenses incurred for books, furniture and
attendant to such lease, interest payment, property professional instruments and equipment with
taxes, etc. short useful life.
Where a leasehold is acquired for business NOTE: Those of a permanent character are not
purposes for a specified sum, the purchaser may allowable as deductions.
take deduction in his return for an aliquot part of
Q: Who may claim entertainment, amusement, A: They include representation expenses and/or
and recreation expenses? depreciation or rental or public order; expense
relating to entertainment facilities.
A:
1. Individuals engaged in business, including NOTE: “Representation expenses” shall refer to
taxable estates and trusts; expenses incurred by a taxpayer in connection with
2. Individuals engaged in practice of profession; the conduct of his trade, business or exercise of
3. Domestic corporation; profession, in entertaining, providing amusement
4. Resident foreign corporation; and and recreation to, or meeting with, a guest or guests
5. General professional partnerships, including at a dining place, place of amusement, country club,
its members. theater, concert, play, sporting event and similar
events or places.
Ceiling or Limitation on the Amount Allowed as If the taxpayer is the registered member of a
Entertainment, Amusement, and Recreation country, golf, or sports club, the presumption is that
Expense the expenses are fringe benefits subject to the FBT
unless the taxpayer can prove these are actually
Entertainment, amusement and recreation expense representation expenses. (Ingles, 2015)
shall be allowed as a deduction from gross income “Entertainment facilities” shall refer to a yacht,
but in no case shall exceed: vacation home or condominium; and any other
similar item of real or personal property used by
1. For taxpayers engaged in sale of goods or the taxpayer primarily for the entertainment,
properties – 0.50% of net sales (i.e., gross sales amusement, or recreation of guests or employees
less sales returns or allowances and sales (Sec. 2, RR No. 10-2002)
discounts)
To be considered an entertainment facility, it must
2. For taxpayers engaged in sale of services, be owned or form part of the taxpayer’s trade,
including exercise of profession and use or
A yacht is considered an entertainment facility if its 2. Advertising designed to stimulate the future
use is not restricted to specified officers or sale of merchandise or use of services must be
employees. If the yacht is restricted to them, it spread over a reasonable period of time that it
would be a fringe benefit, subject to the FBT. help earn the income.
NOTE: Interest is allowed as a deduction in the year Interest incurred to acquire property used in trade,
the indebtedness is paid, not when the interest was business or profession may be allowed either:
paid in advance. If the indebtedness is payable in 1. Treated as capital expenditure, i.e., it forms part
periodic amortizations, the amount of interest of the cost of the asset; or
which corresponds to the amount of the principal 2. As a deduction. (Sec. 34(B)(2), NIRC)
amortized or paid during the year shall be allowed
as deduction in such taxable year. NOTE: Interest paid in advance, interest
periodically amortized, and interest incurred to
Arm’s Length Interest Rate acquire property used in trade or business is also
treated the same, the taxpayer can deduct it as an
It is the rate of interest which was charged or would outright deduction or capital expenditure.
have been charged at the time the indebtedness
This is to safeguard from tax arbitrage schemes. Examples of Taxes which are Deductible
This limitation on the deductibility of interest 1. Import duties;
expense was legislated to specifically address the 2. Business licenses, excise and stamp taxes;
tax arbitrage arising from the difference between 3. Local government taxes such as real property
the 20% final tax on interest income and the normal taxes, license taxes, professional taxes,
corporate income tax rate under which interest amusement taxes, franchise taxes and other
expense can be claimed as a deduction. similar impositions;
4. Fringe benefit tax;
This limitation shall apply regardless of whether or 5. Documentary stamp tax;
not a tax arbitrage scheme was entered into by the 6. Percentage taxes; and
taxpayer or regardless of the date of the interest- 7. Foreign Income Tax if not claimed as tax credit.
bearing loan and the date when the investment was
made, for as long as, during the taxable year, there Limitation on the Deduction
is an interest expense incurred on one side and an
interest income earned on the other side, which In the case of RA, NRC, NRA-ETB and RFC, the
interest income had been subjected to final deductions for taxes shall be allowed only if and to
withholding tax. the extent that they are connected with income
from sources within the Philippines. (Sec. 34(C)(2),
Tax Arbitrage NIRC)
GR: Taxes may be deducted only on the year it was 3. Special assessments – taxes assessed against
paid or incurred. local benefits of a kind tending to increase the
value of property assessed;
XPN: In the case of contingent tax liability, the
obligation to deduct arises only when the liability is 4. Stock transaction tax – taxes on sale, barter,
finally determined. exchange of shares of stock listed and traded
through the local stock exchange or through
Q: In 2006, Sally, a fruit market operator initial public offering;
received an assessment for customs duties for
her imported market equipment in the amount 5. Final taxes;
of P75,000. Believing that the amount is
excessive, she paid the same under protest. 6. Presumed capital gains tax; and
Because of the assurances from her retained
CPA that she stands a good chance of being able 7. VAT.
to secure a refund of P50,000 she did not deduct
the same anymore from her income tax return. Treatment of Surcharges, Interests and Fines
She deducted only the P25,000 which she for Delinquency
believed was due from her. She received the
refund amounting to P50,000 in 2008. What These are not considered as taxes, hence they are
should have been the proper tax treatment of not allowed as deductions. However, interest on
the payment of P75,000 in 2006? delinquent taxes is deductible as they considered as
interest on indebtedness and not as taxes. (CIR v.
A: Sally should have deducted the total P75,000 Palanca, Jr., G.R. No. L-16626, 29 Oct. 1966)
customs duties in 2006. When she received the
refund of P50,000 in 2008, she should have included Treatment of Special Assessment
the amount as part of her income. Under the tax
benefit rule, taxes allowed as deductions, when Special assessments are deductible as taxes where
refunded or credited shall be included as part of these are made for the purpose of maintenance or
gross income in the year of receipt to the extent of repair of local benefits, if the payment of such
the income tax benefit of said deduction. assessment is ordinary and necessary in the
conduct of trade, business or profession.
Non-deductible Taxes
Where the assessments are made for the purpose of
The following are the taxes not allowed as constructing local benefits tending to increase the
deduction from gross income to arrive at taxable value of the property assessed, the payments are in
income: the nature of capital expenditures that are not
deductible.
1. Income tax provided under the NIRC
(Philippine income tax); Treatment to Income Taxes Paid in Foreign
GR: Income taxes imposed by authority of any Countries
foreign country
The taxpayer may either claim it as:
XPN: When the taxpayer does not signify in his 1. Foreign tax credits against Philippine income
return his desire to avail of the tax credit tax due of citizens and domestic corporations;
(except FBT). or
2. A deduction from gross income of citizens and
Limitations on Claiming Tax Credit 2. Actually sustained and charged off during the
taxable year;
1. The amount of the credit in respect to the tax
paid or incurred to any country shall not 3. Evidenced by a closed and completed
exceed the same proportion of the tax against transaction;
which such credit is taken, which the taxpayer’s
taxable income from sources within such 4. Must be connected with taxpayer’s Trade,
country under Title II of the NIRC (Tax on business or profession or incurred in any
transaction or incurred by an individual in any
These are the loss or physical damage suffered Net operating loss refers to the excess of allowable
by property used in trade, business or the deduction over gross income of the business in a
profession that results from unforeseen taxable year. The net operating loss of the business
identifiable events that are sudden, or enterprise for any taxable year immediately
unexpected and unusual in character. preceding the current taxable year, which had not
(Domondon, 2013) been previously offset as deduction from gross
income shall be carried over as a deduction from
A declaration of loss must be filed with the BIR gross income for the next three (3) consecutive
within 45 days after the date of event. taxable years immediately following the year of
such loss, provided that:
1. The taxpayer was not exempt from income tax
Measurement of Casualty Loss
in the year of such net operating loss; and
2. There has been no substantial change in the
1. Total loss – Actual loss is the book value of the
ownership of the business or enterprise.
asset.
2. At least 75% or more interest in the business of Those who are Not Qualified to Avail NOLCO
the transferee/assignee, if not a corporation.
(75% equity rule) (Sec. 2.4, RR 14-2001) 1. OBUs for a foreign banking corporation and
FCDU of a domestic banking corporation;
Determination of Substantial Change in 2. Enterprise registered with the BOI enjoying
Ownership the Income Tax Holiday Incentive;
3. PEZA-registered enterprise;
Substantial change in ownership shall be 4. SBMA-registered enterprise;
determined on the basis of any change in the 5. Foreign corporations engaged in international
ownership in said business or enterprise arising shipping or air carriage business in the
from or incident to its merger, consolidation, or Philippines; and
combination with another person. It shall be 6. Any person, natural or juridical, enjoying
determined as of the end of the taxable year when exemption from income tax. (RR No. 14-2001)
NOLCO is to be claimed as deduction. (Sec. 5.1, RR
No. 14-2001) Capital Losses
Q: In case of mines other than oil and gas wells, Losses from sale or exchange of capital assets. It is
NOLCO shall be allowed for what period? deductible to the extent of capital gains only.
A: A net operating loss during the first 10 years of Q: What is the rationale for the rule prohibiting
operation shall be allowed as NOLCO for the next 5 the deduction of capital losses from ordinary
years immediately following the year of such loss. gains? Explain. (2003 BAR)
Persons Entitled to Deduct NOLCO from Gross A: It is to insure that only costs or expenses incurred
Income in earning the income shall be deductible for income
tax purposes consonant with the requirement of the
1. Individuals engaged in trade or business or in law that only necessary expenses are allowed as
the exercise of his profession; deductions from gross income. The term “necessary
If securities become worthless during the taxable Wash sale - A sale of stock or securities where
year and are capital assets, the loss resulting substantially identical securities are acquired
therefrom shall be considered as a loss from the sale or purchased within 61-day period, beginning
or exchange, on the last day of such taxable year, of 30 days before the sale and ending 30 days
capital assets. (Sec. 34(D), NIRC) after the sale.
Losses from shares of stock, held as capital asset, GR: Losses from wash sale are not deductible
which have become worthless during the taxable since these are considered as artificial loss.
year shall be treated as capital loss as of the end of
the year. However, this loss is not deductible against XPN: When a taxpayer is a dealer in securities,
the capital gains realized from the sale, barter, and the transaction from which the loss
exchange, or other forms of disposition of shares of resulted was made in the ordinary course of
stock during the taxable year, but must be claimed business of such dealer, the loss is deductible
against other capital gains. For 15% net capital in full.
gains (for individuals, DC, RC and NRFC) tax to
apply, there must be an actual disposition of shares Non-deductible Losses
of stock held as capital asset, and the capital gain
and capital loss used as the basis in determining net 1. Losses not incurred in trade, profession, or
capital gain, must be derived and incurred business or in any transaction entered into
respectively, from a sale, barter, exchange or other profit;
disposition of shares of stock. (RR No. 06-2008)
2. Losses from sales or exchanges of property
NOTE: Securities becoming worthless refer to entered into between related taxpayers are not
shares when offered for sale or requested for share deductible as provided under Sec. 36 of the
redemption, no amount can be realized by the NIRC but the gains are taxable;
owner of the share. (RR No. 06-2008)
Q: Are worthless securities deductible from 3. Losses from exchanges of property in a
gross income for income tax purposes? (1999 corporate readjustment;
BAR)
4. Losses from illegal transactions; and
A: Worthless securities, which are ordinary assets,
are not allowed as deduction from gross income 5. Loss on voluntary removal of building on land
because the loss is not realized. However, if these purchased with a view to erect another
worthless securities are capital assets, the owner is
Marcelo Doctrine
Deductible for the next 3 consecutive years following the year of such loss.
Provided that:
i. The taxpayer was not exempt from income tax in the year of such net
operating loss; and
ii. There has been no substantial change in the ownership of the business
NOLCO
or enterprise.
NOTE: A net operating loss during the first 10 years of operation shall be
allowed as NOLCO for the next 5 years in case of mines other than oil and gas
wells,
The requisites for deductibility are: (U-S-T-C-A- Absence of creditor is not bad debt.
RPart)
Q: What factors will determine whether or not
1. The debts are Uncollectible despite diligent the debts are bad debts? (2004 BAR)
effort exerted by the taxpayer;
A: The factors to be considered include, but are not
To prove that the taxpayer exerted diligent limited to, the following:
efforts to collect the debts:
a. Sending of statement of accounts; 1. The debtor has no property or visible
b. Sending of collection letters; income;
c. Giving the account to a lawyer for 2. The debtor has been adjudged bankrupt or
collection; and insolvent;
d. Filing a collection case in court. 3. There are numerous debtors with small
amounts of debts and further action on the
2. Existing indebtedness Subsisting due to the accounts would entail expenses exceeding
taxpayer which must be valid and legally the amounts sought to be collected;
demandable; 4. The debt can no longer be collected even in
the future; and
3. Connected with the taxpayer’s Trade, business 5. Collateral shares have become worthless.
or practice of profession;
NOTE: "Worthless" is not determined by an
4. Actually Charged off in the books of accounts of inflexible formula or slide rule calculation, but upon
the taxpayer as of the end of the taxable year; the exercise of sound business judgment. In order
1. Ascertain the debt to be worthless in the year The requisites for deductibility are:
for which the deduction is sought; and
2. Act in good faith in ascertaining the debt to be 1. The property subject to depreciation must be
worthless. (CIR v. Goodrich International Rubber property with life of more than 1 year;
Co., G.R. No. L-22265, 22 Dec. 1967) 2. The property depreciated must be used in
trade, business, or exercise of a profession;
Testimony of a CPA as Substantial Evidence for 3. The depreciation must have been charged off
the Deductibility of a Claimed Worthless Debt during the taxable year;
4. The depreciation method used must be
Mere testimony of a CPA explaining the reasonable and consistent; and
worthlessness of said debts is seen as nothing more 5. A depreciation schedule should be attached to
than as a self-serving exercise which lacks probative the income tax return.
value. Mere allegations cannot prove the
worthlessness of such debts. (Philippine Refining Co. Person Entitled to Claim Depreciation Expense
v. CA, G.R. No. 118794, 8 May 1996)
The person entitled to claim depreciation expense is
Deductibility of “Reserves for Bad Debts” from the person who sustains an economic loss from the
Gross Income for Tax Purposes decrease in property value due to depreciation
which is usually the owner.
Bad debts must be charged off during the taxable
year to be allowed as deduction from gross income. In the case of a non-resident alien individual
The mere setting up of reserves will not give rise to engaged in trade or business or resident foreign
any deduction. (Sec. 34(E), NIRC) corporation, a reasonable allowance for the
deterioration of property arising out of its use or
Effect of Recovery of Bad Debts employment or its non-use in the business, trade or
profession shall be permitted only when such
That recovery of bad debts previously allowed as property is located in the Philippines. (Sec. 34(F)(6),
deduction in the preceding years shall be included NIRC)
as part of the gross income in the year of recovery
to the extent of the income tax benefit of said Depreciable and Non-Depreciable Assets for Tax
deduction. (Sec. 34(E), NIRC) This is also known as Purposes
the Tax Benefit Rule.
1. Depreciable assets:
a. Only property that is used for trade,
DEPRECIATION
business or exercise of a profession or held
for the production of income;
Definition
It is the gradual diminution in the useful value of b. All kinds of tangible property (other than
tangible property resulting from exhaustion, wear land) with life of more than 1 year and do
and tear and obsolescence. (Domondon, 2013) not form part of the stock in trade that are
part of the inventory;
There shall be allowed as a depreciation deduction
a reasonable allowance for the exhaustion, wear, c. All kinds of intangible property (other than
and tear (including reasonable allowance for shares of stock) with life of more than 1
year; and
e. Automobiles and other transportation 3. Sum of the years digit method – accelerated
equipment used solely by the taxpayer for method of depreciation expense in the earlier
pleasure; years and lower charges in the later years.
f. Building used solely by the taxpayer as his 4. Any other method which may be prescribed
residence, and the furniture or furnishing by DOF upon recommendation of the CIR.
used in said building; and
Determination of Depreciation Method
g. Intangibles, the use in trade, business or
exercise of profession is not of limited The BIR and the taxpayer may agree in writing on
duration. the useful life of the property to be depreciated
subject to modification if justified by facts or
Q: Is depreciation of goodwill deductible from circumstances. The change shall not be effective
gross income? (1999 BAR) before the taxable year on which notice in writing
by certified mail or registered mail is served by the
A: Goodwill may or may not be subject to party initiating. However, if there is no agreement
depreciation. and the BIR does not object to the rate and useful life
being used by the taxpayer, the same shall be
GR: Depreciation for goodwill is not allowed as binding.
deduction from gross income. While intangibles
maybe allowed to be depreciated or amortized, it is Method in Depreciating Properties Used in
only allowed to those intangibles whose use in the Petroleum Operations
business or trade is definitely limited in duration
(Basilan Estates, Inc. v. CIR, G.R. No. L-22492, 05 Sept. It may either be straight line or declining balance
1967). Such is not the case with goodwill. method with a useful life of 10 years or shorter, as
allowed by the CIR.
XPN: If the goodwill is acquired through capital
outlay and is known from experience to be of value NOTE: If the property is not directly related to
to the business for only a limited period. (Sec. 107, production, depreciation is for an estimated useful
RR No. 2) In such case, the goodwill is allowed to be life of five (5) years using the straight-line method.
amortized over its useful life. (Sec. 34(F)(4), NIRC)
The requisites for deductibility are: (A-W-S-E-A) c. Administrative expense must not exceed
30% of the total expenses.
1. The contribution or gift must be Actually paid;
2. It must be paid Within the taxable year; d. Upon dissolution, assets shall be
3. It must be given to the organization Specified transferred to another non-profit domestic
by law; corporation or to the State.
4. It must be Evidenced by adequate receipts or
records; and 3. Donations to Foreign institutions and
5. The amount of charitable contribution of international organizations in compliance with
property other than money shall be based on treaties and agreements with the Government
the Acquisition cost of said property.
4. Donations of prizes and awards to Athletes
Contributions that are Deductible in Full (G-A- (Sec. 1, R.A. No. 7549)
F-A)
Donations that are Deductible in Full under
1. Donations to the Government of the Special Laws
Philippines, or political subdivisions including
fully-owned government corporation to be 1. The Integrated Bar of the Philippines (P.D. No.
used exclusively in: (C-H2-E-E-S-Y) 81)
2. Development Academy of the Philippines (P.D.
a. Culture 205)
b. Health 3. Aquaculture Department of the Southeast
c. Human Settlement Asian Fisheries and Development Center (P.D.
d. Economic Development 292)
5. The payment has Not yet been allowed as a A: If the employer contributes to a private pension
deduction; and plan for the benefit of its employee.
6. The amount contributed must no longer be Q: Are the following expenses deductible from
subject to the Control and disposition of the gross income:
employer. a. Employer’s contribution to the Christmas
fund of his employees
Additional Requirements for Deductibility b. Contribution to the construction of a chapel
of a university that declares dividends to its
1. Taxpayers who claim deductions for expenses, stockholders
the amounts of which are subject to c. Premiums paid by the employer for the life
withholding tax, must prove that said insurance of his employees
deductions were in fact subjected to proper d. Contribution to a newspaper fund for needy
withholding. If no withholding was made, then families when such newspaper organizes a
claimed deductions will not be allowed. (Sec. group of civic spirited citizens solely for
(34)(K), NIRC) charitable purposes. (1968 BAR)
2. If the GPP avails of These shall not apply to intangible drilling and
itemized deductions development costs incurred in petroleum
under Sec. 34 of the operations which are deductible under
NIRC in computing net Subsection (G)(1) of Sec. 34 of the NIRC.
income, the partners
may still claim itemized 3. Any amount expended in restoring property or
deductions on their net in making good the exhaustion thereof for
distributive share that which an allowance is or has been made (major
have not been claimed repairs);
by the GPP.
4. Premiums paid on any life insurance policy
The partners, however, covering the life of any officer or employee, or
are not allowed to claim of any person financially interested in any trade
OSD on their share of net or business carried on by the taxpayer,
income because the OSD individual, or corporate, when the taxpayer is
is a proxy for all items of directly or indirectly a beneficiary under such
deductions allowed in policy; (Sec. 36(A), NIRC)
arriving at taxable
income. NOTE: A person is said to be financially
interested in the taxpayer’s business, if he is a
If the GPP avails of OSD in stockholder thereof or if he receives as
computing net income, the compensation his share of the profits of the
partners may no longer business.
claim further deductions
from their net distributive 5. Interest expense, bad debts, and losses from
share, whether itemized or sales of property between related parties;
OSD. (RR 2-2010)
6. Bribes, kickbacks, and other similar payments;
c) ITEMS NOT DEDUCTIBLE and
In computing net income, no deduction shall in any 7. Items where the requisites for deductibility are
case be allowed in respect to: not met.
DEDUCTION LIMIT
1. Engaged in sale of goods or properties – 0.50% of net sales (i.e., gross sales less
Entertainment,
sales returns or allowances and sales discounts)
Amusement, And
Recreational
2. Engaged in sale of services, including exercise of profession and use or lease
Expense
of properties – 1% of net revenue (i.e., gross revenue less discounts)
The allowable deduction has been reduced by an amount equal to 20% of the interest
Interest Expense
income subject to final tax.
In the case of NRAETB and RFC, the deductions for taxes shall be allowed only if and
Taxes to the extent that they are connected with income from sources within the
Philippines.
Gross Compensation P xxx a. If the goods were produced from Ms. B’s
Income factory in the Philippines, is Ms. B’s income
Net Compensation Income xxx from the sale to Ms. C taxable in the
Add: Philippines? Explain.
Net business xxx
income or b. If Ms. B is an alien individual and the goods
Net professional xxx were produced in her factory in China, is Ms.
income B’s income from the sale of the goods to Ms.
Other income xxx C taxable in the Philippines? Explain. (2015
Taxable income subject to P xxx BAR)
graduated rates
A:
Scope of Taxability a. YES. The income of Ms. B from the sale of ready-
to-wear goods to Ms. C is taxable. A non-
1. A citizen of the Philippines residing therein is resident citizen is taxable only on income
taxable on all income derived from sources derived from sources within the Philippines. In
within and without the Philippines. line with the source rule of income taxation,
since the goods are produced and sold within
2. A non-resident citizen is taxable only on income the Philippines, Ms. B’s Philippine-sourced
derived from sources within the Philippines. income is taxable in the Philippines. (Sec. 23,
NIRC)
3. An individual citizen of the Philippines who is
working and deriving income from abroad as an b. YES. But only a proportionate part of the
OFW is taxable only on income derived from income. Gains, profits and income from the sale
sources within the Philippines: Provided, that a of personal property produced by the taxpayer
seaman who is a citizen of the Philippines and without and sold within the Philippines, shall be
who receives compensation for services treated as derived part. (Sec. 42(E), NIRC)
rendered abroad as a member of the
complement of a vessel engaged exclusively in
international trade shall be treated as an
overseas contract worker.
INCOME INCOME
DERIVED DERIVED
CLASS OF GROSS INCOME TAXATION (GIT)
FROM FROM TAX RATE
TAXPAYER OR NET INCOME TAXATION (NIT)
SOURCES SOURCES
WITHIN PH OUTSIDE PH
1. Employee: NIT
RA ✓ X NIT 0% - 35%
Nature of Fringe Benefit Tax (FBT) If the fringe benefit is granted or furnished in:
FBT is a final withholding tax imposed on the
1. Money, or is directly paid for by the employer
grossed-up monetary value (GMV) of fringe benefit
– the value is the amount granted or paid.
furnished, granted or paid by the employer to the
employee, except rank-and-file employees. (Sec.
2. Property other than money and ownership is
2.33(A), RR No. 3-1998)
transferred to the employee – the value of the
fringe benefit shall be equal to the fair market
NOTE: The person who NOTE: The person who NOTE: Although a fringe benefit may be exempted
is legally required to is legally required to from the FBT, it may still fall under a different tax
pay is that person who, pay is that person who, under another law, such as the compensation
in case of non- in case of non- income tax or the like.
payment, can be legally payment, can be legally
demanded to pay the demanded to pay the Convenience of the Employer Rule
tax. tax.
An exemption from taxation is granted to benefits
As to taxpayers covered
which are given to the employee for the exclusive
Managerial, benefit or convenience of the employer.
Managerial and
supervisory, and rank-
supervisory employees
and-file employees Requirements for the Application of the
As to withholding tax treatment Convenience of the Employer Rule
Subject to creditable 1. Where the Employer Furnished Living
withholding tax – the Quarters – such shall not be considered as part
employer withholds Subject to final of the employee’s gross compensation income
the tax upon the withholding tax if:
payment of the a. It is furnished in the employer’s business
compensation income. premises, and
b. Employee is required to accept such
Fringe Benefits Exempt from FBT
lodging as a condition of his employment
(No. 2.2, RAMO No. 1-1987)
1. Fringe benefits which are authorized and
exempted from tax under the NIRC or special
2. In Case of Free Meals – such shall not be
laws. (e.g., separation benefits which are given
considered as part of the employee’s gross
to employees who are involuntarily separated
income if:
from work)
a. Furnished to the employee during his work
day; or
2. Contributions of the employer for the benefit of
b. To have the employee available for work
the employee to retirement, insurance and
during his meal period. (No. 2.3, RAMO No.
hospitalization benefit plans.
1-1987)
3. Benefits given to the rank-and-file employees, Benefits Considered Necessary to the Business
whether granted under a collective bargaining of the Employer or are Granted for the
agreement or not. Convenience of the Employer
1. Housing privilege of military officials of the
4. De minimis benefits, whether given to rank and Armed Forces of the Philippines, consisting of
file employees or to supervisory or managerial officials of the Philippine Army, Philippine
employees. (Sec 32(3), NIRC) Navy and Philippine Air Force.
7. Cost of premiums borne by the employer for Housing Privilege Exempt from FBT
the group insurance of his employees.
1. Housing privilege of military officials of the
8. Expenses of the employee which are Armed Forces of the Philippines consisting of
reimbursed, if they are supported by receipts officials of the Philippine Army, Philippine
in the name of the employer and do not partake Navy, and Philippine Air Force. (Sec.
the nature of a personal expense of the 2.33(D)(1)(f), NIRC);
employee.
NOTE: Benefit to said officials shall not be
9. Motor vehicles used for sales, freight, delivery treated as taxable fringe benefit in accordance
service and other non-personal uses. (RR No. 3- with the existing doctrine that the State shall
1998) provide its soldiers with necessary quarters
which are within or accessible from the
Q: X was hired by Y to watch over Y’s fishponds military camp so that they can readily be on call
with a salary of P10,000. To enable him to to meet the exigencies of their military service.
perform his duties well, he was also provided a
small hut, which he could use as his residence in 2. A housing unit which is situated inside or
the fishponds. Is the fair market value of the use adjacent to the premises of a business or
of the small hut by X a “fringe benefit” that is factory.
subject to the 35% tax imposed by Sec. 33 of the
NIRC? (2001 BAR) NOTE: A housing unit is considered adjacent to
the premises if it is located within the
A: NO. X is neither a managerial nor a supervisory maximum 50 meters from the perimeter of the
employee. Only managerial or supervisory business premises.
A: NO, the cash equivalent value of the housing 3. Representation and transportation allowances
facilities received by the senior engineers is not which are fixed in amounts and are regularly
subject to fringe benefits tax. The same is exempt received by the employees as part of their
from FBT since the housing is located within the monthly compensation income.
Company’s premises and is generally for the
convenience of the employer. (Sec. 2.33(A), RR 3- 4. Business expenses which are paid for by the
1998) employer for foreign travel of his employees in
connection with business meetings or
Expenses Treated as Taxable Fringe Benefits conventions. (RR 3-1998)
1. Expenses incurred by the employee but which Motor Vehicle Subject to FBT
are paid by his employer.
A motor vehicle shall be subjected to fringe benefits
2. Expenses paid for by the employee but tax whenever the employer:
reimbursed by his employer.
1. Purchases vehicle in employee’s name,
3. Personal expenses of the employee (like regardless of usage of vehicle;
purchases of groceries for the personal 2. Provides employee cash for vehicle purchase;
consumption of the employee and his family 3. Purchases car on installment in the name of the
members, salaries of household personnel, employee;
etc.) paid for or reimbursed by the employer to 4. Shoulders a portion of the purchase price;
the employee, whether or not the same are duly 5. Owns and maintains a fleet of motor vehicle for
receipted for in the name of the employer. the use of the business and employees; or
6. Leases and maintains a fleet of motor vehicles
4. Membership fees, dues, and other expenses for the use of the business and employees.
borne by the employer for his employee, in
social and athletic clubs or other similar NOTE: The use of aircraft (including helicopters)
organizations shall be treated as taxable fringe owned and maintained by the employer shall be
benefits of the employee in full. treated as business use and not be subject to the
fringe benefits tax.
2. There is written contract that the employee Q: Mapagbigay Corporation grants all its
shall remain employed with the employer for a employees (rank-and-file, supervisors, and
period of time mutually agreed upon by the managers) 5% discount of the purchase price of
parties; and its products. During an audit investigation, the
BIR assessed the company the corresponding
Not over Tax exempt Persons Not Entitled to Claim the 8% Income
P250,000 Tax Rate
Applicability
NRA - NRA -
NATURE OF INCOME RC & RA NRC
ETB NETB
Interest from any currency bank deposit and 20% 20% 20% 25%
yield or any other monetary benefit from deposit
substitutes and from trust funds and similar
arrangements.
Prizes amounting to more than ten thousand 20% 20% 20% 25%
pesos (>10,000)
Schedular Schedular Schedular
Prizes amounting to less than or equal to ten Income Tax Income Tax Income Tax 25%
thousand pesos (<=10,000) Rate Rate Rate
Amount is more than ten thousand pesos 20% 20% 20% 25%
(>10,000)
Amount is less than or equal to ten thousand Exempt Exempt Exempt 25%
pesos (<=10,000)
Interest from a depositary bank under the 15% Exempt Exempt Exempt
expanded foreign currency deposit system
Three (3) years to less than four (4) years 12% 12% 12% 25%
Less than three (3) years 20% 20% 20% 20% 25%
NOTE: The rates are only applicable for passive income earned within the Philippines. Passive income earned by
an RC outside the Philippines would be subject to the regular income tax rate.
Refer to previous discussions on “Income from Nonresident Aliens Not Engaged in Trade or
Dealings in Property” – p. 78 Business within the Philippines
A senior citizen refers to any resident citizen of the However, effective July 16, 2023, the daily
Philippines who is at least 60 years of age. (Sec. 3, minimum wage in NCR is P610 for the non-
R.A. No. 9994) agriculture sector, and P573 for the agriculture
b. Whether an MWE who becomes non-MWE R.A. No. 9504 is explicit as to the coverage of the
during the year still qualifies for the exemption: the wages that are not in excess of
exemption; the minimum wage as determined by the wage
boards, including the corresponding holiday,
c. Whether Secs. 1 and 3 of RR 10-2008 are overtime, night differential and hazard pays.
consistent with the law in providing that an The minimum wage exempted by R.A. No. 9504
MWE who receives other benefits in excess is distinct and different from other payments
of the statutory limit of P30,000 (Now at including allowances, honoraria, commissions,
P90,000) is no longer entitled to the allowances, or benefits that an employer may
exemption provided by R.A. No. 9504. pay or provide an employee.
INCOME INCOME
DERIVED DERIVED
CLASS OF TAXPAYER FROM FROM TAX BASE TAX RATE
SOURCES SOURCES
WITHIN PH OUTSIDE PH
25% or 20%
25%
Net taxable
Resident Foreign Corporations ✓ X NOTE: Beginning July 1,
income
2020, the regular corporate
tax rate for RFCs is 25%.
Special Domestic
Corporations: 10%
10%
3. Government-owned or
controlled corporations
including the PCSO Net taxable
✓ ✓ 25%
income
XPN: Those exempt GOCCs
(GSIS, SSS, HDMF, PHIC, and
the local water districts)
1. International carrier
Total profits
2. Branch profit remittances
applied or 15% of the total profits
✓ X earmarked applied or earmarked for
XPN: those registered with
for remittance
PEZA (they have their own
remittance
tax rules as incentives)
Gross
3. Lessor of vessels chartered rentals,
✓ X 4 1/2% of gross income
by Philippine nationals lease or
charter fees
DC is a corporation created or organized in the It includes all business expenses directly incurred to
Philippines or under its laws and is liable for its produce the merchandise and bring them to their
income from sources within and without. (Sec. 22 present location and use.
(C), NIRC)
COGS for Trading or Merchandising Concern
Taxes Imposed on DCs
This shall include the invoice cost of the goods sold,
1. Normal corporate income tax (NCIT) or Regular plus import duties and freight in transporting the
corporate income tax (RCIT), goods to the place where they are actually sold,
2. Minimum corporate income tax (MCIT), including insurance while the goods are in transit.
3. Final tax on passive income, and
4. Capital Gains Tax. COGS for Manufacturing Concern
NOTE: The 15% Gross Income Tax (Optional This shall include all costs of production of finished
Corporation Income Tax) imposed on qualified goods, such as raw materials used, direct labor and
corporate taxpayers and 10% Improperly manufacturing overhead, freight cost, insurance
Accumulated Tax (IAET) of 10% were repealed premiums and other costs incurred to bring the raw
upon effectivity of R.A. No. 11534. Thus, these tax materials to the factory or warehouse.
rates will no longer apply.
Cost of Services for Service Concern
NORMAL CORPORATE INCOME TAX OR REGULAR
CORPORATE INCOME TAX This shall mean all direct costs and expenses
necessarily incurred to provide the services
Normal Corporate Income Tax required by the customers and clients, including
An income tax rate of 25% effective July 1, 2020 salaries and employee benefits of personnel,
(previously taxed at 30%) shall be imposed upon consultants and specialists directly rendering the
the taxable income derived during each taxable year service, and cost of facilities directly utilized in
from all sources within and without the Philippines providing the service, such as depreciation or rental
by DCs. of equipment used and cost of supplies.
b. The distinctions between regular corporate 5. The maximum amount that can be credited is
income tax and the minimum corporate income only up to the amount of the NCIT, there can be
tax are the following: no negative NCIT.
NOTE: While only P40,000 out of P60,000 excess b. Domestic non-profit hospital subject to
MCIT in Year 4 was used in Year 6, the unused 10% tax.
P20,000 cannot be applied on Year 8 because it was
already beyond three (3) years from Year 4. NOTE: From July 1, 2020 to June 30, 2023,
the preferential rate imposable upon non-
Suspension of the Imposition of MCIT profits hospitals shall be 1%.
Since certain businesses may be incurring genuine c. Domestic depository banks under the
repeated losses, the law authorizes the Secretary of expanded foreign currency deposit system
Finance, upon recommendation of the BIR, to otherwise known as FCDUs.
suspend the imposition of MCIT if a corporation
suffers losses due to any of the following: d. Resident foreign international carrier
subject to tax at 2 ½% of their Gross
1. Prolonged Labor Dispute – losses arising from Philippines Billings.
a strike staged by the employees which lasted
for more than 6 months within a taxable period e. Firms enjoying special income tax rate
and which has caused the temporary shutdown under the PEZA Law (R.A. 7916), Bases
of business operations; Conversion and Development Act of 1992
(R.A. 7227) and those enjoying income tax
holiday incentives. (Sec. 2.27 (E)(8), RR No.
1. Special DCs
b) INCOME TAX ON NON-RESIDENT FOREIGN
a. Proprietary educational institutions
CORPORATIONS
and non-profit hospitals;
The trade, business or other activity of a proprietary Exemptions Granted to Educational Institutions
educational institution is unrelated when the
conduct of which is not substantially related to the 1. Donor’s Tax – Art. XIV, Sec. 4(4) which provides
exercise or performance by such educational that “all grants, endowments, donations, or
institution of its primary purpose or function. contributions used actually, directly and
exclusively for educational purposes shall be
NOTE: Related activities include auxiliary activities exempt from tax” is not self-executing as it
such as school-owned canteen, cafeteria, dormitory requires legislative enactment providing
and bookstore within the school premises. (BIR certain conditions for exemption. However,
Ruling 237-87) since Sec. 101(a)(3) of NIRC under donor’s tax
declared its exemption, then these donations
are tax exempt. (Dimaampao, 2015)
A: YES. Pursuant to Sec. 30(l) of the Tax Code, in GR: All corporations owned or controlled by the
relation to Article XIV of the 1987 Philippine Government are taxed in the same manner that
Constitution, Government education institutions domestic private corporations are taxed.
are exempt from tax on income used actually,
directly and exclusively for educational purposes. XPNs:
1. Government Service Insurance System
(GSIS)
GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS, AGENCIES, OR
2. Social Security System (SSS)
INSTRUMENTALITIES
The requisites for exemption are: 1. Cooperatives (R.A. No. 6938 or the “Cooperative
a. Formed and organized as sales agent for the Code of the Philippines”) – since interest from
purpose of marketing the product of its any Philippine currency bank deposit and yield
members; or any other monetary benefit from deposit
b. No net income to the members; and substitutes are paid by banks, cooperatives are
c. Proceeds of the sale shall be turned over to not required to withhold the corresponding tax
them less necessary selling expenses on the on the interest from savings and time deposits
basis of the quantity of goods produced by of their members.
them.
NOTE: The amendment in Art. 61 of R.A. No.
NOTE: The income of whatever kind and character 9520, specifically providing that members of
of the foregoing organizations from any of their cooperatives are not subject to final taxes on
properties, real or personal, or from any of their their deposits, affirms the interpretation of the
activities conducted for profit regardless of the BIR that Sec. 24 (B)(1) of the NIRC does not
disposition made of such income, shall be subject to apply to cooperatives and confirms that such
tax imposed under the NIRC. (Sec. 30, NIRC) ruling carries out the legislative intent.
(Dumaguete Cathedral Cooperative v. CIR, G.R.
Common Requisites for Exemption (Pr-In-S-E) No. 182722, 22 Jan. 2010)
1. Not organized and operated principally for 2. Foundations created for scientific purposes
Profit; (Sec. 24, R.A. 2067 or the “Act to Integrate,
2. No part of the net income Inures to the benefit Coordinate, and Intensify Scientific and
of any member or individual; Technological Research and Development and to
3. No capital is represented by Shares of stock; Foster Invention”)
and
4. Educational or instructive in character. Taxability of Partnerships
NOTE: The moment they invest their income or Partnerships for tax purposes are classified into:
receive income from their properties, real or 1. General professional partnerships (GPPs); and
personal conducted for profit, such income derived 2. Business partnership.
from those properties is subject to tax.
General Professional Partnership and Business
If religious, charitable or social welfare corporations Partnership Distinguished (1981 BAR)
derive income from their properties or any of their
activities conducted for profit, income tax shall be
Partners shall nonetheless be liable for income tax a. What are the items in the above-mentioned
in their separate and individual capacities. earnings which should be included in the
computation of ABC Law Firm’s gross
Computation of Net Income income? Explain.
For purposes of computing the distributive share of b. What are the items in the above-mentioned
the partners, the net income of the partnership shall payments which may be considered as
be computed in the same manner as a corporation. deductions from the gross income of ABC
(Sec. 26, NIRC) Law Firm? Explain.
1% From July 1,
25% Beginning 2020 to
Regional Operating
January 1, 2022 June 30, 2023
Headquarters (ROHQs)
2% Beginning July
1, 2023
GR: The following individuals are required to file an 3. An individual whose sole income has been
income tax return: subjected to final withholding tax; and
1. Every Filipino citizen residing in the 4. A minimum wage earner or an individual who
Philippines; is exempt from income tax. (Sec. 51(A)(2),
NIRC)
2. Every Filipino citizen residing outside the
Philippines, on his income from sources within NOTE: Individuals not required to file an income tax
the Philippines; return may nevertheless be required to file an
information return. (Sec. 51(A)(3), NIRC)
3. Every alien residing in the Philippines, on
income derived from sources within the Q: Mr. C is employed as a Chief Executive Officer
Philippines; and of MNO Company, receiving an annual
compensation of P10M, while Mr. S is a security
4. Every non-resident alien engaged in trade or guard in the same company earning an annual
business or in the exercise of profession in the compensation of P200,000. Both of them source
Philippines. (Sec. 51(A)(1), NIRC) their income only from their employment with
MNO Company. (2019 Bar)
The following persons are also required to file ITR:
a. At the end of the year, is Mr. C personally
1. A citizen of the Philippines and any alien required to file an annual income tax
individual engaged in business or practice of return?
profession within the Philippines, regardless of b. How about Mr. S? Is he personally
the amount of gross income; required to file an annual income tax
return?
2. An individual deriving compensation
concurrently from two or more employers at A:
any time during the taxable year; and a. NO. Individuals receiving purely
compensation income from a single
3. An individual whose pure compensation employer, which has been correctly
income derived from sources within the withheld are no longer required to file their
Philippines exceeds Two Hundred Fifty annual ITR.
thousand pesos (P250,000). (RMC 50-2018)
b. NO. Individuals receiving purely
XPNS: The following individuals shall not be compensation income from a single
required to file an income tax return: employer, which has been correctly
withheld are no longer required to file their
1. An individual whose taxable income does not annual ITR.
exceed Two Hundred Fifty thousand pesos
(P250,000);
Since tax is imposed on every sale of shares of stock, a. Filipino citizen residing outside the
there is a need to determine which sales are covered Philippines on his income from sources
in the sale of shares through initial public offering. outside the Philippines.
c. REQUIRED. A resident citizen who is earning Taxes imposed or prescribed by the NIRC are to be
purely compensation income from two deducted and withheld by the payor-corporations
employers should file income tax return. If the and/or persons for the former to pay the same
compensation income is received concurrently directly to the BIR. Hence, the taxes are collected
from two employers during the taxable year, the practically at the same time the transaction is made
employee is not qualified for substituted filing. or when the taxable transaction occurs. It is taxation
at source. (Domondon, 2013)
d. NOT REQUIRED. Under the law, all minimum
wage earners in the private and public sector NOTE: The duty to withhold is different from the
shall be exempt from payment of income tax. duty to pay income tax. Indeed, the revenue officers
(Sec. 51(A)(2)(d), NIRC in relation to R.A. No. generally disallow the expenses claimed as
9504) deductions from gross income, if no withholding tax
e. NOT REQUIRED. Under the law, an individual as required by law or regulations was withheld and
whose sole income has been subjected of final remitted to the BIR within the prescribed dates.
withholding tax pursuant to Sec. 57(A), NIRC, (Mamalateo, 2008)
need not file a return. What he received is a tax
paid income. (Sec. 51(A)(2)(c), NIRC) Purpose of the Withholding Tax System
A withholding agent is a separate entity acting no 5. Issue Withholding Tax Certificates – To furnish
more than an agent of the government for the Withholding Tax Certificates to recipient of
collection of tax in order to ensure its payments. income payments subject to withholding.
Consequences for Failure to Withhold 1. The amount of tax withheld is final and full.
1. Liable for surcharges and penalties; 2. The liability for payment of the tax rests
primarily on the withholding agent as payor.
2. Liable upon conviction to a penalty equal to the
total amount of the tax not withheld, or not 3. In case he fails to withhold, the withholding
accounted for and remitted; and (Sec. 251, agent will be liable for the deficiency.
NIRC)
4. The payee is not required to file any income tax
3. Any income payment which is otherwise return for the particular income.
deductible from the payor’s gross income will
not be allowed as a deduction if it is shown that 5. The finality of the withheld tax is limited on that
the income tax required to be withheld is not particular income and will not extend to the
paid to the BIR. (Sec. 2, RR No. 18-2013) payee’s other tax liability. (Ibid.)
CWT FWT
As to income subject of the system As to filing of ITR
1. Compensation If the only source of
Income income is subject to
2. Professional/talen final tax, the earner
t fees may no longer file an
1. Certain passive
3. Rentals ITR. However, with the
incomes The earner is required
4. Cinematographic new income tax forms
2. Fringe benefits to file an ITR.
film rentals and (RR No. 2-2014),
other payments taxpayers need to
5. Income payments declare those income
to certain subjected to final tax in
contractors their ITR.
As to whether or not income should be
reported as part of the gross income Kinds of CWT
Real property used in business, taxpayer is not engaged in 12% VAT (incidental transaction)
dealing with real estate
2. Regularity or habituality in the action – There shall be levied, assessed and collected on
Regularity involves more than one isolated every importation of goods a value-added tax
transaction and involves repetition and equivalent to 12% based on the total value used by
continuity of action. (Ingles, 2018) the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if
XPNs: any, and other charges, such tax to be paid by the
importer prior to the release of such goods from
a. Non-resident aliens who perform services customs custody: Provided, that where the customs
in the Philippines are deemed to be making duties are determined on the basis of the quantity or
sales in the course of trade or business, volume of the goods, the value-added tax shall be
even if the performance of services is not based on the landed cost plus excise taxes, if any.
regular; and (Sec. 4.105-3, RR No. 16-2005) (Sec. 107(A), NIRC)
b. Importations are subject to VAT whether in VAT is imposed on goods brought into the
the course of trade or business or not. Philippines, whether for use in business or not,
except those specifically exempted under Sec.
Q: Masarap Kumain, Inc. (MKI) is a Value-Added 109(1) of the NIRC.
Tax (VAT)-registered company which has been
engaged in the catering business for the past 10 Rationale: This is to protect our local or domestic
years. It has invested a substantial portion of its goods or articles and to regulate the entry or
capital on flat wares, table linens, plates, chairs, introduction of foreign articles to our local market.
catering equipment, and delivery vans. MKI sold
its first delivery van, already 10 years old and Tax Base
idle, to Magpapala Gravel and Sand Corp.
(MGSC), a corporation engaged in the business GR: The tax base shall be based on the total value
of buying and selling gravel and sand. The used by the BOC in determining tariff and customs
selling price of the delivery van was way below duties plus customs duties, excise taxes, if any, and
its acquisition cost. Is the sale of the delivery van other charges to be paid by the importer prior to the
by MKI to MGSC subject to VAT? (2014 BAR) release of such goods from customs custody.
(Transaction value)
A: YES. For VAT purposes, a transaction “in the
course of trade or business” includes “transactions XPN: In case the valuation used by the BOC in
incidental thereto.” In the course of business, MKI computing customs duties is based on volume or
bought and eventually sold the delivery van. Prior to quantity of the imported goods, the landed cost shall
the sale, the motor vehicle was used as part of MKI’s be the basis for computing VAT.
property, plat, and equipment. Therefore, the sale of
the delivery van is an incidental transaction made in
the course of MKI’s business which should be liable
3. The service is in the Course of trade of A payment is a payment to a third (3rd) party if the
taxpayer’s trade or business or profession; same is made to settle an obligation of another
person. Such obligation should be evidenced by the
4. The service is for a Valuable consideration sales invoice/official receipt issued by the said third
actually or constructively received; and party to the customer/client of the service provider.
A contrary ruling will subject cinema/theater A: NO. Applying our ruling in G.R. No. 198146
operators or proprietors to a total of 40% tax, the involving the same parties and similar issues, the
10% (now taxed at 12%) VAT being on top of the sale of the generating assets - the Masinloc,
30% (now taxed at 10%) amusement tax imposed Ambuklao-Binga and Pantabangan power plants - in
by the Local Government Code of 1991, thereby the present case is likewise not subject to VAT, since
killing the “(goose) that lays the golden egg(s).” the sale was pursuant to the mandate of PSALM
under the EPIRA to privatize NPC assets. The sale of
The “lease of motion picture films, films, tapes and the power plants is not in pursuit of a commercial or
discs” under Sec. 108 of the NIRC is not the same as economic activity but a governmental function
the showing or exhibition of motion pictures or mandated by law to privatize NPC generation assets.
films. “Exhibition” is defined as “to show or to The sale of the power plants is clearly not the same
display. x xx To produce anything in public so that it as the sale of electricity by generation companies,
may be taken in possession”. On the other hand, transmission, and distribution companies, which is
“lease” is defined as “a contract by which one subject to VAT under Sec. 108 of the NIRC. Thus, we
owning such property grants to another the right to do not find any merit in the arguments raised by the
possess, use and enjoy it on specified period of time CIR. Under the EPIRA, PSALM, as the conservator of
in exchange for periodic payment of a stipulated NPC assets, operates and maintains NPC assets and
price, referred as rent.” Thus, the legislature never manages its liabilities in trust for the national
intended to include cinema/theater operator government, until the NPC assets could be sold or
operators or proprietors in the coverage of VAT. disposed of. Thus, during its corporate life, PSALM
(CIR v. SM Prime Holdings, Inc., G.R. No. 183505, 26 has powers relating to the management of its
Feb. 2010) personnel and leasing of its properties as may be
necessary to discharge its mandate. (Power Sector
Q: Power Sectors Assets and Liabilities Assets and Liabilities Management Corporation v.
Management (PSALM), a government-owned CIR, G.R. 226556, 03 July 2019)
and controlled corporation is mandated to
manage the orderly sale, disposition, and Q: The Bureau of Internal Revenue (BIR) issued
privatization of the National Power Corporation Rvenue Memorandum Circular (RMC) No. 65-
(NPC) generation assets, real estate and other 2012 imposing Value-Added Tax (VAT) on
disposable assets, and Independent Power association dues and membership fees collected
Producer contracts with the objective of by condominium corporations from its member
liquidating all NPC financial obligations and condominium-unit owners. The RMC’s validity is
stranded contract costs in an optimal manner. challenged before the Supreme Court (SC) by the
(BIR) issued a Final Assessment Notice (FAN) condominium corporations. The Solicitor
covered by Assessment No. VT-08-00072 General, counsel for BIR, claims that association
alleging that, for taxable year ending 31 dues, membership fees, and other assessment/
December 2008, PSALM is liable to pay a charges collected by a condominium
deficiency VAT amounting to corporation are subject to VAT since they
P10,103,158,715.06, inclusive of penalties and constitute income payments or compensation
interests. PSALM filed its administrative protest for the beneficial services it provides to its
against the FAN, alleging that the privatization of members and tenants. On the other hand, the
NPC assets is an original mandate of PSALM and lawyer of the condominium corporations argues
not subject to VAT. The CIR held that the sale of that such dues and fees are merely held in trust
electricity is subject to VAT under R.A. 9337 and by the condominium corporations exclusively
the real properties sold by PSALM are regarded for their members and used solely for
administrative expenses in implementing the
When an affiliate provides funds to a taxpayer who 2. IMPACT AND INCIDENCE OF TAX
then uses the funds to pay a third party, the
transaction is not subject to VAT, as there was no
Impact and Incidence of Tax Distinguished
sale, barter, or exchange between the affiliate and
the taxpayer. The money was simply given as a dole-
An indirect tax is a tax demanded in the first
out. (CIR v. Sony Philippines, Inc., G.R. No. 178697, 17
instance from one person in the expectation and
Nov. 2010)
intention that he can shift the burden to someone
else. The impact of taxation is on the seller upon
However, if a taxpayer renders service to an affiliate
whom the tax has been imposed, while the incidence
for a fee (even if the fee is merely to reimburse
of tax is on the final consumer, the place at which the
costs), the service is subject to VAT. Thus, the
tax comes to rest. (Mamalateo, 2014)
collection of condominium corporations of
association dues and membership fees from its
VAT on Toll Way Operations
member condominium-unit owners are subject to
VAT even if receives payments for services
VAT on toll way operations cannot be deemed a tax
rendered to its affiliates in trust and on
on tax due to the nature of VAT as an indirect tax.
reimbursement-of-cost basis only, without realizing
The seller remains directly and legally liable for the
profit.
payment of VAT, but the buyer bears its burden
since the amount of VAT paid by the former is added
Q: All the homeowners belonging to ABC Village
to the selling price. Once shifted, the VAT ceases to
Homeowners' Association elected a new set of
be a tax and simply becomes part of the cost that the
members of the Board of Trustees for the
buyer must pay in order to purchase the good,
Association effective January 2019. The first
property or service. (Renato V. Diaz v. Secretary of
thing that the Board looked into is the need to
Finance, G.R. No. 193007, 19 July 2011)
increase the prevailing association dues. Mr. X,
one of the trustees, proposed an increase of
100% to account for the payment of the 12%
value-added tax (VAT) on the association dues
5. TRANSACTIONS DEEMED SALE SUBJECT TO 2. Transfer, use, or consumption not in the course
VAT of business of goods or properties Originally
intended for sale or for use in the course of
Concept business (i.e., when a VAT-registered person
withdraws goods from his business for his
Transaction deem sale entails no actual sale, but by personal use).
their nature, are considered as “sales” subject to
VAT. (Soriano, Manuel & Laco, 2021) 3. Retirement from or cessation of business with
respect to all goods on hand, whether capital
Rationale: In a transaction deemed sale, the input goods, stock-in-trade, supplies or materials as
VAT was already used by the seller as a credit of the date of such retirement or cessation,
against output VAT. However, since there was no whether or not the business is continued by the
actual sale, no output VAT is actually charged to new owner or successor.
customers. Consequently, the State will be deprived
of its right to collect the output VAT. To avoid the 4. Distribution or transfer to:
situation where a VAT registered taxpayer avail of
input VAT credit without being liable for a. Shareholders or investors as share in the
corresponding output VAT, certain transactions profits of the VAT-registered persons
should be considered sales even in the absence of
actual sale. (Tabag, 2015)
2. Approval of a request for cancellation of NOTE: The unused input tax of the dissolved
registration due to reversion to exempt status. corporation, as of the date of merger or
Rationale: To exempt the transaction completely i. For delivery to a resident local export-
from VAT previously collected since input taxes oriented enterprise;
passes to him may be recovered as refund or credits.
(Ingles, 2018) ii. Used in the manufacturing, processing,
packing, repacking in the Philippines of
The zero-rated seller becomes internationally the said buyer’s goods;
competitive by allowing the refund or credit of input
taxes that are attributable to export sales. (CIR v. iii. Paid for in acceptable foreign currency
Seagate Technology Philippines, G.R. No. 153866, 11 and accounted in accordance with the
Feb. 2005) rules of BSP.
b. The sale of goods, supplies, equipment and Sales of raw materials to non-resident buyer under
fuel to persons engaged in International the aforementioned, sale of raw materials to export-
oriented enterprise whose export sales exceed 70%
Meaning of “Considered Export Sales under E.O. EXPORT SALE TAX TREATMENT
226” By a Non-VAT
VAT-exempt
registered
“Considered export sales under EO 226” shall mean
the Philippine port F.O.B. value determined from VATable at 0% (zero
By a VAT registered
invoices, bills of lading, inward letters of credit, rated)
landing certificates, and other commercial
documents, of export products exported directly by Q: Is the sale of goods to ecozone, such as PEZA,
a registered export producer, or the net selling price considered as export sale?
of export products sold by a registered export
producer to another export producer, or to an A: YES. While an ecozone is geographically within
export trader that subsequently export the same; the Philippines, it is deemed a separate customs
Provided, that sales of export products to another territory and is regarded in law as foreign soil. Sales
producer or to an export trader shall only be by suppliers from outside the borders of the
deemed export sales when actually exported by the ecozone to this separate customs territory are
latter, as evidenced by landing certificates or similar deemed as exports and treated as export sales.
commercial documents. These sales are zero-rated or subject to a tax rate of
zero percent. (CIR v. Sekisui Jushi Philippines, Inc.,
Constructive Exports G.R. No. 149671, 21 July 2006)
1. Sales to bonded manufacturing warehouses of An ecozone or a Special Economic Zone has been
export-oriented manufacturers; described as selected areas with highly developed
or which have the potential to be developed into
2. Sales to export processing zones; agro-industrial, industrial, tourist, recreational,
commercial, banking, investment and financial
3. Sales to registered export traders operating centers whose metes and bounds are fixed or
bonded trading warehouses supplying raw delimited by Presidential Proclamations. An
materials in the manufacture of export products ecozone may contain any or all of the following:
under guidelines to be set by the Board in industrial estates (IEs), export processing zones
consultation with the BIR and the BOC; (EPZs), free trade zones and tourist/recreational
1. The services other than “processing, Accordingly, the services provided by hotels to their
manufacturing or repacking of goods” must be clients engaged in international air transport
performed in the Philippines; operations pertaining to room accommodations and
food and beverage services should be subject to the
2. That the payment for such services be in 12% VAT. As they are rendered within the hotel's
acceptable foreign currency accounted for in premises, they have no direct connection with the
accordance with BSP rules; and transport of goods or passengers, and as such, they
cannot be considered as services directly
3. That the recipient of such services is doing attributable to the transport of goods and
business outside of the Philippines. passengers from a Philippine port directly to a
foreign port entitled to zero-rating. (RMC No. 031-
NOTE: The recipient of the service must be 11)
doing business outside the Philippines for the
transaction to qualify for zero-rating under Sec. Q: Are the following transactions subject to VAT?
108(B) of the NIRC. To come within the purview If yes, what is the applicable rate for each
of Sec. 108(B)(2), it is not enough that the transaction. State the relevant authority/ies for
recipient of the service be proven to be a foreign your answer.
corporation; rather, it must be specifically
proven to be a non-resident foreign a. Construction by XYZ Construction Co. of
corporation. (Accenture Inc. vs CIR, G.R. No. concrete barriers for the Asian
190102, 11 July 2012) Development Bank in Ortigas Center to
prevent car bombs from ramming the ADB
In CIR vs. American Express International, Inc., gates along ADB Avenue in Mandaluyong
the Court ruled that the Legislature does not City.
intend to impose the condition of being
"consumed abroad" in order for services b. Call Center operated by a domestic
performed in the Philippines by a VAT- enterprise in Makati that handles
registered person to be zero-rated. In this case, exclusively the reservations of a hotel chain
the taxpayer renders services in the Philippines which are all located in North America. The
and facilitates the collection and payment of services are paid for in US$ and duly
receivables belonging to its non-resident accounted for with the Bangko Sentral ng
foreign client, for which it gets paid in Pilipinas. (2010 BAR)
acceptable foreign currency inwardly remitted
and accounted for in conformity with BSP rules A:
and regulations.
a. The transaction is subject to VAT at the rate of
zero percent (0%) ADB is exempt from direct
Services Rendered to Persons Engaged in
and indirect taxes under a special law, thereby
International Shipping or International Air
making the sale of services to it by a VAT-
Transport Operations
registered construction company effectively
zero-rated. (Sec. 108(B)(3), NIRC)
In order to qualify for zero-rating, the services
rendered by a VAT-registered person to a person
b. The sale of services subject to VAT at zero
engaged in international air transport operations
percent (0%) Zero-rated sale of services
must pertain to or must be attributable to the
includes services rendered to a person engaged
transport of goods and passengers from a port in the
in business outside the Philippines and
EXEMPT
EXEMPT PARTY Meat, fruit, fish, vegetables and other
TRANSACTION
agricultural and marine food products
A person or entity
Involves goods or classified under this paragraph shall be
granted VAT
services which, by considered in their original date even if
exemption under the
their nature are they have undergone the simple processes
NIRC, special law or
specifically listed in of preparation or preservation for the
international
and expressly market, such as freezing, drying, salting,
agreement to which RP
exempted from the broiling, roasting, smoking or stripping,
is a signatory, and by
VAT under the NIRC, including those using advanced
virtue of which its
without regard to the technological means of packaging, such as
taxable transactions
tax status of the parties shrink wrapping in plastics, vacuum
become exempt from
in the transactions. packing, tetra-pack, and other similar
the VAT.
packaging methods.
Such party is not
subject to the VAT, but Transaction is not
Polished and/or husked rice, corn grits,
may be allowed a tax subject to VAT, but the
raw cane sugar and molasses, ordinary salt
refund or credit of seller is not allowed
and copra shall be considered as
input tax paid, any tax refund or
agricultural food products in their original
depending on its credit for any input
state.
registration as a VAT taxes paid.
or non-VAT taxpayer.
Sugar whose content of sucrose by weight,
in the dry state, has a polarimeter reading
Exempt Transactions of 99.5o and above are presumed to be
refined sugar.
1. Sale or importation of:
a. Agricultural and marine food products in Cane sugar produced from the following
their original state,
shall be presumed, for internal revenue
purposes, to be refined sugar:
b. Livestock and poultry of:
i. A kind generally used as, or yielding or 1. Product of a refining process;
producing foods for human
consumption; and 2. Products of a sugar refinery; or
ii. Breeding stock and genetic materials 3. Product of a production line of a sugar
therefor. mill accredited by the BIR to be
producing and/or capable of producing
NOTE: Livestock shall include cows, bulls sugar with polarimeter reading of 99.5o
and calves, pigs, sheep, goats and rabbits. and above, and for which the quedan
Poultry shall include fowls, ducks, geese
issued therefor, and verified by the
Bagasse is not included in the exemption b. Provided, that such goods are exempt from
provided for under this section. (Sec. 4.109- customs duties under the Tariff and
1(B)(1)(a), RR No. 16-2005) Customs Code of the Philippines;
c. Fish, prawn, livestock and poultry feeds, c. For their own use and not for barter or sale,
including ingredients, whether locally
produced or imported, used in the d. Accompanying such persons, or arriving
manufacture of finished feeds: within a reasonable time,
i. Except specialty feeds for racehorses, e. Provided, that the Bureau of Customs may
fighting cocks, aquarium fish, zoo exempt such goods from payment of duties
animals and other animals generally and taxes upon the production of
considered as pets; satisfactory evidence that:
NOTE: Specialty feeds refer to non- i. Such persons are actually coming to
agricultural feeds or food for race horses, settle in the Philippines, and
fighting cocks, aquarium fish, zoo animals
and other animals generally considered as ii. The goods are brought from their
pets. former place of abode, exempt such
goods from payment of duties and
3. Importation of personal and household taxes
effects:
a. Belonging to: f. Provided, further, That the vehicles,
vessels, aircrafts, machineries and other
7. Medical, dental hospital and veterinary A: YES. PHILHEALTH’s services are not VAT-
services, except those rendered by exempt. Those exempted from VAT are those
professionals; engaged in the performance of medical, dental,
hospital and veterinary services except those
NOTE: Laboratory services are exempted. If the rendered by professionals. PHILHEALTH is not
hospital or clinic operates a pharmacy or drug actually rendering medical service but merely
store, the sale of drugs and medicine is subject acting as a conduit between the members and their
to VAT. accredited and recognized hospitals and clinics. It
merely provides and arranges for the provision of
Q: PHILHEALTH, operates a health care delivery pre-need health care services to its members for a
system or a health maintenance organization to fixed prepaid fee for a specified period of time; that
take care of the sick and disabled persons it then contracts the services of physicians, medical
enrolled in the health care plan, inquired before and dental practitioners, clinics and hospitals to
the CIR whether the services it provided to the perform such services to its enrolled members; and
participants in its health care program were that it enters into contract with clinics, hospitals,
exempt from the payment of VAT. The medical professionals and then negotiates with
Commissioner issued VAT Ruling 231-88 stating them regarding payment schemes, financing and
that PHILHEALTH, as a provider of medical other procedures in the delivery of health services.
services, was exempt from the VAT coverage. (CIR v. Philippine Health Care Providers Inc., G.R. No.
168129, 24 Apr. 2007)
Meanwhile, R.A. 7716 (E-VAT Law) took effect,
amending further the NIRC of 1977. 8. Educational services rendered by:
Subsequently, R.A. 8424 (NIRC of 1997) took a. Private educational institutions duly
effect, substantially adopting and reproducing accredited by the:
the provisions of E.O. 273 on VAT and the E-VAT i. Department of Education (DepED),
law. With the passage of these laws, the BIR sent
PHILHEALTH a Preliminary Assessment Notice ii. Commission on Higher Education
for deficiency in its payment of the VAT and (CHED),
documentary stamp taxes (DST) for taxable
years 1996 and 1997 and a letter demanding
NOTE: Every 3 years thereafter, the amount The term “unit” shall mean an apartment unit in
shall be adjusted to its present value using the the case of apartments, house in the case of
Consumer Price Index, as published by the residential houses; per person in the case of
Philippine Statistic Authority. Such adjustment dormitories, boarding houses and bed spaces;
shall be published through revenue regulations and per room in case of rooms for rent.
to be issued not later than March 31 of each
year. Illustration 1:
The foregoing notwithstanding, lease of A lessor rents his 15 residential units for P14,500
residential units where the monthly rental per per month. During the taxable year, his accumulated
unit exceeds P15,000 but the aggregate of such gross receipts amounted to P2,610,000. He is not
rentals of the lessor during the year do not subject to VAT since the monthly rent per unit does
exceed P3,000,000 shall likewise be exempt not exceed P15,000. He is also not subject to 3%
from VAT, however, the same shall be subjected Percentage Tax. Using the same example, assuming
to 3% percentage tax. he has 20 residential units with the same monthly
rent per unit and his accumulated gross receipts
In cases where a lessor has several residential during the taxable year amounted to P3,480,000, he
units for lease, some are leased out for a is still not subject to VAT even if the accumulated
monthly rental per unit of not exceeding earnings exceeded P3,000,000 since the monthly
P15,000 while others are leased out for more rent per unit does not exceed P15,000. He is also not
than P15,000 per unit, his tax liability will be as subject to 3% Percentage Tax.
follows:
Illustration 2:
1. The gross receipts from rentals not
exceeding P15,000 per month per unit A lessor rents his 15 residential units for P15,500
shall be exempt from VAT regardless of the per month. During the taxable year, his accumulated
aggregate annual gross receipts. gross receipts amounted to P2,790,000. He is not
subject to VAT since his accumulated gross receipts
2. The gross receipts from rentals exceeding did not exceed P3,000,000. He is, however, subject
P15,000 per month per unit shall be to 3% Percentage Tax since the monthly rent per
subject to VAT if the aggregate annual unit is more than P15,000.00. Using the same
gross receipts from said units only exceeds example, assuming he has 20 residential units with
P3,000,000. Otherwise, the gross receipts the same monthly rent per unit and his accumulated
will be subject to the 3% tax imposed gross receipts during the taxable year amounted to
under Sec. 116 of the NIRC. (RR No. 13- P3,720,000, he is already subject to VAT since the
2018) accumulated earnings exceeded P3,000,000 and the
monthly rent per unit is more than P15,000.00.
It includes input taxes which can be: Presumptive input tax credit
(Sec. 111(B), NIRC) – may be
1. Directly attributed to transactions subject to
claimed by persons engaged in
the VAT, plus
the business of processing
2. A ratable portion of any input tax which cannot
sardines, mackerel and milk;
be directly attributed to either the taxable or
manufacturing refined sugar and
exempt activity. (RR No. 16-2005) 4%
cooking oil; and noodle based
Input tax is what is passed on to the instant meals; all of which are
purchaser/taxpayer by the seller. If the purchaser substantially produced from
is VAT-registered person, then he can use the input primary agricultural and marine
tax as credit to the output taxes that he is liable to food produces, the supply of
remit to the BIR. (Ingles, 2015) which is exempt from VAT
For an agricultural cooperative to be exempted from The said taxpayers shall be entitled to a transitional
the payment of advance VAT on refined sugar, it input tax on the inventory on hand as of the
must be (a) a cooperative in good standing duly effectivity of their VAT registration on the following:
accredited and registered with the CDA; and (b) the
producer of the sugar. Having established that COFA 1. Goods purchased for resale in the present
is a cooperative in good standing and duly condition;
registered with the CDA and is the-producer of the
sugar, its sale then of refined sugar whether sold to 2. Raw materials - Materials purchased for further
members or non-members, following the express processing but which have not yet undergone
provisions of Sec. 109(L) of R.A. 8424, as amended, processing;
is exempt from VAT. As a logical and necessary
consequence then of its established VAT exemption, 3. Manufactured goods;
COFA is likewise exempted from the payment of
advance VAT required under RR No. 13-2008. (CIR 4. Goods in process for sale; and
v. Negros Consolidated Farmers Multi-Purpose
Cooperative, G.R. 212735, 05 Dec. 2018) 5. Goods and supplies for use in the course of the
taxpayer’s trade or business as a VAT-
Transitional Input Tax registered person. (Sec. 4.110-1(a), RR No. 16-
2005)
Transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they Allowable Transitional Input Tax
previously paid taxes in the acquisition of their
beginning inventory of goods, materials, and The allowed input tax shall be whichever is higher
supplies. During that period of transition from non- between:
VAT to VAT status, the transitional input tax credit 1. 2% of the value of the taxpayer’s beginning
serves to alleviate the impact of the VAT on the inventory of goods, materials and supplies; or
taxpayer. At the very beginning, the VAT-registered 2. The actual value-added tax paid on such goods.
taxpayer is obliged to remit a significant portion of (Sec.111(A), NIRC)
the income it derived from its sales as output VAT.
The transitional input tax credit mitigates this initial NOTE: Transitional input tax credit may only be
diminution of the taxpayer’s income by affording availed once. It may be carried over to the next
the opportunity to offset the losses incurred taxing period, until fully utilized.
A VAT-registered person who is also engaged in If the input tax inclusive of input tax carried over
transactions not subject to VAT shall be allowed to from the previous quarter exceeds the output tax,
recognize input tax credit on transactions subject to the excess input tax shall be carried over to the
VAT as follows: succeeding quarter or quarters.
1. All the input taxes that can be directly NOTE: Provided, that any input tax attributable to
attributed to transactions subject to VAT may zero-rated sales by a VAT-registered person may at
be recognized for input tax credit: Provided, his option be refunded or applied for a tax credit
that input taxes which are directly attributable certificate which may be used in the payment of
to VAT taxable sales of goods and services from internal revenue taxes
the Government or any of its political
subdivisions, instrumentalities or agencies, Thus, input tax, attributable to zero-rated sales may
including GOCCs shall not be credited against either be:
output taxes arising from sales to non- 1. Refunded, or
government entities, and 2. Credited against other internal revenue taxes
of the VAT taxpayer (e.g., income tax)
2. If any input tax cannot be directly attributed to
either a VAT taxable or VAT-exempt Illustration:
transaction, the input tax shall be pro-rated to
the VAT taxable and VAT-exempt transactions; OUTPUT INPUT
only the ratable portion pertaining to PERIOD NVP OR ETC
TAX TAX
transactions subject to VAT may be recognized
for input tax credit. January P12M P 6M NVP P 6M
February 6M 18M ETC (12M)
March 6M 18M ETC (12M)
9. The claim is filed within two years after the In one case, the claim for refund/tax credit was
close of the taxable quarter when such sales denied because the proof for the zero-rated sale
consisted of secondary evidence like financial
In another case, the proofs for zero-rated sales of Q: May a taxpayer who has pending claims for
services were sales invoices. The claim was denied. VAT input credit or refund, set off said claims
(Takenaka Corp.-Philippine Branch v. CIR, G.R. No. against his other tax liabilities? Explain your
193321, 19 Oct. 2016) answer. (2001 BAR)
Q: Are sales invoices sufficient as evidence to A: NO. Set-off is available only if both obligations are
prove zero-rated sale of services by a taxpayer liquidated and demandable. Liquidated debts are
thereby entitling him to claim the refund of its those where the exact amounts have already been
excess input VAT? determined. In the instant case, a claim of the
taxpayer for VAT refund is still pending and the
A: NO. The claim for refund must be denied on the amount has still to be determined.
ground that the taxpayer had not established its
zero-rated sales of services through the A fortiori, the liquidated obligation of the taxpayer
presentation of official receipts. to the government cannot, therefore, be set-off
against the unliquidated claim which the taxpayer
As evidence of an administrative claim for tax conceived to exist in his favor. (Philex Mining Corp.
refund or tax credit, there is a certain distinction v. CIR, G.R. No. 125704, 28 Aug. 1998)
between a receipt and an invoice.
Q: Petitioner X Cola, Inc. (X Cola) failed to
Sec. 113 of the R.A. 10963 provides that a VAT declare certain input taxes in its VAT return for
invoice is necessary for every sale, barter or the 3rd and 4th quarters of 2007. X Cola alleged
exchange of goods or properties, while a VAT official overpayment of VAT for the said taxable periods
receipt properly pertains to every lease of goods or since the undeclared input taxes were not
properties, as well as to every sale, barter or credited against output tax.
exchange of services.
Since X Cola could not amend its VAT returns
A "sales or commercial invoice" is a written account due to the issuance of a BIR Letter of Authority
of goods sold or services rendered indicating the for 2007, it filed with the BIR claims for refund
prices charged therefor or a list by whatever name of alleged overpaid VAT for the 3rd and 4th
it is known which is used in the ordinary course of quarters of 2007. The BIR failed to act on the
business evidencing sale and transfer or agreement claims, so X Cola filed a Petition for Review with
to sell or transfer goods and services. the CTA. Is X Cola entitled to its claims for
refund?
A "receipt" on the other hand is a written
acknowledgment of the fact of payment in money or A: NO. X Cola is not entitled to the refunds as the
other settlement between seller and buyer of goods, amounts claimed represent undeclared input taxes,
debtor or creditor, or person rendering services and not erroneously paid taxes, as contemplated under
client or customer. Sec. 229 of the NIRC. Sec. 229 of the NIRC allows
recovery of any national internal revenue tax
The taxpayer submitted sales invoices, not official (including VAT) which was erroneously or illegally
receipts, to support its claim for refund. In light of assessed or collected.
the aforestated distinction between a receipt and an
invoice, the submissions were inadequate to comply X Cola’s input taxes for the 3rd and 4th quarters of
with the substantiation requirements for 2007 should have been declared in its quarterly VAT
administrative claims for tax refund or tax credit. returns so that these could be creditable against the
output tax for the same taxable periods. Since it
A: YES. AWSPI may file for an application for tax A: NO. Respondent's failure to submit a Certificate
refund provided that it follows the requisites under of Compliance issued by the Energy Regulatory
Sec. 4.112-1 (a) of Revenue Regulations No. (RR) 16- Commission does not disqualify it from claiming a
05, otherwise known as the Consolidated VAT tax refund or tax credit. Given that respondent in
Regulations of 2005, in relation to Sec. 112 of the this case likewise anchors its claim for tax refund or
Tax Code, which states that a claimant's entitlement tax credit under Sec. 108(B)(3) of the Tax Code, it
to a tax refund or credit of excess input VAT cannot be required to comply with the
attributable to zero-rated sales hinges upon the requirements under the EPIRA before its sale of
following requisites: (1) the taxpayer must be VAT- generated power to NPC should qualify for VAT
registered; (2) the taxpayer must be engaged in zero-rating. Sec. 108(B)(3) of the Tax Code in
sales which are zero-rated or effectively zero-rated; relation to Sec. 13 of the NPC Charter, clearly
(3) the claim must be filed within two years after the provide that sale of electricity to NPC is effectively
close of the taxable quarter when such sales were zero-rated for VAT purposes.
made; and (4) the creditable input tax due or paid
must be attributable to such sales, except the The basis for the VAT zero-rated treatment of the
transitional input tax, to the extent that such input supplier is the tax exemption of the purchaser of
tax has not been applied against the output tax. services, and not the qualification of the supplier
itself, in order to relieve the tax-exempt purchaser
It is worth noting that for purposes of zero-rating from tax burden considering that it may not be able
under Sec. 108 (B) (2) of the Tax Code, the claimant to offset or utilize any input tax passed on by its
must establish the two components of a client's supplier of services, had the services it purchased
NRFC status, viz.: (1) that their client was been subject to VAT of 12%. (CIR v. Team Energy
established under the laws of a country not the Corporation, G.R. No. 230412, 27 Mar. 2019)
Philippines or, simply, is not a domestic
corporation; and (2) that it is not engaged in trade Q: On March 30, 2005, XYZ Company filed an
or business in the Philippines. To be sure, there application for tax credit of its excess/unused
must be sufficient proof of both of these input taxes attributable to zero-rated sales for
components: showing not only that the clients are the taxable year 2004 in the total amount of
In its appeal before the CTA En Banc, XYZ 1. Zero-rated or effectively zero-rated sales –
Company alleged that it had fully complied with Any VAT-registered person, whose sales are
the invoicing requirements when it submitted zero-rated or effectively zero-rated may, within
sales invoices to support its claim of zero-rated two (2) years after the close of the taxable
sales. XYZ Company argued that there is nothing quarter when the sales were made. (Sec. 112(A),
in the tax laws and regulations that requires the NIRC)
sale of goods or properties to be supported only
by sales invoices, or the sale of services by The two-year period should be reckoned from
official receipts only. Is XYZ Company's the close of the taxable quarter when the
contention correct? relevant sales were made pertaining to the
input VAT regardless of whether said tax was
A: NO. Sales invoices and documents other than paid or not. (CIR vs. Mirant Pagbilao
official receipts are not proper in substantiating Corporation, G.R. No. 172129, 12 Sept. 2008)
zero-rated sales of services in connection with a
claim for refund. VAT official receipts are Thus, when a zero-rated VAT taxpayer pays its
indispensable to prove sales of services by a VAT- input VAT for the purchase from its supplier a
registered taxpayer. When a VAT-taxpayer claims to year after the pertinent transaction of its sale to
have zero-rated sales of services, it must its purchaser, the said taxpayer only has a year
substantiate the same through valid VAT official to file claim for refund or tax credit of the
receipts, not any other document, not even a sales unutilized creditable input VAT. (Ingles, 2015)
invoice which properly pertains to a sale of goods or
properties. A VAT invoice is necessary for every In case the taxpayer is engaged in zero-rated
sale, barter or exchange of goods or properties and also in taxable or exempt sale, and the
while a VAT official receipt properly pertains to amount of creditable input tax due or paid
every lease of goods or properties, and for every cannot be directly and entirely attributed to any
sale, barter or exchange of services. Thus, a VAT one of the transactions, it shall be allocated
invoice and a VAT receipt should not be confused as proportionately on the basis of the volume of
referring to one and the same thing; the law did not sales.
intend the two to be used alternatively.
Q: Kepco Ilijan Corporation, a duly registered
In this case, the documentary proofs presented by domestic corporation, claimed a refund or
XYZ Company to substantiate its zero-rated sales of issuance of the tax credit certificate for
services consisted of sales invoices and other P74,000,000.00 for the VAT incurred in taxable
secondary evidence like transfer slips, credit year 2002. It filed its quarterly VAT returns for
memos, cargo manifests, and credit notes. It is very the four quarters of taxable year 2002. On April
clear that these are inadequate to support the 13, 2004, it brought its administrative claim for
The person may, within two (2) years from the date XPN: As an exception,
of cancellation, apply for the issuance of a tax credit premature filing is allowed
certificate for any unused input tax which may be only if filed between 10
TSC filed its administrative claim for refund for A: YES. Sec. 112 of the Tax Code, as amended,
taxable year 2001 on March 20, 2003, well within provides the periods relative to the filing of a claim
the two-year period provided for by law. TSC then for VAT refunds. Preliminarily, the law allows the
filed two separate judicial claims for refund: one on taxpayer to file an administrative claim for refund
March 31, 2003 for the first quarter of 2001, and the with the BIR within two years after the close of the
other on July 23, 2003 for the second, third, and taxable quarter when the purchase was made (for
fourth quarters of the same year. the input tax paid on capital goods) or after the close
of the taxable quarter when the zero-rated or
Given the fact that TSC's administrative claim was effectively zero-rated sale was made (for input tax
filed on March 20, 2003, the CIR had 120 days or attributable to zero-rated sale). The CIR must then
until July 18, 2003 to act on it. Thus, the first judicial act on the claim within 120 days from the
claim covering the first quarter of 2001 was submission of complete documents in support of the
premature because TSC filed it a mere 11 days after application. In the event of an adverse decision, the
filing its administrative claim. taxpayer may elevate the matter to the CTA by way
of a petition for review within 30 days from the
On the other hand, the second judicial claim filed by receipt of the CIR's decision. If, on the other hand,
TSC was filed on time because it was filed on July 23, the 120-day period lapses without any action from
2003 or five days after the lapse of the 120-day the CIR, the taxpayer may validly treat the inaction
period. Accordingly, it is clear that the second as denial and file a petition for review before the
judicial claim complied with the mandatory waiting CTA within 30 days from the expiration of the 120-
period of 120 days and was filed within the day period. An appeal taken prior to the expiration
prescriptive period of 30 days from the CIR's action of the 120-day period without a decision or action
or inaction. Therefore, the CTA division only of the CIR is premature, without a cause of action,
acquired jurisdiction over TSC's second judicial and, therefore, dismissible on the ground of lack of
claim for refund covering its second, third, and jurisdiction. (CIR v. Chevron Holdings, Inc., [Formerly
fourth quarters of taxable year 2001. (Team Sual Caltex (Asia) Limited, G.R. No. 233301, 17 Feb. 2020)
Corporation v. CIR, G.R. 201225-26, 18 Apr. 2018)
NOTE:, The mandatory period shall be 90 days
NOTE:, The mandatory period shall be 90 days (from 120 days) upon the effectivity of TRAIN Law.
(from 120 days) upon the effectivity of TRAIN Law.
Failure to Submit Complete Supporting
Q: Company A filed an administrative claim for Documents to Judicial Claim of Refund
refund with the BIR for its excess and unutilized
input VAT credits. In support of its application A distinction must be made between administrative
for refund, the company submitted documents it cases appealed due to:
deemed necessary for the grant of its refund
claim. It even authorized the examination of 1. Inaction of the CIR or the Commissioner;
voluminous supporting documents which were 2. Failure of the taxpayer to submit supporting
kept in its office and granted revenue officers documents – If the CIR dismissed an
access thereto. This notwithstanding, the CIR administrative claim due to the taxpayer's
Consequently, a taxpayer cannot cure its failure to 1. During the effectivity of BIR Ruling No. DA-
submit a document requested by the BIR at the 489-03, and
administrative level by filing the said document 2. BIR Specific Ruling which misleads a particular
before the CTA. (Pilipinas Total Gas, Inc. v. CIR, G.R. taxpayer to prematurely file a judicial clam
No. 207112, 08 Dec. 2015) with the CTA.
Lapse of the 90-day period Before Taxpayer can As an exception to the mandatory and jurisdictional
Appeal to CTA 90+30 day period, it was emphasized that from the
time of issuance of BIR Ruling No. DA-489-03 on
The second paragraph of Sec. 112(C) of the R.A. December 10, 2003 up to its reversal by the
No.10963 envisions two scenarios: Supreme Court in the Aichi case on 6 Oct. 2010,
1. When a decision is issued by the CIR before the taxpayers/claimant need not wait for the lapse of
lapse of the 90-day period; and 120-day period (90-day period under TRAIN Law)
2. When no decision is made after the 90-day before it could seek judicial relief with the CTA by
period. way of Petition for Review. (RMC 54-2014)
In both instances, the taxpayer has 30 days within Before and after the aforementioned period (i.e.,
which to file an appeal with the CTA. As we see it December 10, 2003 to October 6, 2010), the
then, the 90-day period is crucial in filing an appeal observance of the 120-day period (90-day period
with the CTA. (CIR v. Aichi Forging Company of Asia, under TRAIN Law) is mandatory and jurisdictional
Inc., G.R. No. 184823, 06 Oct. 2010) to the filing of judicial claim for refund of excess
input VAT. (CE Luzon Geothermal Power Co., Inc. v.
Failure to comply with the 90-day waiting period CIR, G.R. No. 200841-42, 26 Aug. 2015)
violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies NOTE: There is no need for a taxpayer to specifically
and renders the petition premature and thus invoke BIR Ruling No. DA-489-03 to benefit from
without a cause of action, with the effect that the the same. As long as the judicial claim was filed
between December 10, 2003 and October 6, 2010,
Due to the inaction of respondent CIR, Y 1. CIR’s inaction – The taxpayer may also appeal
Company filed petitions for review before the to the CTA within 30 days after the lapse of 90
CTA. The CTA Division partially granted the days from the submission of the complete
refund claim of the petitioner. The CIR moved documents, if no action has been taken by the
for reconsideration but to no avail. Thus, the CIR Commissioner.
filed a petition for review with the CTA En Banc
sided with the CIR in ruling that the judicial 2. CTA’s denial – The taxpayer may appeal the full
claims of Y Company were prematurely filed in or partial denial of the claim to the Court of Tax
violation of the 120-day and 30- day periods Appeal (CTA) within 30 days from the receipt of
prescribed in Sec. 112(D) of the NIRC. The court said denial, otherwise the decision shall become
held that by reason of prematurity of its final.
petitions for review, Y Company failed to
exhaust administrative remedies which is fatal Q: Gangwam Corporation (GC) filed its quarterly
to its invocation of the court's power of review. tax returns for the calendar year 2012 as
Is the court correct? follows:
First quarter - April 25, 2012
A: NO. The 120-day and 30-day periods are Second quarter - July 23, 2012
mandatory and jurisdictional. Thus, noncompliance Third quarter - October 25, 2012
with the mandatory 120+30-day period renders the Fourth quarter - January 27, 2013
petition before the CTA void. However, it is to be
noted that BIR Ruling No. DA-489-03 provides, “A On December 22, 2013, GC filed with the Bureau
taxpayer-claimant need not wait for the lapse of the of Internal Revenue (BIR) an administrative
120-day period before it could seek judicial relief claim for refund of its unutilized input Value-
with the CTA by way of Petition for Review.” Added Tax (VAT) for the calendar year 2012.
After several months of inaction by the BIR on its
It is a general interpretative rule issued by the CIR claim for refund, GC decided to elevate its claim
pursuant to its power under Sec. 4 of the NIRC, directly to the Court of Tax Appeals (CTA) on
hence, applicable to all taxpayers. Thus, taxpayers April 22, 2014. In due time, the CTA denied the
can rely on this ruling from the time of its issuance tax refund relative to the input VAT of GC for the
on 10 December 2003. first quarter of 2012, reasoning that the claim
was filed beyond the two-year period
In other words, the 120+30-day period is generally prescribed under Sec. 112(A) of the National
mandatory and jurisdictional from the effectivity of Internal Revenue Code (NIRC)
As a general rule, the 30-day period to appeal is Sec. 112(A) of the Tax Code, as amended, provides
both mandatory and jurisdictional. As an that the reckoning period in filing an administrative
exception, premature filing is allowed only if claim is from the close of the taxable quarter when
filed between December 10, 2003 and October the sales were made and not from the date of filing
5, 2010, when the BIR Ruling No. DA-489-03 of the return and payment of the tax due. (CBK
was still in force. Power V. CIR, G.R. No. 202066, 30 Sept. 2014)
Q: On March 26, 2009, petitioner filed an NOTE:, The mandatory period shall be 90 days
administrative claim with the Bureau of Internal (from 120 days) upon the effectivity of TRAIN Law.
Revenue Laguna Regional District Office for the
issuance of a tax credit certificate. This amount Q: On September 26, 2007, CE Casecnan filed
represented "unutilized input taxes on its local before the Bureau of Internal Revenue an
purchases and/or importation of goods and administrative claim for refund or issuance of
Any person who, in the course of trade or business, He shall be held liable to pay the tax as if he is a VAT
sells, barters or exchanges goods or properties, ore registered person but he cannot avail of the input
engages in the sale or exchange of services, shall be tax credit for the period that he has not properly
liable to register for value-added tax if: registered. (Sec. 236(G), NIRC)
1. His gross sales or receipts for the past twelve Rules for VAT Registration
(12) months, other than those that are exempt
under Sec. 109(A) to (BB), have exceeded three BUSINESS REQUIREMENT
million pesos (P3,000,000); or
Mandatory VAT
Gross sales exceed
registration; generally
2. There are reasonable grounds to believe that P3,000,000
liable to pay 12% VAT
his gross sales or receipts for the next twelve
(12) months, other than those that are exempt Subject to optional VAT
under Sec. 109(A) to (BB), will exceed three registration
million pesos (P3,000,000).
If VAT-registered,
Gross sales do not generally liable to pay
Every person who becomes liable to be registered
exceed P 3,000,000 12% VAT.
under paragraph (1) of this subsection shall register
with the Revenue District Office which has If non-VAT registered,
jurisdiction over the head office or branch of that generally liable to pay
person. If he fails to register, he shall be liable to pay 3% percentage tax
the tax under Title IV as if he were a VAT-registered
person, but without the benefit of input tax credits
NOTE: This does not include the sale of parking lot
for the period in which he was not properly
which may or may not be included in the sale of
registered. (Sec. 236, NIRC)
condominium units. The sale of parking lots in a
condominium is a separate and distinct transaction
Optional VAT Registration for Exempt Persons
and is not covered by the rules on threshold amount
not being a residential lot, house & lot or a
1. Any person who is not required to register for
residential dwelling, thus, should be subject to VAT
value-added tax under Subsection (G) hereof
regardless of amount of selling price. (RR No. 13-
may elect to register for value-added tax by
2012)
registering with the Revenue District Office
that has jurisdiction over the head office of that
It is only the sale of real properties primarily held
person, and paying the annual registration fee
for sale to customers or held for lease in the
in Subsection (B) hereof; or
ordinary course of trade or business of the seller
which shall be subject to VAT. As such, transactions
2. Any person who elects to register under this
involving real properties held as capital asset of
Subsection shall not be entitled to cancel his
individuals are not subject to VAT. However, it may
registration under Subsection (F)(2) for the
give rise to capital gains tax liability.
next three (3) years.
Only persons engaged in real estate business either
NOTE: Provided that any person taxed under Sec.
as a real estate dealer, developer or lessors, are
24(A)(2)(b) and 24(A)(2)(c)(2)(a) of the NIRC who
subject to VAT.
elected to pay the eight percent (8%) tax on gross
sales or receipts shall not be allowed to avail of this
option. (Sec. 236, NIRC)
1. A statement that the seller is a VAT-registered 4. In the case of sales in the amount of P1,000 or
person, and the taxpayer's identification more where the sale or transfer is made to a
number (TIN); VAT-registered person, the name, business
style, if any, address and taxpayer
2. The total amount which the purchaser pays or identification number (TIN) of the purchaser,
is obligated to pay to the seller with the customer or client. (Sec. 113(B), NIRC)
indication that such amount includes the VAT.
Provided that: NOTE: The appearance of the word “zero rated” on
the face of invoices covering zero rated sales
a. The amount of the tax shall be shown as a prevents buyers from falsely claiming input VAT
separate item in the invoice or receipt; from their purchases when no VAT was actually
paid. If, absent such word, a successful claim for
NOTE: In case of failure to indicate the input VAT is made, the government would be
VAT as a separate item in the sales invoice refunding money it did not collect. Further, the
or official receipt, a fine of not less than printing of the word “zero-rated” on the invoice
P1,000 but not more than P50,000 shall, helps segregate sales that are subject to 12% VAT
upon conviction, be collected for each act from those sales that are zero-rated. Unable to
or omission in addition to imprisonment submit the proper invoices, taxpayer has been
of not less than 2 years but not more than unable to substantiate its claim for refund. (Eastern
4 years. (RR 18-2011) Telecommunication Phils. Inc. v. CIR, G.R. No. 183531,
25 Mar. 2015)
b. If the sale is exempt from value-added tax,
the term "VAT-exempt sale" shall be The failure to print the word “zero-rated” in the
written or printed prominently on the invoice or receipts is fatal to a claim for credit or
invoice or receipt; refund of input VAT on zero rated sales. (JRA
Philippines, Inc. v. CIR, G.R. No. 177127, 11 Oct. 2010)
c. If the sale is subject to 0% VAT, the term
"zero-rated sale" shall be written or
printed prominently on the invoice or
receipt; or
VAT-registered persons shall pay VAT on a monthly Rules on Withholding of Final VAT on Sales to
basis. the Government
Period of Filing Monthly (Form 2550-M) and The Government or any of its political subdivisions,
Quarterly (Form 2550-Q) VAT Returns instrumentalities or agencies, including
Distinguished government owned or controlled corporations
(GOCCs) shall, before making payment on account of
FORM 2550-M FORM 2550-Q its purchase of goods and/or services taxed at 12%
shall deduct and withhold a final VAT of 5% of the
AS to scope
gross payment.
Quarterly sales and/or
receipts within 25 days The payment for lease or use of properties or
after the close of each property rights to non-resident owners shall be
taxable quarter. subject to 12% withholding tax at the time of
Monthly sales and/or
payment. The payor or person in control of the
receipts within 20 days
The VAT payable for payment shall be considered as the withholding
following the end of
each calendar quarter agent. (Sec. 114(C), NIRC)
month.
shall be reduced by the
total amount of taxes NOTE: The five percent (5%) final VAT withholding
Accomplished only for
previously paid for the rate shall represent the net VAT payable to the
each of the first 2
preceding 2 months seller.
months of each taxable
and/or the sum of the
quarter.
allowance excess input The remaining seven percent (7%) effectively
tax carried over and accounts for the standard input VAT for sales of
the VAT withheld by goods or services to government or any of its
the government. political subdivisions, instrumentalities or agencies
including GOCCs, in lieu of the actual Input VAT
As to deadline
directly attributable or ratably apportioned to such
20th day of following 25th day of following sales.
month calendar quarter
Actual Input VAT Exceeds Standard Input VAT
NOTE: Beginning January 1, 2023, the period for
filing and payment of VAT shall be within 25 days Should actual input VAT attributable to sale to
following the close of each taxable quarter. (R.A. No. government exceed seven percent (7%) of gross
10963) payments, the excess may form part of the seller’s
expense or cost.
Place to File and Pay VAT
Standard Input VAT exceeds Actual Input VAT
GR: VAT shall be filed and paid to:
1. An Authorized Agent Bank (AAB); If actual input VAT attributable to sale to
2. Revenue Collection Officer (RCO); or government is less than 7% of gross payment, the
3. Duly authorized city or municipal Treasurer, difference must be closed to expense or cost.
where such Treasurer is:
a. Within the Philippines; and Transactions with Non-Residents
b. Located within the revenue district where
the taxpayer is registered or required to The government or any of its political subdivisions,
register. (Sec. 114(B), NIRC) instrumentalities or agencies, including GOCCs, as
Deficiency Assessment Process The only BIR officials authorized to issue and sign
Letters of Authority are the Regional Directors, the
1. Issuance of Letter of Authority Deputy Commissioners and the Commissioner. The
2. Tax Audit other officials may be authorized to issue and sign
3. Notice of Discrepancy Letters of Authority but only upon prior
4. Issuance of Preliminary Assessment Notice authorization by the Commissioner himself. (CIR v.
(PAN) McDonalds Philippines Realty Corp., GR No. 242670,
5. Reply 10 May 2021)
6. Issuance of Formal Letter of Demand and Final
Assessment Notice (FAN) Covered Period of LOA
7. Protest
8. Issuance of Final Decision of Disputed A LOA should cover a taxable period not exceeding
Assessment one taxable year. The practice of issuing LOAs
covering audit of “unverified prior years” is
Letter of Authority therefore prohibited. (CIR v. Sony Philippines, Inc.,
G.R. No. 178697, 17 Nov. 2010)
A Letter of Authority (LOA) is an official document
that authorizes a revenue officer to examine and Cases Need Not be Covered by a Valid LOA:
scrutinize a taxpayer’s books of accounts and other
accounting records, in order to determine the 1. Cases involving civil or criminal tax fraud which
taxpayer’s correct internal revenue tax liabilities. fall under the jurisdiction of the tax fraud
(Sec. 13, NIRC) division of the Enforcement Services; and
2. Policy cases under audit by the Special Teams in
There must be a grant of authority before any the National Office. (RMO 36-1999)
revenue officer can conduct an examination or
assessment and the revenue officer must not go Service of LOA
beyond authority. Otherwise, the assessment or
examination is a nullity. It must be served to the taxpayer within 30 days
from its date of issuance; otherwise, it shall become
The LOA commences the audit process and informs null and void. The taxpayer shall then have the right
the taxpayer that it is under audit for possible to refuse the service of this LA, unless the LA is
deficiency tax assessment. It is the authority given revalidated. (Medicard Philippines, Inc. v. CIR, G.R.
to the appropriate revenue officer to examine the No. 222743, 05 Apr. 2017)
books and accounting records of the taxpayer to
determine correct internal revenue liabilities for Q: How is LOA revalidated? How often can it be
collection. (CIR v. De La Salle University, Inc., G.R. Nos. revalidated?
196596, 198841 & 198941, 09 Nov. 2016)
Effect of Absence of LOA A: It is revalidated through the issuance of a new
LOA:
The absence of LOA violates the taxpayer’s right to 1. only once, if issued by the Regional Director;
due process. No assessments can be issued without 2. twice, if issued by the CIR.
prior approval and authorization of the CIR through
If after being allowed to present his side through the 2. The amount must be definitely set; and
Discussion of Discrepancy, it is still found that the
taxpayer is still liable for deficiency taxes and the 3. It must contain a due date. (Soriano, Manuel &
taxpayer does not address the discrepancies Laco, 2021)
through payment of the deficiency taxes, or the
taxpayer does not agree with the findings, the Issuance of PAN
investigating officer shall endorse the case to the
reviewing office and approving official for issuance GR: There must be a PAN issued by the BIR before
of a deficiency tax assessment in the form of a issuing a Formal Letter of Demand (FLD)/ Final
Preliminary Assessment Notice (PAN) within ten Assessment Notice (FAN).
(10) days from the conclusion of the Discussion. (RR
No. 22-2020) XPN: PAN is not required in the following instances:
(M-E-D-E-C)
Preliminary Assessment Notice (PAN)
1. When the finding for any deficiency tax is the
If after review and evaluation by the Commissioner result of Mathematical error in the computation
or his duly authorized representative, as the case of the tax appearing on the face of the tax return
may be, it is determined that there exists sufficient filed by the taxpayer; or
basis to assess the taxpayer for any deficiency tax or
taxes, the said Office shall issue to the taxpayer a 2. When the Excise tax due on excisable articles
PAN for the proposed assessment. It shall show in has not been paid; or
detail the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is 3. When a Discrepancy has been determined
based. (RR No. 18-2013) between the tax withheld and the amount
actually remitted by the withholding agent; or
In the above-cited cases, an FLD/FAN shall be issued When the finding of a deficiency tax is the result of
outright. (2002 BAR) mathematical error in the computation of the tax
appearing on the face of the return, a pre-
Q: In the investigation of the withholding tax assessment notice shall not be required, hence, the
returns of AZ Medina Security Agency (AZ) for assessment notice is a final assessment notice. (Sec.
the taxable years 1997 and 1998, a discrepancy 228, NIRC; RR No. 18-2013)
between the taxes withheld from its employees
and the amounts actually remitted to the Q: On July 15, 2009, the CIR issued to DEF, Inc. a
government was found. Accordingly, before the Letter Notice (LN) informing it of the
period of prescription commenced to run, the discrepancy found after comparing its tax
BIR issued an assessment and a demand letter returns for Calendar Year (CY) 2007 with the
calling for the immediate payment of the Reconciliation and Third-Party Matching under
deficiency withholding taxes in the total amount the Tax Reconciliation System. The LN was
of P250,000.00. Counsel for AZ protested the received and signed by a certain Malou Bohol on
assessment for being null and void on the July 24, 2009. Subsequently, the BIR issued a
ground that no pre-assessment notice had been follow-up letter dated August 24, 2009. The
issued. Is the contention of the counsel tenable? letter was received and signed by a certain
(2002 BAR) Amado Ramos. Due to the inaction of DEF, Inc.,
the CIR issued to it, on January 12, 2010, the
A: NO. The contention of the counsel is untenable. following: (1) Letter of Authority (LOA) for the
Sec. 228, NIRC expressly provides that no pre- examination of its book of accounts; and other
assessment notice is required when a discrepancy accounting records and (2) a Notice of Informal
has been determined between the tax withheld and Conference (NIC). On March 29, 2010, the CIR
the amount actually remitted by the withholding issued a Preliminary Assessment Notice (PAN)
agent. Since the amount assessed relates to with attached Details of Discrepancies that
deficiency withholding taxes, the BIR is correct in found DEF, Inc. liable for deficiency income tax
issuing the assessment and demand letter calling for (IT) and value-added tax (VAT). On July 20,
the immediate payment of the deficiency 2010, the CIR issued a Final Assessment Notice
withholding taxes. (FAN), assessing DEF, Inc. with deficiency VAT
and deficiency IT. On November 28, 2012, the
Q: Mr. Tiaga has been a law-abiding citizen Revenue District Officer (RDO) issued a
diligently paying his income taxes. On May 5, Preliminary Collection Letter requesting DEF,
2014, he was surprised to receive an assessment Inc. to pay the assessed tax liability within 10
notice from the BIR informing him of a days from notice. On January 23, 2013, the RDO
Under Sec. 3(v), Rule 131 of the Rules of Court, there The failure to file a reply to PAN will not bar the
is a disputable presumption that "a letter duly taxpayer from protesting the FAN because PAN is
directed and mailed was received in the regular not the final assessment which can be protested as
course of the mail." However, the presumption is contemplated under the NIRC.
subject to controversy and direct denial, in which
case the burden is shifted to the party favored by the Formal Letter of Demand and Final Assessment
presumption to establish that the subject mailed Notice
letter was actually received by the addressee. In
view of DEF, Inc.'s categorical denial of due receipt The FLD or FAN are notices issued to taxpayers who
of the PAN and the FAN, the burden was shifted to fail to respond to the PAN within the prescribed
the CIR to prove that the mailed assessment notices period, or those who respond to the PAN without
were indeed received by DEF, Inc. or by its merit.
authorized representative. As ruled by the CTA En
Banc, the CIR's mere presentation of Registry A final assessment is a notice "to the effect that the
Receipt Nos. 5187 and 2581 was insufficient to amount therein stated is due as tax and a demand
prove DEF, Inc.'s receipt of the PAN and the FAN. It for payment thereof." This demand for payment
held that the witnesses for the CIR failed to identify signals the time "when penalties and interests begin
and authenticate the signatures appearing on the to accrue against the taxpayer and enabling the
registry receipts; thus, it cannot be ascertained latter to determine his remedies." Thus, it must be
whether the signatures appearing in the documents "sent to and received by the taxpayer and must
were those of DEF, Inc.'s authorized demand payment of the taxes described therein
representatives. (CIR v. T Shuttle Services, Inc., G.R. within a specific period.” (CIR v. Fitness by Design,
No. 240729, 24 Aug. 2020) Inc., G.R. No. 215957, 09 Nov. 2016)
Period for the Taxpayer to Respond to PAN via Issuance of FLD or FAN
“Reply”
The CIR or his duly authorized representative may
The taxpayer has 15 days from receipt of PAN to file issue FLD or FAN:
a written reply contesting the proposed assessment.
1. If there is no need to issue a PAN because the
circumstances show that it falls within the
exceptions for the issuance of PAN;
Rules on Prescription
As to penalties
Subject to Not subject to the 25% 1. When the tax law itself is silent on prescription,
administrative surcharge, although the tax is imprescriptible;
penalties such as 25% subject to interest and
surcharge, interest, compromise penalty. 2. When no return is required, tax is
and compromise imprescriptible and tax may be assessed at any
penalty. time as the prescriptive periods provided in
Secs. 203 and 222, NIRC are not applicable.
Remedy of the taxpayer is to file a return for the
prescriptive period to commence.
Illustration:
3 years from actual 5 years from receipt of NOTE: The period agreed upon may be extended
filing FAN by taxpayer by subsequent written agreements made before
Fraudulent filing the period previously agreed upon.
A: NO. The last day for the CIR to issue an 2. The taxpayers are benefited because after the
assessment on STI's income tax was on August 15, lapse of the period of prescription, they would
2006; while the latest date for the CIR to assess STI have a feeling of security against unscrupulous
of EWT was on April 17, 2006; and the latest date tax agents who will take advantage of every
for the CIR to assess STI of deficiency VAT for the opportunity to molest law-abiding citizens;
four quarters was on May 25, 2006. Clearly, on the
basis of these dates, the final assessment notice 3. Without such legal defense, the taxpayers
which STI received on June 28, 2007, was issued would furthermore be under obligation to
beyond the three-year prescriptive period. always keep their books and to keep them open
Furthermore, STI's signatory to the three waivers for inspection subject to harassment by
had no notarized written authority from the unscrupulous tax agents.
corporation's board of directors. RDAO No. 05-01
mandates the authorized revenue official to ensure NOTE: Thus, for the purpose of safeguarding
that the waiver is duly accomplished and signed by taxpayers from any unreasonable examination,
the taxpayer or his authorized representative investigation or assessment, our tax laws
before affixing his signature to signify acceptance of provide a statute of limitations in the collection
the same; and in case the authority is delegated by of taxes as well as their assessments.
the taxpayer to a representative, as in this case, the (Domondon, 2014)
concerned revenue official shall see to it that such
delegation is in writing and duly notarized. The Determining Whether Prescription to Assess
waiver should not be accepted by the concerned BIR had Set In
office and official unless notarized. Similar to
Standard Chartered Bank, the waivers in this case The important date to remember is the date when
did not specify the kind of tax and the amount of tax the demand letter or notice is released or mailed or
due. There can be no agreement if the kind and sent by the CIR to the taxpayer.
amount of the taxes to be assessed or collected were
not indicated. Hence, specific information in the Provided the release was effected before the
waiver is necessary for its validity. Verily, prescription sets in, the assessment is deemed made
considering the foregoing defects in the waivers on time, even if the taxpayer actually receives it
executed by STI, the periods for the CIR to assess or after the prescriptive period.
Return as the Starting Point of the Prescriptive Computation of the Three (3)-Year Period
Period
The computation of the three-year period is based
Tax return refers to the form prescribed by the BIR on the Administrative Code, where a "year” shall be
showing basic information about the taxpayer and understood to be twelve (12) calendar months.
the computation of his tax liability, which is
required to be filed within the periods prescribed by The Administrative Code of 1987 governs the
law and used as the basis for payment of tax assess computation of legal periods, being the more recent
by the taxpayer. law than the Civil Code which provides that a year is
equivalent to 365 days whether it be a regular year
The two (2) types of returns are: or a leap year. (CIR v. Primetown Property Group,
Inc., G.R. No. 162155, 28 Aug. 2007)
2. The Waiver need not specify the type of taxes to The taxpayer is charged with the burden of ensuring
be assessed nor the amount thereof. that his waiver is validly executed when submitted
to the BIR. Thus, the taxpayer must ensure that his
3. It is no longer required that the delegation of waiver:
authority to a representative be in writing and
notarized. 1. Is executed before the expiration of the period
to assess or to collect taxes;
4. The taxpayer cannot seek to invalidate his 2. Indicates the expiry date of the extended
Waiver by contesting the authority of his own
period;
representative.
As to nature
As to intention
As to liability of taxpayer
As to penalty
As to period of assessment
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 falsity, fraud, or omission.
Note: MR with the CIR does not toll period to file with the CTA.
Fraud is a question of fact and the circumstances Negligence, whether slight or gross, is not
constituting fraud must be alleged and proved in the equivalent to fraud with intent to evade the tax
court. Fraud is never lightly to be presumed contemplated by law. (Ingles, 2015)
because it is a serious charge. Hence, if fraud is not
proven, the Government cannot use the 10-year Just because the 10-year period applies, it doesn’t
period to make the assessment. (CIR v. Ayala necessarily mean that the taxpayer will be penalized
Securities Corporation, G.R. No. L-29485, 31 Mar. with the 50% surcharge. When a taxpayer files a
1976) Fraud must be established. false return and not a fraudulent one, the 10-year
period applies but the 50% surcharge will not.
Claiming fictitious expenses as deductions is a proof (Aznar v. CTA, G.R. No. L-20569, 23 Aug. 1974)
of falsity or fraud in the income tax return. (Tan
Guan v. CTA, G.R. L-23676, 27 Apr. 1967) Q: Danilo, who is engaged in the trading
business, entrusted to his accountant the
An honest mistake as to the valuation of the preparation of his income tax return and the
property cannot be indicative of fraud. (Republic v. payment of the tax due. The accountant filed a
Heirs of Jalandoni, G.R. No. L-18384, 20 Sept. 1965) falsified tax return by under declaring the sales
and overstating the expense deductions by
Q: What constitutes prima facie evidence of a Danilo. Is Danilo liable for the deficiency tax and
false or fraudulent return to justify the the penalties thereon? What is the liability, if
imposition of a 50% surcharge on the deficiency any, of the accountant? Discuss. (2005 BAR)
tax due from a taxpayer? Explain. (2002 BAR)
A: Danilo is liable for the deficiency tax as well as for
A: There is Prima facie evidence of false or the deficiency interest. He should not be held liable
fraudulent return when the taxpayer substantially for the fraud penalty because the accountant acted
underdeclared his taxable sales, receipts or income, beyond the limits of his authority. There is no
or substantially overstated his deductions. The showing in the problem that Danilo signed the
taxpayer’s failure to report sales, receipts or income falsified return or that it was prepared under his
in an amount exceeding 30% of that declared per direction. On the other hand, the accountant may be
return, and a claim of deduction in an amount held criminally liable for violation of the NIRC when
exceeding 30% of actual deduction shall render the he falsified the tax return by under declaring the
taxpayer liable for substantial under declaration sale and overstating the expense deductions. If
and over declaration, respectively, and will justify Danny's accountant is a Certified Public Accountant,
the imposition of the 50% surcharge on the his certificate as a CPA shall automatically be
deficiency tax due from the taxpayer. (Sec. 248, revoked or cancelled upon conviction.
NIRC)
(2) SUSPENSION OF THE RUNNING OF STATUTE
Importance of Distinguishing Between a “False OF LIMITATIONS
Return” and a “Fraudulent Return”
Grounds for suspension of the prescriptive period
The two returns are different but have the same for both the power to assess and the power to
prescriptive periods to be assessed, which is 10- collect: (L-O-W-P-A-R-A)
years. The importance in distinguishing the two lies
in the application of the penalty surcharge. 1. When taxpayer cannot be Located in the
address given by him in the return;
Actual fraud, not constructive fraud, is subject to
4. Where the CIR is prohibited from making the A: NO. The provisions of the NIRC being a special
assessment or beginning distraint or levy or a law take precedence over the provisions of the Civil
proceeding in court for 60 days thereafter, such Code, a general law. Furthermore, the provisions of
as where there is a Pending petition for review the NIRC were crafted to ensure expeditious
in the CTA from the decision on the protested collection of tax money to ensure the continuous
assessment; (Republic v. Ker & Co., GR L-21609, delivery of government services.
29 Sep. 1966)
2. TAXPAYER’S REMEDIES
5. Where CIR and the taxpayer Agreed in writing
for the extension of the assessment, the tax may
1. Remedies Before Payment
be assessed within the period so agreed upon;
(Waiver)
a. Administrative remedies:
i. Protest of assessment
6. When the taxpayer Requests for reinvestigation
1. Reconsideration
which is granted by the Commissioner; and
2. Reinvestigation
ii. Compromise
NOTE: Only the period to collect is suspended
iii. Abatement
because assessment has been done at this point.
(Ingles, 2015) b. Judicial remedies
The taxpayer or its authorized representative or tax NOTE: Protested assessment is the same as
agent may protest administratively against the disputed assessment.
aforesaid FLD/FAN within thirty (30) days from
date of receipt thereof. Effect of a Protest against an Assessment
Administrative Protest is the act by the taxpayer of Prescriptive period provided by law to make
questioning the validity of the imposition of the collection by distraint or levy or by a proceeding in
corresponding delinquency increments for internal court is interrupted once a taxpayer protests the
revenue taxes as shown in the notice of assessment Assessment and requests for its cancellation.
and letter of demand.
(1) PERIOD TO FILE PROTEST
Requisites of a Protest
Period to Protest
1. It must be in writing.
The taxpayer or its authorized representative or tax
agent may protest administratively against the
2. It must be addressed to the CIR or his duly
FLD/FAN within thirty (30) days from date of
authorized representative;
receipt thereof.
Unioil filed its protest to the FAN on February 2. YES. The CIR’s assessment of Unioil for
25, 2009 and submitted its supporting deficiency withholding taxes has
documents on April 24, 2009. Thereafter, Unioil prescribed. Sec. 203 of the NIRC mandates
filed the instant Petition for Review on the government to assess internal revenue
November 20, 2009, considering that the CIR taxes within three years from the last day
failed to act on its protest and the one hundred prescribed by law for the filing of the tax
eighty (180)-day period had already expired. return or the actual date of filing of such
return, whichever comes later. From the
The CTA Third Division and CTA En Banc ruled date of the Formal Letter of Demand and
that CIR failed to comply with the notice the FAN which were simultaneously issued
requirements, thereby denying respondent of on January 14, 2009, and only received by
its right to due process, hence, effectively Unioil on January 26, 2009, the three-year
voiding the assessments issued. prescriptive period reckoned from the
deadline set by law for the filing of the
Obtaining no relief from the CTA, the CIR filed return, assessment of the January to
this petition for review on certiorari and November 2005 monthly remittance
submitted for the first time proof of its issuance returns has palpably prescribed. As for the
of a PAN and Unioil's actual receipt thereof. assessment for December 2005, suffice to
state that all the circumstances obtaining
Unioil maintains that the CIR's assessments for herein lead to no other conclusion that the
deficiency withholding taxes were issued assessment has likewise prescribed.
beyond the three-year prescriptive period
provided in Sec. 203 of the NIRC. The
(2) SUBMISSION OF SUPPORTING DOCUMENTS Period to Act upon or Decide on the Protest filed
Submission of Documents
1. By the duly authorized representative
For requests for reinvestigation, the taxpayer shall
a. Request for Investigation – within 180 days
submit all relevant supporting documents in
from submission of relevant documents
support of his protest within sixty (60) days from
b. Request for Reconsideration – within 180
date of filing of his letter of protest. Otherwise, the
days from filing of protest
assessment shall become final.
2. By the CIR
The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot demand a. In case of Protest – within 180 days from
what type of supporting documents should be filing of protest
submitted. Otherwise, a taxpayer will be at the b. In case of Administrative Appeal – within
mercy of the BIR, which may require the production 180 days from the filing of Administrative
of documents that a taxpayer cannot submit. (CIR vs. Appeal
First Express Pawnshop Co., Inc., G.R. Nos. 172045-46,
16 June 2009) NOTE: Administrative appeal – Request for
Reconsideration filed with the CIR to
When Assessment shall Become Final elevate the denial made by his duly
authorized representative.
The failure of the taxpayer who requested for a
reinvestigation to submit all relevant supporting Decision on the Protest Filed
documents within the 60-day period shall render
the FLD/FAN “final” by operation of law. The 1. Direct grant or denial of protest – Final
taxpayer shall be barred from disputing the Decision on a Disputed Assessment (FDDA)
correctness of the FLD/FAN by the introduction of
newly discovered or additional evidence because The decision of the Commissioner or his duly
he/it is deemed to have lost the chance to present authorized representative shall state:
evidence. The BIR shall then deny the request for
3. Inaction by the CIR or his duly authorized 3. If the CIR or his authorized representative
representative failed to act upon the protest within 180 days
from submission of the required supporting
Q: Bureau of Internal Revenue issued a documents, then the taxpayer may appeal to the
Preliminary Assessment Notice which CTA within 30 days from the lapse of the 180-
represented deficiency income tax and value- day period. (CIR v. V.Y. Domingo Jewellers, Inc.,
added tax, inclusive of interest of V.Y. Domingo. G.R. No. 221780, 25 Mar. 2019)
V.Y. Domingo thereafter filed a Request for Re-
evaluation or Re-investigation and Q: The Court previously issued a resolution for
Reconsideration. However, V.Y. Domingo then G.R. No. 241338, resolving to deny the petition
received a Preliminary Collection Letter (PCL) for failure to sufficiently show that the Court of
from the Revenue District Office (RDO) Tax Appeals En Banc committed any reversible
informing it of the existence of two Assessment error with regards to its ruling pertaining to the
Notice for collection of its tax liabilities. Upon Final Assessment Notice issued by the
receipt of the requested copies of the notices, Commissioner of Internal Revenue. Roca
V.Y. Domingo filed a Petition for Review praying Security is arguing that the Final Assessment
that Assessment Notices and the PCL be declared Notice is violative of its right to due process. Is
null and void for allegedly having been issued the contention of Roca correct?
beyond the prescriptive period for assessment
and collection of internal revenue taxes. A: YES. The Final Assessment Notice issued by the
CIR is void as it violates the taxpayer’s right to due
The CIR filed a Motion to Dismiss the petition, process. Sec. 228 of the National Internal Revenue
arguing that it is neither the assessment nor the Code gives the taxpayer being assessed a period of
formal letter of demand that is appealable to the 60 days from the date of filing a protest assailing the
CTA but the decision of the CIR on a disputed Preliminary Assessment Notice within which to
assessment. Furthermore, CIR argued that there submit the relevant supporting documents. In this
was no disputed assessment to speak of, and case, the respondent filed its protest on April 18,
that the CTA had no jurisdiction. Is the CIR’s 2013 and still had 60 days from that date or until
In case of tax assessment, compromise is the NOTE: Where the basic tax involved exceeds P1M or
contract between the government and the taxpayer where the settlement offered is less than the
to settle the liability. prescribed minimum rates, the compromise shall be
subject to the approval of the National Evaluation
Court cannot compel the CIR to compromise in cases Board (NEB). In other words, compromise
when such is allowed, in order to assure that no settlement lower than the minimum amount
improper compromise is made to the prejudice of prescribed above may be entered subject to the
the Government. approval of NEB.
NOTE: Compromise as amount of paid by the
taxpayer to settle his tax liability is different from Offers of compromise of assessments issued by the
compromise penalty which is the amount paid by Regional Offices involving basic deficiency taxes of
the taxpayer to compromise tax violation and paid P500,000 or less and for minor criminal violations
in lieu of criminal prosecution. discovered by the Regional and District Offices, shall
be subject to the approval by the Regional
Evaluation Board (REB). However, if the offer of
compromise is less than the prescribed rates, the
6. The taxpayer Failed to file an administrative 2. The taxpayer, as reflected in its latest Balance
protest on account of the alleged failure to Sheet supposed to be filed with the Bureau of
receive notice of assessment and there is reason Internal Revenue, is suffering from surplus or
to believe that the assessment is lacking in legal earnings deficit resulting to Impairment in the
and/or factual basis. original capital by at least 50%.
7. The taxpayer Failed to file a request for 3. The taxpayer is suffering from a Net worth
reinvestigation/reconsideration within 30 days deficit (total liabilities exceed total assets)
from receipt of final assessment notice and computed by deducting total liabilities (net of
there is reason to believe that the assessment is deferred credits and amounts payable to
lacking in legal and/or factual basis. stockholders/owners reflected as liabilities,
except business related transactions) from total
8. The taxpayer Failed to elevate to the CTA an assets (net of pre-paid expenses, deferred
4. The taxpayer has been declared by any 3. If the taxpayer has an existing finalized
competent tribunal, or authority, or body, or Agreement or prospect of future agreement
government agency as Bankrupt or insolvent. with any party that resulted or could result to
an increase in the equity of the taxpayer at the
5. That amounts payable or due to stockholders time of the offer for compromise or at a definite
other than business-related transactions which future time; or
are properly includible in the regular “Accounts
payable” are by fiction of law considered as part 4. If the taxpayer failed to execute a Waiver of his
of capital and not liability, and that the taxpayer privilege of the secrecy of bank deposits under
has no sufficient liquid asset to satisfy the tax Republic Act No. 1405 or under other general or
liability. special laws. (RR No. 30-2002)
6. In the case of an individual taxpayer, he/she has Q: Can the CIR inquire into the bank deposits of
no other Leviable properties under the law a taxpayer? If so, does this power of the
other than his family home. Commissioner conflict with R.A. 1405 (Secrecy
of Bank Deposits Law)? (1998 BAR)
7. The corporation ceased operation or is already
Dissolved. A: The CIR is authorized to inquire into the bank
deposits of:
NOTE: The tax liabilities corresponding to the 1. A decedent to determine his gross estate;
Subscription Receivable or Assets 2. Any taxpayer who has filed an application for
distributed/distributable to the stockholders compromise of his tax liability by means of
representing return of capital at the time of financial Incapacity to pay his tax liability. (Sec.
cessation of operation or dissolution cannot be 6(F), NIRC)
compromised.
The limited power of the CIR does not conflict with
Requisites For Financial Incapacity as Ground R.A. No. 1405 because the provisions of the NIRC
for Compromise Settlement granting this power is an exception to the Secrecy of
Bank Deposits Law as embodied in a later
1. Clear inability to pay the tax; and legislation.
2. The taxpayer must waive in writing his Furthermore, in case a taxpayer applies for an
privilege of the secrecy of bank deposit under application to compromise the payment of his tax
RA 1405 or other general or special laws, which liabilities on his claim that his financial position
shall constitute as the CIR’s authority to inquire demonstrates a clear inability to pay the tax
into said bank deposits. (Sec. 6(F), NIRC) assessed, his application shall not be considered
unless and until he waives in writing his privilege
Grounds for Denial of Compromise Settlement under R.A. No. 1405, and such waiver shall
Based on Financial Incapacity: (C-R-A-W) constitute the authority of the CIR to inquire into the
bank deposits of the taxpayer.
1. If the taxpayer has a Tax Credit Certificate,
issued under the NIRC; Q: May the CIR compromise the payment of
withholding tax where the financial position of
2. If the taxpayer has a pending claim for tax the taxpayer demonstrates a clear inability to
Refund or tax credit with the BIR, Department pay the assessed tax? (1998 BAR)
Q: After the tax assessment had become final A: As a general rule, the Court of Appeals does not
and unappealable, the CIR initiated the filing of have the power to review compromise agreements
a civil action to collect the tax due from NX. After made between the Commissioner of Internal
several years, a decision was rendered by the Revenue and the taxpayer considering that the
court ordering NX to pay the tax due plus Commissioner is vested with the authority to
penalties and surcharges. The judgment became compromise and such authority is exercised
final and executory but attempts to execute the according to his discretion. Such authority should
judgment award were futile. be exercised in accordance with the CIR discretion
and courts have no power, as a general rule, to
Subsequently, NX offered the CIR a compromise compel him to exercise such discretion one way or
settlement of 50% of the judgment award, another. If the CIR abuses his discretion by not
representing that this amount is all he could following the parameters set by law, the CTA, not
really afford. Does the CIR have the power to the CA, may correct such abuse if the matter is
accept the compromise offer? Is it legal and appealed to it. In case of arbitrary or capricious
ethical? (2004 BAR) exercise by the CIR of the power to compromise, the
compromise can be attacked and reversed through
A: YES. The CIR has the power to accept the offer of judicial process. It must be noted however, that a
compromise if the financial position of the taxpayer compromise is considered as other matters arising
clearly demonstrates a clear inability to pay the tax. under the NIRC which vests the CTA with
(Sec. 204, NIRC) jurisdiction and since the decision of the CTA is
appealable to the Supreme Court, the Court of
As represented by NX in his offer, only 50% of the Appeals is devoid of any power to review a
judgment award is all he could really afford. This is compromise settlement forged by the CIR.
an offer for compromise based on financial
The CIR is allowed to enter into a compromise only 2. Subject to approval of Evaluation Board
if the basic tax involved does not exceed P1M and
a. When basic tax involved exceeds
the settlement offered is not less than the
P1,000,000;
prescribed percentages. (Sec. 204(A), NIRC)
b. Where the settlement offered is less than
1. Minimum compromise rate
the prescribed minimum rates (Sec. 204,
a. For cases of “financial incapacity”: NIRC);
5. Withholding tax cases, unless the applicant – c. After the information is filed with the
taxpayer invokes provisions of law that cast court – no longer permitted to compromise
doubt on the taxpayer’s obligation to withhold. with or without the consent of the
Prosecutor. (People v. Magdaluyo, G.R. No. L-
6. Criminal violations already filed in courts. 1595, 20 Apr. 1961)
7. Delinquent accounts with duly approved 2. Civil cases – Before litigation or at any stage of
schedule of installment payments. (Sec. 3, RR the litigation, even during appeal, although
30-2002) legal propriety demands that prior leave of
court should be obtained.
NOTE: The CTA may issue an injunction to prevent
the government from collecting taxes under a Remedies in Case the Taxpayer Refuses or Fails
compromise agreement when such would be to Follow the Tax Compromise
prejudicial to the government.
1. Enforce the compromise
When must Compromise be Made
a. If it is a judicial compromise, it can be
enforced by mere execution. A judicial
1. Criminal cases – It must be entered into prior
compromise is one where a decision based
to the institution of the corresponding criminal
on the compromise agreement is rendered
action arising out of a violation of the provisions
by the court on request of the parties.
of the NIRC. A compromise can never be
entered into after final judgment because by
b. Any other compromise is extrajudicial and
virtue of such final judgment the Government
like any other contract can only be enforced
had already acquired a vested right. (Roviro v.
by court action.
Amparo, G.R. No. L- 5482, 05 May 1982)
2. Regard it as rescinded and insist upon original
NOTE: A compromise validly entered into
demand. (Art. 2041, NCC)
between the CIR and the taxpayer prior to the
institution of the corresponding criminal action
Prescriptive Period to Enforce Compromises
arising out of a violation of the provisions of the
NIRC becomes a bar to such criminal action.
As a rule, the obligation to pay tax is based on law.
(People v. Magdaluyo, G.R. No. L-16235, 20 Apr.
But when, for instance, a taxpayer enters into a
1965)
compromise with the BIR, the obligation of the
taxpayer becomes one based on contract.
Compromise is a contract whereby the parties, by
1. The tax or any portion thereof appears to be c. Such Other circumstances which the CIR
unjustly or excessively assessed: (Wrong-L-I- may deem analogous to the enumeration
C-E) above. (Sec. 3, RR No. 13-2001)
Illegally and Erroneously Collected Tax 2. There must be a written claim for refund filed
Distinguished by the taxpayer with the CIR; (Vda. De
Aguinaldo v. CIR, G.R. No. L-19927, 26 Feb. 1965)
ILLEGALLY ERRONEOUSLY
COLLECTED TAX COLLECTED TAX XPNs:
Definition a. When on the face of the return upon which
Q: State the conditions required by the Tax Code 2. Payments effected through the withholding
before the Commissioner of Internal Revenue tax system – From the date it falls due at the end
could authorize the refund or credit of taxes of the taxable year.
erroneously or illegally received. (2005, 2002
BAR) NOTE: In case of payments effected through
withholding tax system, the tax liability is
A: The conditions are: deemed paid when the same falls due at the end
of the tax year. This is because a taxpayer,
1. A written claim for refund is filed by the
resident or non-resident, who contributes to the
taxpayer with the Commissioner of Internal
withholding tax system, not really deposit an
Revenue;
amount to the CIR, but, in truth, performs and
extinguishes his tax obligation for the year
2. The claim for refund must be a categorical
concerned. (Gibbs v. CIR, G.R. No. L-17406, 29 Nov.
demand for reimbursement (Bermejo v. CIR, G.R.
1965)
No. L-3029, 25 July 1950);
3. Overpaid quarterly corporate income tax –
From the date the final adjustment return is filed
3. The claim for refund or tax credit must be filed
after the end of the taxable year. The period is
with the Commissioner, or the suit or
counted from the actual filing, not the last day
proceeding therefore must be commenced in
allowed by law to file.
court within 2 years from date of payment of
the tax or penalty regardless of any
NOTE: The filing and payment of the quarterly
supervening cause.
income tax should only be considered as mere
installments of the annual tax due. These
Two-year Prescriptive Period
quarterly payments should be treated as
advances or portions of the annual income tax
No credit or refund of taxes or penalties shall be
due, to be adjusted at the end of the year, its Final
allowed unless the taxpayer files in writing with the
Adjustment Return. (CIR v. TMX Sales, G.R. No.
CIR a claim for credit or refund within two (2) years
83736, 15 Jan. 1992 reiterated in CIR v. CA, G.R.
after the payment of the tax or penalty. (Sec. 204(C),
No. 117254, 21 Jan. 1999)
NIRC)
A: NO. Indeed, the two-year period in filing a claim The taxpayer may appeal to CTA in case of denial by
for tax refund is crucial. While the law provides that CIR of the claim for refund. It must be filed within 30
the two-year period is counted from the date of days from receipt of the decision of the CIR but not
payment of the tax, jurisprudence, however, to exceed the 2-year period from date of payment of
clarified that the two-year prescriptive period to the tax or penalty regardless of any supervening
claim a refund actually commences to run, at the cause that may arise after payment.
earliest, on the date of the filing of the adjusted final In case the decision of the CIR takes too long and the
tax return because this is where the figures of the 2-year period is about to end, proceedings in the
gross receipts and deductions have been audited CTA must be commenced and without the need to
and adjusted, reflective of the results of the wait for the decision of the CIR.
operations of a business enterprise. “Thus, it is only
when the Adjustment Return covering the whole Remedies on Tax Assessment and Claim for
year is filed that the taxpayer would know whether Refund Distinguished
a tax is still due or a refund can be claimed based on
the adjusted and audited figures.” (CIR v. Univation AGAINST AN CLAIM FOR REFUND
Motor Philippines, Inc. (Formerly Nissan Motor ASSESSMENT (SEC. 229)
Philippines, Inc.), G.R. 231581, 10 Apr. 2019) As to manner and period to be contested
A tax assessment A denial by the CIR of
Q: DEF Corporation is a wholly owned
becomes final unless it a claim for refund
subsidiary of DEF, Inc., California, USA. Starting
is disputed or contested must be appealed to
December 15, 2004. DEF Corporation paid
within 30 days from the CTA within 30
annual royalties to DEF, Inc., for the use of the
receipt thereof by the days from receipt of
latter's software, for which the former, as
taxpayer. If the action notice of denial and
withholding agent of the government, withheld
taken by the CIR on the within 2 years from
and remitted to the BIR the 15% final tax based
request for the day of full and final
on the gross royalty payments. The withholding
reconsideration is payment.
tax return was filed and the tax remitted to the
unacceptable to the
BIR on January 10 of the following year. On April
taxpayer, the latter
10, 2007, DEF Corporation filed a written claim
must then appeal, by
The CTA En Banc thereby misappreciated the fact The requirements for entitlement of a corporate
that Z Company had already exercised the option for taxpayer for a refund or the issuance of TCC
its unutilized creditable withholding tax for the year involving excess withholding taxes are as follows:
2005 to be refunded when it filed its annual ITR for (T-I-F)
the taxable year ending December 31, 2005. Based
on the disquisition in Republic v. Team Phils. Energy 1. That the claim for refund was filed within the
Corporation, supra, the irrevocability rule took Two-year reglementary period pursuant to Sec.
effect when the option was exercised. In the case of 229 of the NIRC;
Z Company, therefore, its marking of the box "To be
refunded" in its 2005 annual ITR constituted its 2. When it is shown on the ITR that the income
exercise of the option, and from then onwards Z payment received is being declared part of the
Company became precluded from carrying-over the taxpayer's gross income; and
excess creditable withholding tax. The fact that the
prior year's excess credits were reported in its 2006 3. When the Fact of withholding is established by
quarterly ITRs did not reverse the option to be a copy of the withholding tax statement, duly
refunded exercised in its 2005 annual ITR. As such, issued by the payor to the payee, showing the
the CTA En Banc erred in applying the irrevocability amount paid and income tax withheld from that
rule against Z Company. (Rhombus Energy, Inc. v. amount.
CIR, G.R. No. 206362, 01 Aug. 2018)
The contention of the BIR that a taxpayer in claim
Failure to Signify Preference in the Return Not for tax refund should submit its quarterly returns to
Outright Bar a Claim for Refund show that it did not carry-over the excess
withholding tax to the succeeding quarter is without
The corporation must signify its intention by merit. When the taxpayer is able to establish prima
marking the corresponding option box provided in facie its right to the refund by testimonial and object
the Final Adjustment Return (FAR) While a taxpayer evidence, the BIR should present rebuttal evidence
is required to mark its choice in the form provided to shift the burden of evidence back to the taxpayer.
by the BIR, this requirement is only for facilitating (Republic v. Team (Phils.) Energy Corp., G.R. No.
tax collection to ease tax administration, 188016, 14 Jan. 2015)
particularly the self-assessment and collection
aspects. There is no question that those who claim must not
only prove its entitlement to the excess credits, but
Failure to signify one's intention in the FAR does not likewise must prove that no carry-over has been
mean outright barring of a valid request for a made in cases where refund is sought. Proving that
Application of Two-year Prescriptive Period A transitional input tax credit is not a tax refund per
under Sec. 112 And Sec. 229 Distinguished se but a tax credit. Prior payment of taxes is not
required before a taxpayer could avail of
SECTION 112 SECTION 229 transitional input tax credit. A tax credit is not
synonymous to tax refund. Tax refund is defined as
As to application of two-year period the money that a taxpayer overpaid and is thus
The two-year The decision of the CIR returned by the taxing authority. Tax credit, on the
prescriptive period is appealable to the other hand, is an amount subtracted directly from
applies only to the CTA sitting in division one’s total tax liability. It is any amount given to a
administrative claim within thirty (30) days taxpayer as a subsidy, a refund, or an incentive to
before the CIR and not after the receipt but encourage investment. (Fort Bonifacio Development
to judicial claim before must be within the Corporation v. CIR, G.R. No. 173425, 22 Jan. 2013)
the CTA because the two-year period from
taxpayer always has payment or filing of Statutory Basis for Tax Refund
thirty (30) days from the final adjusted
the decision of the CIR return. Thus, if the Tax refunds are not founded principally on
or from the lapse of the Commissioner denies legislative grace. It is based on legal principle which
120-day period (or 90- the claim for refund underlies in all quasi-contracts abhorring a person’s
day period under within the two-year unjust enrichment at the expense of another. The
TRAIN) even after the period, the remedy is dynamic of erroneous payment of tax fits to a tee the
lapse of two (2) years to file an appeal with prototypic quasi-contract, Solutio indebiti, which
from the taxable the CTA thirty (30) covers not only mistake in fact but also mistake in
quarter where the sales days from the receipt law. (Dimaampao, 2015)
were made (CIR v. of such denial. But,
Mindanao Geothermal II such thirty-day period The Government is not exempt from the application
Partnership, G.R. No. must also be within of Solutio indebiti. Indeed, the taxpayer expects fair
191498, 15 Jan. 2014) the two-year period. dealing from the Government, and the latter has the
For example, if there duty to refund without any unreasonable delay
NOTE: Thus, it is only are only ten (10) days what it has erroneously collected. (CIR. v. Fortune
the administrative left within such two- Tobacco, Corp., G.R. No. 167274-75, 21 July 2008)
claim that must be filed year period, then, the
within the two-year taxpayer has only ten The pertinent laws governing this principle are
prescriptive period; the (10) days within found in Arts. 2142 and 2154 of the NCC.
1. Corporations entitled to refund of excess GR: Being in the nature of a claim for exemption,
estimated quarterly income paid as shown on refund is construed in Strictissimi juris against the
its final adjustment return. (Secs. 75 and 76, entity claiming the refund and in favor of the taxing
NIRC) power. This is the reason why a claimant must
positively show compliance with the statutory
2. Claims for refund of VAT-registered persons, requirements provided for under the NIRC in order
whose sales are zero-rated or effectively zero- to successfully pursue one's claim. (Winebrenner &
rated, with regard to their creditable input tax Iñigo Insurance Brokers, Inc. v. CIR, G.R. No. 206526,
due, except transitional input tax, to the extent 28 Jan. 2015)
that such input tax has not been applied against
output tax. (Sec. 112, NIRC) In order to discharge this burden, the law intends
the filing of an application for a refund to
3. Locally produced or manufactured goods, necessarily include the filing of complete
whether in their original state or as ingredients, supporting documents to prove entitlement for the
any excise tax paid thereon shall be credited or refund. Otherwise, the mere filing of an application
refunded upon submission of proof of actual without any supporting document would be as good
exportation and upon receipt of the as filing a mere scrap of paper. (Hedcor v. CIR, G.R.
corresponding foreign exchange payment. (Sec. No. 207575, 15 July 2015)
130(d), NIRC)
XPN: The contention that a tax refund takes on the
4. National Internal Revenue Tax: a) erroneously nature of a tax exemption does not apply where the
or illegally assessed or collected; b) any penalty claim for refund is premised on erroneous payment
claimed to have been collected without of tax.
authority; or c) any sum allegedly to have been
excessively or in any manner wrongfully 3. GOVERNMENT REMEDIES FOR COLLECTION
collected, may be recovered in a suit or OF DELINQUENT TAXES
proceeding for that purpose. (Secs. 229 and
204(c), NIRC)
Tax Collection
GR: Collection is only allowed when there is already 2. When final assessment is not protested
a final assessment made for the determination of administratively within thirty (30) days from
the tax due. the date of receipt;
XPN: Judicial action to collect the tax liability is 3. Failure to question assessment served upon the
permitted even without an assessment when the decedent’s heirs (Marcos II v. Court of Appeals,
taxpayer: G.R. No. 120880, 5 June 1997);
1. Files a false or fraudulent return with intent to
evade the tax; or 4. Non-compliance with the condition laid in the
2. Fails to file a return. approval of protest - construed as if no protest
was filed; or
In the above cases, collection must be done within
ten (10) years after the discovery of falsity, fraud, or 5. Failure to file a timely appeal to the CTA on the
omission. final decision of the Commissioner or his
authorized representative on the disputed
However, once an assessment is made against the assessment.
taxpayer, the government cannot avail of the 10-
year period in Sec. 222(A). If the assessment is Refer to discussion on “Taxpayer’s Remedies
made, then the period to collect is five years from – Protesting an Assessment” – p. 288
the assessment and not 10 years. (Ingles, 2015)
b) PRESCRIPTIVE PERIODS
NOTE: In sum, as a rule, the government can only
file a proceeding in court to collect once the GR: The prescriptive period to collect taxes due is
assessment has become final and unappealable. five (5) years from the date of assessment.
2. After the 180-day period and the CIR has not yet
2. Failure or omission to file return – within ten
acted on the protest, the taxpayer fails to appeal
(10) years from discovery without need of
it; or
assessment; or
Nature and Extent of Tax Lien NOTE: A buyer in an execution sale acquires only
the rights of the judgment creditor.
When a taxpayer neglects or refuses to pay his tax
liability after demand, the amount shall be a lien in Distraint and Levy
favor of the Government from the time when the
assessment was made by the CIR until paid, with Distraint is a summary remedy in which the
interests, penalties, and costs that may accrue in collection of tax is enforced on the taxpayer’s
addition thereto upon all property and rights to personal property. When enforced to taxpayer’s
property belonging to the taxpayer. Provided, that personal property not in his possession, it is called
this lien shall not be valid against any mortgagee, garnishment. Meanwhile, levy is enforced on real
purchaser or judgment creditor until notice of such property.
lien shall be filed by the CIR in the Register of Deeds
of the province or city where the property is
situated or located (Sec. 219, NIRC)
Upon failure to pay the delinquent tax at the NOTE: Distraint of bank accounts is
time required, the proper officer shall seize and called garnishment.
distraint any goods, chattels, or effects, and the
personal property, including stocks and other c. Posting of notice in not less than two (2)
securities, debts, credits, bank accounts and public places in the municipality or city and
interests in and rights to personal property of notice to taxpayer specifying the time and
the taxpayer in sufficient quantity to satisfy the place of sale and the articles distrained;
tax, expenses of distraint and the cost of the
subsequent sale. (Sec. 207(A), NIRC) d. Release of distrained property upon
payment prior to sale;
Procedure in Effecting Actual Distraint
NOTE: The taxpayer may recover his
a. Commencement of distraint proceedings property prior to the consummation of the
by the CIR or his duly authorized sale if, at any time prior to the
representatives or by the revenue district consummation of the sale, all proper
officer as the case may be; charges are paid to the officer conducting
the sale, the goods or effects distrained
b. Service of warrant of distraint upon shall be restored to the owner. (Sec. 210,
taxpayer or upon any person in possession NIRC)
of the property;
e. Sale at public auction to be held not less
To Whom Warrant of Distraint is Served than twenty (20) days after notice to the
owner or possessor of the property and
i. As to tangible goods: publication or posting of such notice; and
Cases when Constructive Distraint is Proper f. Taxpayer keeps Bank deposits and other
(R-A-L) properties under the name of other
persons, whether or not related to him, and
a. Retirement from any business subject to the same are not under any lawful fiduciary
the tax, or trust capacity; or
b. Intending to perform any Act tending to g. Taxpayer uses Aliases in bank accounts
obstruct the proceedings for collecting the other than the name for which he is legally
tax due or which may be due from him, or and/or popularly known. (RMO No. 5-
2001)
c. Intending to Leave the Philippines or to
remove his property therefrom; or to hide In case where Taxpayer or Person Having
or conceal his property. (Sec. 206, NIRC) Possession of the Property Refuses or Fails
to Sign the Receipt
Specific Cases when Notice or Warrant of
Constructive Distraint over Property of a The officer shall:
Taxpayer May be Issued (L-R-T-C-U-B-A) a. Prepare a list of such property; and
b. Leave a copy of such list in the premises
a. Taxpayer has a record of Leaving the where the property is located, in the
Philippines at least twice a year, unless presence of two (2) witnesses.
such business is justified and/or connected
with his trade, business or profession; NOTE: Property levied upon by the order of a
competent court can be subsequently
b. Taxpayer applying for Retirement from distrained. Such property may, with the consent
business has a huge amount of assessment of such court, be subsequently distrained,
pending with the BIR; subject to the prior lien of the attachment
creditor. (CIR v. Flores, G.R. No. L- 9675, 28 Sept.
NOTE: An assessment is huge if the amount 1957)
thereof is equal to or bigger than the net
worth or equity of the taxpayer. Actual and Constructive Distraint Distinguished
Forfeiture
Forfeiture and Seizure to Enforce a Tax Lien
Distinguished
It is the divestiture of property without
compensation, in consequence of a default or
offense. It transfers the title to the specific thing FORFEITURE SEIZURE
from the owner to the government. Also, there As to ownership
would no longer be any further levy for such would
Ownership is Taxpayer retains
be for the total satisfaction of the tax due.
transferred to the ownership of property
Government seized
NOTE: The erring taxpayer may still be criminally
prosecuted even if the property has already been As to disposition of the proceeds of sale
forfeited. (Garcia v. CIR, G.R. No. L-44372, 03 Nov.
1938) Excess not returned to Excess returned to
the taxpayer taxpayer
Redemption of Forfeited Property
Suspension of Business Operation
The Register of Deeds shall transfer the title of
forfeited property to the Government without The CIR or his authorized representative is
necessity of a court order. empowered to suspend the business operations and
temporarily close the business establishment of any
Within one (1) year from the date of forfeiture, the person for any of the following violations:
taxpayer, or any one for him may redeem said
property by paying to the CIR or Revenue Collection 1. In the case of VAT-registered person –
Officer the full amount of the taxes and penalties, a. Failure to issue receipts or invoices;
together with interest thereon and the costs of sale, b. Failure to file a VAT return as required
but if the property be not thus redeemed, the under Sec. 114; or
forfeiture shall become absolute. (Sec. 215, NIRC) c. Understatement of taxable sales or receipts
by 30% or more of his correct taxable sales
Resale of Real Estate Taken for Taxes or receipts for the taxable quarter.
The CIR shall have charge of any real estate obtained 2. Failure of any person to Register as required
by the Government in payment or satisfaction of under Sec. 236 – The temporary closure of the
taxes, penalties or costs or in compromise or establishment shall be for the duration of not
adjustment of any claim. less than 5 days and shall be lifted only upon
compliance with whatever requirements
2. Where the CIR has authorized an extension of NOTE: There is no 25% surcharge when tax
time within which to pay a tax or a deficiency return is filed on time and paid the full
tax or any part thereof. (Sec. 249(D), NIRC) amount stated in the return, but
subsequently discovered that the return
b) SURCHARGE filed, and the amount paid was erroneous.
(Ingles, 2015)
Definition
2. 50% Surcharge:
A civil penalty, also known as surcharge, is imposed
by law as an addition to the basic tax required to be a. Willful neglect to file the return within the
paid. (Sec. 248, NIRC) period prescribed.; or
A surcharge is a civil administrative sanction NOTE: If the taxpayer voluntarily files the
provided as a safeguard for the protection of the return without notice from BIR, only 25%
State revenue and to reimburse the government for surcharge shall be imposed for late filing and
the expenses of investigation and the loss resulting late payment of tax. But if the taxpayer files
from the taxpayer’s fraud. A surcharge added to the the return after prior notice in writing from
main tax is subject to interest. BIR, then the 50% surcharge will be
imposed. Thus:
Kinds of Civil Penalties i. No demand from the BIR and the
taxpayer pays, albeit late, 25%
1. 25% Surcharge: (F-T-O-P) ii. With demand by the BIR, 50%
a. Failure to File any return and pay the tax (Ingles, 2015)
due thereon as required under the
provisions of the NIRC or rules and b. False or fraudulent return is willfully made.
regulations on the date prescribed.; or
NOTE: The fraud contemplated by law is
b. Failure to pay the deficiency tax within the actual fraud, not constructive fraud. It must
Time prescribed for its payment in the be intentional fraud, consisting of deception
notice of assessment.; or willfully and deliberately done or resorted
to. Negligence, whether slight or gross, is
NOTE: In cases of late payment of a not equivalent to fraud with intent to evade
deficiency tax assessed, taxpayer shall be the tax contemplated by law. (Aznar vs. CTA,
liable for the delinquency interest incident G.R. No. L-20569, 23 Aug. 1974)
to late payment. (RR No. 18-2013)
Q: Businessman Lincoln filed an income tax
c. Unless otherwise authorized by the CIR, return for 1993 showing business net income of
filing a return with an internal revenue P350,000 on which he paid an income tax of
officer Other than those with whom the P61,000. After filing the return, he realized that
return is required to be filed.; or he forgot to include an item of business income
in 1993 for P50,000.
d. Failure to Pay the full or part of the amount
of tax shown on any return required to be Being an honest taxpayer, he included this
Fraud Penalty
Local Government and Real Property Taxation b. be levied and collected only for Public
Distinguished purposes;
3. Each LGU shall, as far as practicable, evolve a 2. Principles which are statutory in origin:
Progressive system of taxation.
b. They must not be contrary to law, public Characteristics of Taxing Power of LGUs: (D-
policy, national economic policy or in O-N2-G)
restraint of trade; and
1. Direct grant from the Constitution – while a
c. The collection of taxes, fees, charges and other direct grant, the same is subject to limitations
impositions shall in no case be let to any as may be set by Congress;
private person. (Aban, 1994)
Q: The City of Makati, in order to solve the traffic 2. Exercised by the Sanggunian of the LGU
problem in its business districts, decided to concerned through an appropriate
impose a tax, to be paid by the driver, on all Ordinance;
private cars entering the city during peak hours
from 8:00 a.m. to 9:00 a.m. from Mondays to 3. Not inherent – may only be exercised if
Fridays, but exempts those cars carrying more delegated to them by national legislature or
than two occupants, excluding the driver. Is the conferred by the Constitution itself;
ordinance valid? (2003 BAR)
4. Not absolute – subject to limitations and
A: The ordinance is in violation of the Rule of guidelines as may be provided by law and the
Uniformity and Equality, which requires that all Constitution such as progressivity etc.;
subjects or objects of taxation, similarly situated must
be treated in equal footing and must not classify the NOTE: It is a fundamental principle that
subjects in an arbitrary manner. In this case, the municipal ordinances are inferior in status
ordinance exempts cars carrying more than two and subordinate to the laws of the state. An
occupants from coverage of the ordinance. Further, ordinance in conflict with a state law of
the ordinance only imposes the tax on private cars and general character and statewide application
exempts public vehicles from the imposition of the tax, is universally held to be invalid. (Batangas
although both contribute to the traffic problem. There CATV, Inc. v. Court of Appeals, G.R. No. 138810,
exists no substantial distinction used in the 29 Sept. 2004)
classification by the City of Makati.
5. Its application is bounded by the
Another issue is the fact that the tax is imposed on the Geographical limits of the LGU that
driver of the vehicle and not on the registered owner. imposes the tax – gross receipts realized by
Clearly, the tax imposed is also unjust because it a specialty contractor from its overseas
places the burden on someone who has no control construction projects are not subject to tax.
over the route of the vehicle. Therefore, the ordinance (Bureau of Local Government Finance
is invalid for violating the rule of uniformity and Opinion, 16 May 2017)
equality, and for being unjust.
National and Local Taxation Distinguished
NOTE: A city can validly tax the sales to customers
outside the city as long as the orders were booked and NATIONAL LOCAL
paid for in the company’s branch office in the city. A TAXATION TAXATION
different interpretation would defeat the tax As to the nature of the power
ordinance in question or encourage tax evasion by An inherent power of Not an inherent power.
simply arranging for the delivery at the outskirts of the the state. Thus, there Thus, there must be an
city. (Philippine Match Company v. City of Cebu, G.R. No. is no need for a enabling law for the LGU
L-30745, 18 Jan. 1978) statute for the power to impose tax
to be exercised
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As to the limitations Limitations of the Congress
Subject to the Subject to the following The Congress shall ensure that:
following limitations limitations to be valid:
to be valid: 1. Inherent limitations; 1. The taxpayers will not be overburdened or
1. Inherent 2. Constitutional saddled with multiple and unreasonable
limitations; and limitations; and impositions;
2. Constitutional 3. Statutory limitations.
limitations. (Sec. 133, LGC) 2. Each LGU will have its fair share of available
As to imposition resources;
Imposed by the Imposed by the
3. The resources of national government will
Congress through Sanggunian through
not be unduly disturbed; and
passage of law passage of ordinance
(Sec. 132, LGC)
4. Local taxation will be fair, uniform and just.
a) GRANT OF LOCAL TAXING POWER UNDER THE Q: Does the ARMM and CAR have the same
LOCAL GOVERNMENT CODE source of power as the LGUs?
Local Taxing Authority A: NO. The LGUs derive their power to tax from
Sec. 5, Article X of the 1987 Constitution. The
The power to impose tax, fee, or charge to generate constitutional provision is self-executing. This is
revenue under the LGC shall be exercised by the applicable only to LGUs outside the Autonomous
Sanggunian of the LGU concerned through an Region of Muslim Mindanao and the Cordillera
appropriate ordinance. (Sec 132, LGC) Administrative Region since the authority to tax
the LGUs within their region is delegated by the
Q: What are the bases for the exercise of the LGUs Organic Act creating them.
of the power to impose tax?
Sec. 20, Article X of the 1987 Constitution
A: authorizes the Congress to pass the Organic Act
1. Art. X, Sec. 5, 1987 Constitution – “Each LGU shall which shall provide for legislative powers over
have the power to create their own sources of creation of sources of revenues. This provision is
revenues and to levy taxes, fees and charges not self-executing unlike Sec. 5, Article X of the
subject to such guidelines and limitations as the Constitution.
Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees and NOTE: The LGU’s power to tax is subject to such
charges shall accrue exclusively to the local guidelines and limitations as Congress may
governments.” provide while the ARMM and CAR’s power to tax
is based on the Organic Act which the
2. Sec. 129, LGC – “Each LGU shall exercise its power Constitution authorizes Congress to pass.
to create its own sources of revenue and levy
taxes, fees, and charges subject to the provisions Paradigm Shift in Local Government Taxation
herein, consistent with the basic policy of local The power to tax is no longer vested exclusively
autonomy. Such taxes, fees, and charges shall on Congress. Local legislative bodies are now
accrue exclusively to the LGUs.” given direct authority to levy taxes, fees, and
other charges pursuant to Art. X, Sec. 5 of the
3. Charter of Cities – additional taxing authority Constitution. (NAPOCOR v. City of Cabanatuan,
exclusively granted to cities include the power to G.R. No. 149110, 09 Apr. 2003)
impose percentage tax and taxes on articles
subject to specific tax. The reason of the shift results from the
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court. a. They shall be granted only to new
investments in the locality and the
2. Sangguniang barangay – may prescribe a fine of ordinance shall prescribe the terms and
not less than P100.00 nor more than P1,000.00. conditions thereof.
(Sec. 516, LGC)
b. The grant shall be for a definite period
c) AUTHORITY TO GRANT LOCAL TAX not exceeding one (1) calendar year.
EXEMPTIONS
c. The grant shall be through an ordinance
Authority of the Local Government to Grant Tax passed prior to the 1st day of January of
Exemptions any year.
Local government units may, through ordinances duly d. Tax incentive granted to a type or kind of
approved, grant tax exemptions, incentives or reliefs business shall apply to all businesses
under such terms and conditions as they may deem similarly situated. (Art. 282(b), Rules and
necessary. (Sec. 192, LGC) Regulations Implementing the LGC)
NOTE: The power to grant tax exemptions, tax NOTE: Tax exemption is conferred through the
incentives and tax reliefs shall not apply to regulatory issuance of a non-transferable tax exemption
fees which are levied under the police power of the certificate. (Art. 282, IRR of LGC)
LGU. (Sec. 1, Malacañang Memorandum Circular No.
153, s. 1992) Q: The LGC took effect on January 1, 1992.
PLDT’s legislative franchise was granted
Guidelines for Granting Tax Exemptions, sometime before 1992. Its franchise provides
Incentives and Reliefs that PLDT will pay only 3% franchise tax in
lieu of all taxes.
1. Tax Exemptions and Reliefs:
The legislative franchise of Smart and Globe
a. They may be granted in cases of natural Telecoms were granted in 1998. Their
calamities, civil disturbance, general failure of legislative franchises state that they will pay
crops or adverse economic conditions such as only 5% franchise tax in lieu of all taxes.
substantial decrease in prices of agricultural
or agri-based products. The Province of Zamboanga del Norte passed
an ordinance in 1997 that imposes a local
b. The grant shall be through an ordinance. franchise tax on all telecommunications
companies operating within the province. The
c. Any exemption or relief granted to a type or tax is 50% of 1% of the gross annual receipts
kind of business shall apply to all businesses of the preceding calendar year based on the
similarly situated. incoming receipts, or receipts realized, within
its territorial jurisdiction.
d. The same may take effect only during the
calendar year not exceeding twelve (12) Is the ordinance valid? Are PLDT, Smart and
months as may be provided in the ordinance. Globe liable to pay franchise taxes? Reason
e. In case of shared revenues, the relief or briefly (2007 BAR)
exemption shall only extend to the LGU
granting such. A: The ordinance is valid as it was passed
pursuant to the powers of provinces and cities to
2. Tax incentives: impose taxes on businesses with franchises
Therefore, with respect to Smart and Globe, the GR: Tax exemptions or incentives granted to, or
withdrawal of tax exemptions or incentives under the presently enjoyed by all persons, whether natural
LGC was superseded by the legislative franchise or juridical, including GOCCs, were withdrawn
requiring payment of the 5% franchise tax “in lieu of upon the effectivity of the LGC. (Sec. 193, LGC)
all taxes.” (PLDT v. City of Davao, G.R. No. 143867, 22
Aug. 2001 & 25 Mar. 2003) XPNs:
1. Unless otherwise provided in the LGC;
Q: Is Smart Communications, Inc. (SMART) exempt 2. Local water districts;
from local taxation? 3. Cooperatives duly registered under R.A. No.
6938 or “The Cooperative Code of the
A: Under its franchise, SMART is not exempt from local Philippines”;
business and franchise taxes. Moreover, Sec. 23 of the 4. Non-stock and non-profit hospitals; and
Public Telecommunications Act does not provide legal 5. Non-stock and non-profit educational
basis for Smart’s exemption from local business and institutions.
franchises taxes. The term “exemption” in Sec. 23 of
the Public Telecommunications Act does not mean tax NOTE: However, withdrawal of tax exemption is
exemption; rather, it refers to exemption from certain not to be construed as prohibiting future grants
regulatory or reporting requirements imposed by of tax exemptions. The grant of taxing powers to
government agencies such as the National LGU’s under the LGC does not affect the power of
Telecommunications Commission. (City of Iloilo v. Congress to grant exemptions to certain persons,
Smart Communications Inc., G.R. No. 167260, 27 Feb. pursuant to a declared national policy.
2009)
Necessity of Re-enactment
Government Instrumentalities Exempt from Local
Taxation The person claiming the exemption has the
burden of proving its claim by clear grant of
1. Philippine Amusement and Gaming Corporation, exemption after the enactment of the LGC.
2. Philippine Reclamation Authority, (NAPOCOR v. City of Cabanatuan, G.R. No. 149110,
3. Manila International Airport Authority, 09 Apr. 2003)
4. Mactan Cebu International Airport Authority,
5. Philippine Economic Zone Authority, The rule that special law must prevail over the
6. Philippine Rice Research Institute, provisions of a later general law does not apply as
7. Philippine Ports Authority, the legislative purpose to withdraw tax privileges
8. Philippine National Railways, enjoyed under existing laws or charters is
9. University of the Philippines, apparent from the express provisions of the LGC.
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UNIVERSITY OF SANTO TOMAS
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(City of San Pablo, Laguna v. Reyes, G.R. No. 127780, 25 newspaper of local circulation or posted in at
Mar. 1999) least two conspicuous and publicly
accessible places. (Sec. 188, LGC)
Rationale: The intention of the law in withdrawing
the tax exemptions is to broaden the tax base of LGU to Taxes, Fees, and Charges Imposed by LGUs
assure them of substantial sources of revenue. Distinguished
(Philippine Rural Electric Cooperatives Association v.
The Secretary of DILG, G.R. No. 143076, 10 June 2003) TAXES FEES CHARGES
Enforced
Q: Prior to the enactment of the Local Government proportional
Code, consumer's cooperatives registered under contributions
the Cooperative Development Act enjoyed from persons
exemption from all taxes imposed by a local and property A charge
government. With the Local Government Code’s A pecuniary
levied by the fixed by law
withdrawal of exemptions, could these liability, as
law-making or ordinance
cooperatives continue to enjoy such exemption? rents or fees
body of the for the
(2011 BAR) against
State by regulation or
persons or
A: YES. Their exemption is specifically mentioned virtue of its inspection of
property.
among those not withdrawn by the Local Government sovereignty a business or
(Sec. 131(g),
Code. (Sec. 193, LGC) for the activity. (Sec.
LGC)
support of 131(l), LGC)
3. SCOPE OF TAXING POWER the
government
and for public
Q: What are the bases for the scope of taxing power
needs. (Aban,
of LGUs?
1994)
1. Each LGU shall exercise its power to create its own
sources of revenue and to levy taxes, fees, and 4. SPECIFIC TAXING POWER OF LOCAL
charges, consistent with the basic policy of local GOVERNMENT UNITS
autonomy. Such taxes, fees, and charges shall
exclusively accrue to it. (Sec. 129, LGC) TAXING POWER OF PROVINCES
2. All LGUs are granted general powers to levy taxes, Taxes, Fees, and Charges which a Province or
fees or charges on any base or subject not a City may Levy
otherwise specifically enumerated herein or taxed
under the provisions of the NIRC or other 1. Tax on transfer of real property ownership;
applicable laws. The levy must not be unjust, (Sec. 135, LGC)
excessive, oppressive, confiscatory or contrary to 2. Tax on business of printing and publication;
a declared national economic policy. (Sec. 186, (Sec. 136, LGC)
LGC)
3. Franchise Tax; (Sec. 137, LGC)
3. No such taxes, fees or charges shall be imposed
without a public hearing having been held prior to 4. Tax on sand, gravel and other quarry
the enactment of the ordinance. (Sec. 187, LGC) resources; (Sec. 138, LGC)
4. Copies of the provincial, city, and municipal tax 5. Professional tax; (Sec. 139, LGC)
ordinances or revenue measures shall be
published in full for three consecutive days in a 6. Amusement tax; (Sec. 140, LGC)
10. Toll fees or charges for the use of any public road,
pier, or wharf, waterway, bridge, ferry, or
telecommunication system funded and
constructed by the provincial government; (Sec.
155, LGC)
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Rules on the Taxing Power of Provinces
351
UNIVERSITY OF SANTO TOMAS
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TAXATION LAW
TRANSACTION TAX BASE TAX RATE EXCEPTION
Professional Tax – Exercise or
practice of profession requiring
government licensure
examination
353
UNIVERSITY OF SANTO TOMAS
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Definition of Franchise Q: CASURECO III is an electric cooperative
duly organized and existing by virtue of PD
The Congress defined “franchise”, in relation to Sec. 269 and registered with the National
137 of the LGC, in the sense of a secondary or special Electrification Administration (NEA). It is
franchise. It is not levied on the corporation simply for engaged in the business of electric power
existing as a corporation, upon its property or income, distribution to various end-users and
but on its exercise of the rights or privileges granted to consumers within the City of Iriga and the
it by the government. municipalities of Nabua, Bato, Baao, Buhi,
Bula and Balatan of the Province of Camarines
Q: Ferremaro, Inc., a manufacturer of handcrafted Sur, otherwise known as the “Rinconada
shoes, maintains its principal office in Cubao, area.”
Quezon City. It has branches/sales offices in Cebu
and Davao. Its factory is located in Marikina City Sometime in 2003, Petitioner City of Iriga
where most of its workers live. Its principal office required CASURECO III to submit a report of
in Quezon City is also a sales office. its gross receipts for the period 1997-2002 to
serve as the basis for the computation of
Sales of finished products for calendar year 2009 franchise taxes, fees and other charges. The
in the amount of P10 million were made at the latter complied and was subsequently
following locations: assessed taxes.
Cebu branch 25% CASURECO III refused to pay for the assessed
Davao branch 15% taxes, asserting that the computation of the
Quezon City branch 60% petitioner was erroneous because it included
Total 100% gross receipts from service areas beyond the
latter’s territorial jurisdiction. Is Casureco
Where should the applicable local taxes on the liable for the payment of the franchise tax on
shoes be paid? Explain. (2010 BAR) the Rinconada area?
A: Under the LGC, the manufacturers maintaining a A: YES. CASURECO III is liable for franchise tax on
branch or sales outlet shall record the sale in the gross receipts within Iriga City and Rinconada
branch or sales outlet making the sale and pay the tax area. It should be stressed that what the
in the city or municipality where the branch or sales petitioner seeks to collect from CASURECO III is a
outlet is located. Since Ferremaro, Inc., maintains one franchise tax, which as defined, is a tax on the
factory, the sales recorded in the principal office shall exercise of a privilege. As Sec. 137 of the LGC
be allocated and 30% of said sales are taxable in the provides, franchise tax shall be based on gross
place where the principal office is located while the receipts precisely because it is a tax on business,
70% is taxable in the place where the factory is rather than on persons or property. Since it
located. partakes of the nature of an excise tax, the situs of
taxation is the place where the privilege is
Hence, 25% of total sales or P2.5M shall be taxed in exercised, in this case in the City of Iriga, where
Cebu and 15% of total sales or P1.5M shall be taxed in CASURECO III has its principal office and from
Davao. For the remaining 60% sales amounting to where it operates, regardless of the place where
P6.0M which is recorded in the principal office, 30% its services or products are delivered. Hence,
thereof or P1.8M is taxable in Quezon City where the franchise tax covers all gross receipts from Iriga
principal office is located and 70% or P4.2M is taxable City and the Rinconada area.
In Marikina City where the factory is located.
Q: CASURECO III maintains that it is exempt
from payment of franchise tax because of its
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
show or performances. (Sec. 131(b) and (c), LGC) statutory provisions. (Alta Vista Golf and Country
Club v. City of Cebu, G.R. No. 180235, 20 Jan. 2016)
Amusement Places upon which Provinces or Cities
cannot Impose Amusement Taxes Q: A Provincial Tax Ordinance provided for
the levying a 10% amusement tax on gross
1. Cockpits, receipts from admissions to “resorts,
2. Cabarets, swimming pools, bath houses, hot springs and
3. Night or day clubs, tourist spots”. Pelizloy, an owner of a resort
4. Boxing exhibitions, located in the same province, is arguing that
5. Professional basketball games, the Tax Ordinance imposed a percentage tax
6. Jai-Alai, and in violation of the limitation on the taxing
7. Racetracks. powers of LGUs thus, it was null and void ab
initio. The Province of Benguet argued that
NOTE: There can be no imposition of amusement taxes the phrase ‘other places of amusement’ in Sec.
on the above amusement places since Sec. 125 of NIRC 140 (a) of the LGC encompasses resorts,
already imposes amusement taxes on them. swimming pools, bath houses, hot springs,
and tourist spots which are subject to
Therefore, LGUs cannot collect amusement taxes on amusement tax. Is the province authorized to
admission tickets to the Philippine Basketball impose an amusement tax on admission fees
Association (PBA) games including the income from to resorts, swimming pools, bath houses, hot
cession of streamers and advertising spaces. springs, and tourist spots for being
(Philippine Basketball Association v. CA, G.R. No. “amusement places” under the LGC?
119122, 08 Aug. 2000)
A: NO. Resorts, swimming pools, bath houses, hot
Golf Course cannot be Considered a Place of springs, and tourist spots are not among those
Amusement places expressly mentioned by Sec. 140 of the
LGC as being subject to amusement taxes and
Sec. 42 of the Revised Omnibus Tax Ordinance, as cannot be considered venues primarily “where
amended, imposing amusement tax on golf courses is one seeks admission to entertain oneself by
null and void as it is beyond the authority of seeing or viewing the show or performances”.
respondent Cebu City to enact under the LGC. A golf While it is true that they may be venues where
course cannot be considered a place of amusement. people are visually engaged, they are not
People do not enter a golf course to see or view a show primarily venues for their proprietors or
or performance. Proprietor or operators of the golf operators to actively display, stage or present
course, do not actively display, stage, or present a shows and/or performances. Thus, resorts,
show or performance. People go to a golf course to swimming pools, bath houses, hot springs and
engage themselves in a physical sport activity. tourist spots do not belong to the same category
or class as theaters, cinemas, concert halls,
An LGU may exercise its residual power to tax when circuses, and boxing stadia. It follows that they
there is neither a grant nor a prohibition by statute; or cannot be considered as among the ‘other places
when such taxes, fees, or charges are not otherwise of amusement’ contemplated by Sec. 140 of the
specifically enumerated in the LGC, NIRC, or other LGC and which may properly be subject to
applicable laws. In the present case, Sec. 140, in amusement taxes. (Pelizloy Realty Corporation v.
relation to Sec. 131(c) of the LGC already explicitly and Province of Benguet, G.R. No. 183137, 10 Apr.
clearly cover amusement tax and Cebu City must 2013)
exercise its authority to impose amusement tax within
the limitations and guidelines as set forth in said
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Q: The City of Cagayan de Oro contends that the assessed tax due plus 25% surcharge and
allowable rate of increase provided under Sec. 151 interest of 2% per month of the unpaid tax,
of the LGC applies only to those businesses and costs of suit. Is the yearly accrual of the
identified and enumerated under Sec. 143 thereof. 25% surcharge unconscionable?
Thus, the City of Cagayan de Oro submits that the
2% limitation prescribed under Sec. 143(h) A: Respondent’s yearly imposition of the 25%
applies only to the tax rates on the businesses surcharge, which was sustained by the trial court
identified thereunder and does not apply to those and the Court of Appeals, resulted in an aggregate
that may thereafter be deemed taxable under Sec. penalty that is way higher than petitioner’s basic
186 of the LGC. On the same vein, the City of tax liabilities.
Cagayan de Oro submits that the limitation under
Sec. 151 likewise does not apply in this particular Furthermore, it effectively exceeded the
instance; otherwise, it will run counter to the prescribed 72% ceiling for interest under Sec.
intent and purpose of Sec. 186 of the LGC. Is the City 168 of the Local Government Code. The law
of Cagayan correct? allows the local government to collect an interest
at the rate not exceeding 2% per month of the
A: NO. The City of Cagayan de Oro’s imposition of a tax unpaid taxes, fees, or charges including
on the lease of poles falls under Sec. 143(h) which surcharges, until such amount is fully paid.
speaks of any business, not otherwise specified in the However, the law provides that the total interest
preceding paragraphs, which the Sanggunian on the unpaid amount or portion thereof should
concerned may deem proper to tax. The treatment of not exceed thirty-six (36) months or three (3)
the lease of poles as a separate line of business is years. In other words, respondent cannot collect
evident in Sec. 4(a) of the Ordinance requiring a total interest on the unpaid tax including
CEPALCO to apply for a separate business permit. And surcharge that is effectively higher than 72%.
since “any person, who in the course of trade or Here, respondent applied the 25% cumulative
business xxx leases goods or properties xxx shall be surcharge for more than three years. Its
subject to the value-added tax,” the imposable tax rate computation undoubtedly exceeded the 72%
should not exceed two percent (2%) of gross receipts ceiling imposed under Sec. 168 of the Local
of the lease of poles of the preceding calendar year. Government Code. Hence, respondent’s
computation of the surcharge is oppressive and
Sec. 143(h) states that “on any business subject to xxx unconscionable. (NPC v. City of Cabanatuan, G.R.
value-added xxx tax under the NIRC, as amended, the No. 177332, 01 Oct. 2014)
rate of tax shall not exceed 2% of gross sales or
receipts of the preceding calendar year” from the lease TAXING POWER OF MUNICIPALITIES
of goods or properties. Hence, the 10% tax rate
imposed by the ordinance clearly violates Sec. 143(h) Scope of Taxing Power of a Municipality
of the LGC. (Cagayan Electric Power and Light Co., Inc.
v. City of Cagayan de Oro, G.R. No. 191761, 14 Nov. 2012) Municipalities may levy taxes, fees, and charges
not otherwise levied by provinces, except as
Q: The City of Cabanatuan (the City) assessed the otherwise provided in the LGC. (Sec. 142, LGC)
National Power Corporation (NAPOCOR) a
franchise tax amounting to P808,606.41, Under the LGC, a municipality may impose the
representing 75% of 1% of its gross receipts for following taxes:
1992. NAPOCOR refused to pay, arguing that it is
exempt from paying the franchise tax. 1. Fees and charges on business and
Consequently, on November 9, 1993, the City filed occupation; (Sec. 147, LGC)
a complaint before the Regional Trial Court of
Cabanatuan City, demanding NAPOCOR to pay the
4. Tax on business: (Sec. 143, LGC) f. Banks and other financial institutions;
ii. Wheat or cassava flour, meat, dairy h. Other business not specified which the
products, locally manufactured, Sanggunian concerned may deem proper
processed or preserved food, sugar, salt to tax.
and other agricultural, marine and fresh
water products, whether in their original Definition of Wholesale, Dealer, Retail,
state or not; Contractor, and Peddler
iii. Cooking oil and cooking gas; 1. Wholesale – A sale where the purchaser buys
or imports the commodities for resale to
iv. Laundry soap, detergents, and medicine; persons other than the end user regardless of
the quantity of the transaction.
v. Agricultural implements, equipment and
post-harvest facilities, fertilizers, 2. Dealer – One whose business is to buy and
pesticides, insecticides, herbicides, and sell merchandise, goods, and chattels as a
other farm inputs; merchant. He stands immediately between
the producer or manufacturer and the
vi. Poultry feeds and other animal feeds; consumer and depends for his profit not
upon the labor he bestows upon his
vii. School supplies; and commodities but upon the skill and foresight
with.
viii. Cement.
3. Retail – A sale where the purchaser buys the
d. On Retailers; commodity for his own consumption,
irrespective of the quantity of the commodity
NOTE: Retailers who are at the same time sold.
wholesalers within the same tax period shall
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4. Contractor – Includes persons, natural or A: NO. The City of Makati is wrong in assessing
juridical, not subject to professional tax under Sec. ABC Corp. as a contractor. First, ABC Corp. is not
139 of LGC, whose activity consists essentially of a contractor as defined in Sec. 131(h) of LGC. A
the sale of all kinds of services for a fee, regardless contractor as a person, natural or juridical, not
of whether or not the performance of the service subject to professional tax under the LGC, but
calls for the exercise of the use of the physical or whose activity consists essentially of the sale of
mental faculties of such contractor or his all kinds of services for a fee, regardless of
employees. whether or not the performance of the service
calls for the exercise or use of the physical or
5. Peddler – Any person who, either for himself or on mental faculties of such contractor or his
commission, travels from place to place and sells employees.
his goods or offers to sell and deliver the same.
(Sec. 131(t), LGC) In the given problem, ABC Corp. is merely a
holding company whose earnings are limited to
Conditions upon Other Businesses Not Specified dividends, interests on bank deposits and foreign
which the Sanggunian Concerned may Deem exchange gains from foreign currency account.
Proper to Tax Evidently, ABC Corp. is not engaged in the sale of
services for a fee. Second, Sec. 186 of LGC
1. Business not subject to VAT or percentage tax provides that LGUs cannot levy taxes, fees or
under the NIRC; and charges on any base or subject tax under the
provisions of the NIRC.
2. Tax rate not to exceed 2% of the gross
sales/receipts of the preceding calendar year. In the given problem, ABC Corp.’s dividends,
(Sec. 143(h), LGC) interest income and foreign exchange gains from
foreign currency account are already subject to
NOTE: When a municipality or city has already final income tax under the NIRC, specifically, Secs.
imposed a business tax on manufacturers, etc. of 27(D)(4), 27(D)(1), 32(A), respectively.
liquors, distilled spirits, wines, and any other article of Consequently, the City of Makati cannot levy from
commerce pursuant to Sec. 143(a) of the LGC, said ABC Corp. taxes on these incomes.
municipality or city may no longer subject the same
manufacturers, etc. to a business tax under Sec. 143(h)
of the same Code. Sec. 143(h) may be imposed only on
businesses that are subject to excise tax, VAT, or
percentage tax under the NIRC, and that are not
otherwise specified in preceding paragraphs. (City of
Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No.
181845, 04 Aug. 2009)
Not exceeding
one-half (1/2)
Exporters and manufacturers, of the rates
millers, producers wholesalers, prescribed
distributors, dealers or retailers Gross Sales or Receipts under –
of the following essential subsections
commodities (Sec. 143(c), LGC) (a), (b) and (d)
of Sec. 143
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NOTE:
However,
barangays
shall have the
exclusive
power to levy
such taxes
under Sec.
152.
2. If the tax paid during the year be less than the tax 4. The Sanggunian may penalize the use of
due on said gross sales of receipts of the current explosives, noxious, or poisonous
year, the difference shall be paid before the substances, electricity, Muro–Ami, and other
business is considered officially retired. (Sec. 145, deleterious methods of fishing and prescribe
LGC) a criminal penalty thereof. (Sec. 149, LGC)
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Situs of Tax Imposed by Municipalities
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UNIVERSITY OF SANTO TOMAS
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TAXING POWER OF BARANGAYS
FEES AND
SOURCE TAX BASE TAX RATE
CHARGES
Gross sales receipts for
preceding calendar year
of:
1. P50,000 or less (for
Barangay Taxes – On stores or barangay in the Not exceeding 1%
retailers with fixed business cities); and of such gross sales –
establishments or receipts.
2. P30,000 or less (for
barangay in
municipalities)
Services rendered in
connection with the
regulation or the use of
barangay-owned
Reasonable fees
Service Fees or Charges properties; or –
or charges
Service facilities such as
palay, copra, or tobacco
dryers
Reasonable fee as
the Sangguniang
Barangay Clearance – – Barangay may
impose
Q: RAVI is one of the Coconut Industry Q: The Coconut Industry Investment Fund (CIIF)
Investment Fund (CIIF) holding companies invested in six (6) oil mills, the CIIF Oil Mills
established to own and hold the shares of stock Group (CIIF OMG). The CIIF OMG bought shares
of SMC. On January 24, 2012, the SC rendered its of stock from SMC. It also established fourteen
decision in Philippine Coconut Producers (14) holding companies, one of which is APHI,
Federation, Inc. v. Republic, declaring the CIIF for the sole purpose of owning and holding such
companies, including RAVI, and the CIIF block of shares. Over time, APHI received cash and stock
SMC shares as “public funds necessarily owned dividends from its SMC preferred shares. These
by the Government.” On January 17, 2013, RAVI dividends were deposited in a trust account.
filed with the RTC a claim for refund or credit of
erroneously and illegally collected local Petitioner City of Davao issued a Business Tax
business taxes (LBT) for the taxable year of 2010 Order of Payment directing APHI to pay 0.55%
in the amount of P503,346, corresponding to its local business tax. The tax was assessed on the
dividends from its SMC preferred shares, on the dividends and interests APHI earned from its
mistaken assumption that it is a non-bank SMC preferred shares and money market
financial intermediary (NBFI). The RTC denied placements, respectively. Is APHI Liable to pay
the claim for refund or credit ruling that RAVI’s dividends tax on its SMC shares?
dividends and interests are subject to LBT under
Sec. 143 (f) of R.A. No. 7160. Is RAVI an NBFI A: NO. In the recent case of City of Davao, et al. v.
subject to LBT under Sec. 143 (f) of R.A. No. Randy Allied Ventures, Inc. (RAVI), the Court
7160? ordained that RAVI, a CIIF holding company like
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APHI, was exclusively established to own and hold so requires. Thereafter, the said facility shall be free
SMC shares of stock. As such, it is not liable to pay and open for public use. (Sec. 155, LGC)
local business taxes on the dividends earned from
its SMC preferred shares as the same shares are 6. COMMUNITY TAX
government assets owned by the national
government for the benefit of the coconut industry.
It is a poll or capitation tax imposed upon residents
(City of Davao and Mr. Erwin Alparaque, in his official
of a city or municipality. It replaced the former
capacity as Acting City Treasurer of the City of Davao.
residence tax. It may be levied by a city or
Petitioner v. AP Holdings, Inc. Respondent., G.R. No.
municipality but not a province.
245887., 22 Jan. 2020, as penned by J. Lazaro – Javier)
3. Toll fees or charges – The Sanggunian c. who owns real property with an
concerned may prescribe the terms and aggregate assessed value of P1,000.00 or
conditions and fix the rates for the imposition of more; or
toll fees or charges for the use of any public
road, pier, or wharf, waterway, bridge, ferry or d. who is required by law to file an income
telecommunication system funded and tax return. (Sec. 157, LGC)
constructed by the LGU concerned. (Sec. 155,
LGC) 2. Juridical Persons – Every corporation no
matter how created or organized, whether
Persons Exempted from Payment of Toll, Fees, domestic or resident foreign, engaged in or
or Other Charges: (H-O-P) doing business in the Philippines. (Sec. 158,
LGC)
1. Physically Handicapped and disabled citizens
who are 65 years or older; Amount of Community Taxes
The Sanggunian concerned may discontinue the NOTE: In case of husband and wife, the
collection of the tolls when public safety and welfare additional tax shall be based on the total
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6. Transacting other official business; and the guise of charges for wharfage, tolls for
bridges or otherwise, or other taxes, fees, or
7. Receiving any salary or wage from any person charges in any form whatsoever upon such
or corporation. (Sec. 163, LGC) goods or merchandise;
1. Income tax, except when levied on banks and 8. Taxes on business enterprises certified to by
other financial institutions; the Board of Investments as Pioneer or non-
pioneer for a period of six (6) and four (4) years,
2. Documentary stamp tax; respectively from the date of registration;
3. Taxes on Estates, inheritance, gifts, legacies and 9. Percentage or VAT on sales, barters, or
other acquisitions mortis causa, except as exchanges or similar transactions on goods or
provided herein; services except as otherwise provided herein.
GR: Taxes on estates, inheritance, gifts, legacies, NOTE: Amusement Tax, as a form of percentage
and other acquisitions mortis causa, except as tax, is expressly allowed by the LGC to be
otherwise provided under the LGC. imposed by the LGU. (Sec. 140, LGC)
XPN: Tax on transfer of real property (Sec. 135, 10. Taxes on Premiums paid by way or reinsurance
LGC) or retrocession.
4. Customs duties, registration fees of vessel and 11. Taxes, fees, or charges for the registration of
wharfage on wharves, tonnage dues, and all Motor vehicles and for the issuance of all kinds
other kinds of customs fees, charges and dues of licenses or permits for the driving thereof,
except wharfage on wharves constructed and except tricycles.
maintained by the LGU concerned;
12. Taxes, fees, or other charges on Philippine
NOTE: Item I of Sec. 133 must be correlated products actually Exported, except as otherwise
with Sec. 155 which provides for toll fees or provided in the LGC. (i.e., Sec. 143(I), LGC)
charges. Applying the foregoing provisions,
while imported products are exempt from 13. Excise taxes on articles enumerated under the
custom duties when passing through an LGU, NIRC, as amended, and taxes, fees, or charges on
they are, however, not exempt from toll fees and petroleum products.
charges.
NOTE: LGUs may impose tax on a petroleum
5. Taxes, fees, and charges and other impositions business. A tax on business is distinct from a tax
upon goods Carried into or out of, or passing on the article itself. (Phil. Petroleum Corporation
through, the territorial jurisdictions of LGUs in vs. Municipality of Pililia Rizal, G.R. No. 90776, 03
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Conversely, should the Congress allow municipal Pheleco questioned ‘the legality of the ordinance
corporations to cover fields of taxation it already on the ground that it imposes an income tax
occupies then the doctrine of pre-emption will not which LGUs are prohibited from imposing. Rule
apply. (Victorias Milling Co., Inc. v. Municipality of on the validity of the ordinance. (2013 BAR)
Victorias Negros Occidental, G.R. No. L-21183, 27
Sept. 1968) A: THE ORDINANCE IS VOID. The fee is based on
rental income; therefore, it is a tax on income. The
Instances when Principle of Pre-emption or Sec. 32(A)(5) of the NIRC includes “rents” in the
Exclusionary Doctrine does Not Apply enumeration of taxable income. Under Sec. 133 (a)
of the LGC, the exercise of the taxing powers of
1. Taxes levied under: provinces, cities, municipalities, and barangays shall
a. the NIRC, unless otherwise provided by the not extend to the levy of income tax except when
LGU; levied on banks and other financial institutions.
b. the Tariff and Customs Code;
c. special laws; Q: The Sangguniang Panlungsod of Cagayan de
Oro (City Council) passed an ordinance
2. Taxes, fees, and other charges the imposition of imposing a tax on the lease or rental of electric
which contravenes existing governmental and/or telecommunication posts, poles or
policies, or which violates the fundamental towers by pole owners to other pole users 10%
principles of taxation; of the annual rental income derived from such
lease or rental.
3. When Congress allows municipal corporations
to cover fields of taxation it already occupies; Cagayan Electric Power and Light Company, Inc.
(CEPALCO), who is leasing for a consideration
4. It does not apply beyond a certain level of sales the use of its posts, poles or towers to other pole
or receipts for the preceding year, e.g., sales users, assails its validity on the ground that the
subject to VAT and sales tax imposed by the tax imposed by the disputed ordinance is in
LGU; and reality a tax on income which the City of Cagayan
de Oro may not impose, the same being
5. If the subjects of the taxes levied by the national expressly prohibited by Sec. 133(a) of LGC. Is the
and local governments are different from each ordinance valid?
other. (Lim, 2021)
A: YES. The ordinance is a tax on business not a tax
Levy of Income Taxes on income. Business is defined by Sec. 131(d) of the
LGC as “trade or commercial activity regularly
GR: The exercise of the taxing authority of LGUs engaged in as a means of livelihood or with a view
shall not extend to the levy of income tax. to profit.”
XPN: Income tax may be levied on banks and other CEPALCO’s act of leasing for a consideration the use
financial institutions. (Sec. 133(a), LGC) of its posts, poles or towers to other pole users falls
under the LGC’s definition of business. In relation
Q: Pheleco is a power generation and thereto, Secs. 131(d) and 143(h) of the LGC provide
distribution company operating mainly from that the city may impose taxes, fees, and charges on
the City of Taguig. It owns electric poles which it any business which is not specified in Sec. 143(a) to
also rents out to other companies that use poles (g) and which the Sanggunian concerned may deem
such as telephone and cable companies. Taguig proper to tax. (Cagayan Electric Power and Light Co.,
passed an ordinance imposing a fee equivalent Inc. v. City of Cagayan de Oro, G.R. No. 191761, 14 Nov.
to 1% of the annual rental for these poles. 2012)
With the exception of cities, each LGU could not A: The SHT is a valid tax, and its legal basis is found
exercise the taxing powers granted to others. Hence, in R.A. No. 7279 or the “Urban Development and
a province could not exercise the powers granted to Housing Act of 1992”. It must be noted that the use
municipality and vice-versa. However, a city could of property bears a social function, thus, all
exercise the taxing powers of both a province and a economic agents must contribute to the common
municipality. good. Here, the imposition of SHT is an implement
of police power. Police power is the plenary power
8. REQUIREMENTS FOR A VALID TAX vested in the legislature to make statutes and
ORDINANCE ordinances to promote the health, morals, peace,
education, good order or safety and general welfare
of the people. In the exercise of police power,
To be valid, an ordinance must conform to the
property rights of individuals may be subjected to
following substantive requirements: (C-U-P2-G-Un)
restraints and burdens in order to fulfill the
objectives of the government. In this regard, the
1. It must not Contravene the Constitution or any
general welfare clause of the LGC allows local
statute;
governments to exercise police power.
2. It must not be Unfair or oppressive;
3. It must not be Partial or discriminatory;
Meanwhile, the garbage fee is an invalid tax.
4. It must not Prohibit but may regulate trade;
Although the authority of a LGU to regulate garbage
5. It must be General and consistent with public
falls within its police power to protect public health,
policy; and
safety, and welfare, the garbage fee violates the
6. It must not be Unreasonable. (Municipality of
equal protection clause provided by the
San Mateo, Isabela v. Smart Communications,
Constitution and the LGC. An ordinance must be
Inc. G.R. No. 219506, 23 June 2021)
equitable and must be based on the taxpayer’s
ability to pay, and must not be unjust, excessive,
Q: Which of the following statements is NOT a
oppressive, or confiscatory.
test of a valid ordinance?
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Procedure for Approval and Effectivity of Tax period, stating the nature of the levy, the
Ordinances amount of deficiency, the surcharges, interests,
and penalties.
1. The procedure applicable to local government
ordinances in general should be observed. (Sec. 2. Within 60 days from receipt of the assessment,
187, LGC) the taxpayer may file a written Protest of the
The following procedural details must be assessment with the local treasurer contesting
complied: the assessment; otherwise, the assessment shall
a. Necessity of a quorum; become final and executory.
b. Submission for approval by the local chief
executive; and 3. The local treasurer shall decide the protest
c. The matter of veto and overriding the same within 60 days from the time of its filing. If the
d. Publication and effectivity. (Secs. 54-55 and local treasurer finds the assessment to be
59, LGC) wholly or partly correct, he shall deny the
protest wholly or partly with notice to the
2. Public hearings are required before any local taxpayer.
tax ordinance is enacted. (Sec. 187, LGC)
4. The taxpayer shall have 30 days from the
3. Within ten (10) days after their approval, receipt of the denial of the protest or from the
publication in full for three (3) consecutive lapse of the 60-day period prescribed herein
days in a newspaper of general circulation. In within which to appeal with the court of
the absence of such newspaper in the province, competent jurisdiction otherwise the
city or municipality, the ordinance may be assessment becomes conclusive and
posted in at least two conspicuous and publicly unappealable. (Sec. 195, LGC)
accessible places. (Secs. 188 & 189, LGC)
5. The competent court referred to is the RTC, or
NOTE: The requirement of publication for three (3) MTC, or MeTC, or MCTC which act in the
consecutive days is mandatory for a tax ordinance exercise of its original jurisdiction, depending
to be valid. The tax ordinance will be null and void if on the amount. Local tax cases originally
it fails to comply with the requirement. (Coca-Cola v. decided by the MTC, or MeTC, or MCTC may be
City of Manila, G.R. No. 161893, 27 June 2006) appealed to RTC.
9. TAXPAYER’S REMEDIES
a) PROTEST
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b) REFUND a. Can a taxpayer who protested an
assessment later on institute a judicial
Procedure for Refund action for refund?
1. A written claim for refund or credit is filed with b. May the alleged deficiency taxes be used to
the local treasurer. offset claim for refund?
Q: The City Treasurer of Manila issued a SOA to Then, on February 6, 2007, respondent
Philippine Beverage Partners, Inc. showing that received the letter denying its protest. Thus, on
it is liable to pay local business taxes and March 8, 2007, or exactly thirty (30) days from
regulatory fees for the first quarter of 2007 in its receipt of the denial, respondent brought the
the total amount of P2,930,239.82. Philippine action before the RTC of Manila. Hence,
Beverage Partners protested the assessment respondent was justified in filing a claim for
arguing that Tax Ordinance Nos. 7988 and 8011, refund after timely protesting and paying the
amending the Revenue Code of Manila (RCM), assessment. (City Treasurer of Manila v.
have been declared null and void. It further Philippine Beverage Partners, Inc., G.R. No.
argued that the collection of local business tax 233556, 11 Sept. 2019)
under Sec. 21 of the RCM in addition to Sec. 14 of
the same code constitutes double taxation. The b. NO. On the second point, Sec. 195 of the LGC
City Treasurer of Manila, however, denied provides that “When the local treasurer or his
Philippine Beverage Partners’ protest. duly authorized representative finds that
correct taxes, fees, or charges have not been
After payment of the amount being collected, paid, he shall issue a notice of assessment
Philippine Beverage Partners filed a written stating the nature of the tax, fee, or charge, the
claim for refund of erroneously/illegally amount of deficiency, the surcharges, interests
collected tax with the City Treasurer of Manila and penalties.”
amounting to P2,424,158.93. Further, it filed a
complaint for the revision of the SOA and for Thus, suffice it to say that the issuance of a
refund or credit of LBT erroneously/illegally notice of assessment is mandatory before the
collected with the RTC which ruled in the local treasurer may collect deficiency taxes
affirmative. The City Treasurer of Manila raised from the taxpayer.
two points on its arguments:
2. Civil remedies
GR: Local taxes, fees, or charges shall be assessed
within five (5) years from the date they became due. a. Distraint of personal property,
No action for the collection of such taxes, fees, or b. Levy of real property, or
charges, whether administrative or judicial, shall be c. Judicial action. (Secs. 173-174, LGC)
instituted after the expiration of such period.
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UNIVERSITY OF SANTO TOMAS
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Levy of Real Property may be Simultaneously employment;
Issued with Warrant of Distraint 2. One horse, cow, carabao, or other Beast of
burden, such as the delinquent taxpayer may
The levy of a real property may be made before or select, and necessarily used by him in his
simultaneous with distraint. In case the levy on real ordinary occupation;
property is not issued before or simultaneously
with the warrant of distraint on personal property, 3. His necessary Clothing, and that of all his family;
and the personal property of the taxpayer is not
sufficient to satisfy his delinquency, the provincial, 4. Household furniture and utensils necessary for
city or municipal treasurer, as the case may be, shall housekeeping and used for that purpose by the
within 30 days after execution of the distraint, delinquent taxpayer, such as he may select, of a
proceed with the levy on taxpayer’s real property. value not exceeding P10,000.00;
(Sec. 176, LGC)
5. Provisions, including crops, actually provided
Instances when LGU has the Right to Purchase for individual or family use sufficient for four
Real Property Advertised for Sale (4) months;
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Procedure for Levy
The LGU concerned may enforce the collection of Q: Doña Evelina, a rich widow engaged in the
delinquent taxes, fees, charges and other revenues business of currency exchange, was assessed a
by civil action in any court of competent jurisdiction. considerable amount of local business taxes by
The civil action shall be filed by the local treasurer the City Government of Bagnet by virtue of Tax
within five (5) years from delinquent taxes, fees or Ordinance No. 24. Despite her objections
charges become due. (Sec. 183, LGC) thereto, Doña Evelina paid the taxes.
Nevertheless, unsatisfied with said Tax
Mode of Appeal from the Decision of the RTC Ordinance, Doña Evelina, through her counsel
Involving Local Taxes Atty. ELP, filed a written claim for recovery of
said local business taxes and contested the
R.A. 9282 expanded the jurisdiction of the CTA to assessment. Her claim was denied, and so Atty.
include, among others, the power to review by ELP elevated her case to the RTC.
appeal decisions, orders or resolutions of the RTC in
local tax cases originally decided or resolved by The RTC declared Tax Ordinance No. 24 null and
them in the exercise of their original or appellate void and without legal effect for having been
jurisdiction. (City of Iriga vs Camarines Sur Electric enacted in violation of the public action
Cooperative, Inc., G.R. No. 192945, 05 Sept. 2012) requirement of tax ordinances and revenue
measures under the Local Government Code
The authority to exercise either original or appellate (LGC) and on the ground of double taxation. On
jurisdiction over local tax cases depended on the appeal, the CTA affirmed the decision of the RTC.
amount of the claim. In cases where the amount No motion for reconsideration was filed and the
sought to be refunded is below the jurisdictional decision became final and executory.
amount of the RTC, the MeTC, MTC, MCTC are
clothed with ample authority to rule on such claims. a. If you are Atty. ELP, what advice will you give
Doña Evelina so that she can recover the
In cases where the RTC exercises appellate subject local business taxes?
jurisdiction, it necessarily follows that there must be
a court capable of exercising original jurisdiction – b. If Doña Evelina eventually recovers the local
otherwise there would be no appeal over which the business taxes, must the same be considered
RTC would exercise appellate jurisdiction. The income taxable by the national government?
Court cannot consider the City Treasurer as the (2014 BAR)
entity that exercises original jurisdiction not only
because it is not a “court” within the context of B.P. A:
Blg. 129, but also because B.P. 129 expressly
a. Atty. ELP should move for the execution of the
delineates the appellate jurisdiction of the Regional
judgment which is final and executory. The
Trial Courts, confining as it does said appellate
issuance of a writ of execution may eventually
jurisdiction to cases decided by MeTC, MTC, and
force the local treasurer to make the refund.
MCTC. Verily, unlike in the case of the CA, B.P. 129
does not confer appellate jurisdiction on the RTC
b. YES. It is subject to the tax benefit rule. The local
over rulings made by non-judicial entities. The RTC
business tax paid is a business-connected tax
exercises appellate jurisdiction only from cases
hence, deductible from gross income. If at the
decided by the MeTC, MTC, and MCTC in the proper
time of its deduction it resulted to a tax benefit
cases. The nature of the jurisdiction exercised by
to Doña Evelina, then the recovery will form
these courts is original, considering it will be the
part of gross income to the extent of the tax
first time that a court will take judicial cognizance of
benefit on the previous deduction. (Sec.
a case instituted for judicial action. (China Banking
34(c)(1), NIRC)
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UNIVERSITY OF SANTO TOMAS
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b) PRESCRIPTIVE PERIOD If principal
amount of The RTC shall
Period of Assessment taxes, fees exercise
exclusive of appellate
Local taxes, fees, or charges shall be assessed within charges and jurisdiction over
five (5) years from the date they become due. (Sec. penalties all cases decided
194(a), LGC) RTC exceeds by the MeTC,
P300,000 or MTC, and MCTC
Period of Collection P400,000 in in their
Metro Manila, respective
Local taxes, fees, or charges may be collected within provided, the territorial
five (5) years from the date of assessment by amount is less jurisdiction.
administrative or judicial action. (Sec. 194(c), LGC) than P1 million.
Real Property Tax NOTE: Real Property shall be classified, valued and
assessed on the basis of its actual use regardless of
Real property tax is a direct tax on ownership of where located, whoever owns it, and whoever uses
lands and buildings or other improvements thereon it. (Sec. 217, LGC)
not specially exempted and is payable regardless of
whether the property is used or not, although the 2. NATURE
value may vary in accordance with such factor.
Characteristics of Real Property Tax (L-A-P-I-D)
It is a fixed proportion of the assessed value of the
property being taxed and requires, therefore, the
1. It is a Local tax;
intervention of assessors.
2. It is an Ad valorem tax;
The present law on real property taxation (R.A.
7160, LGC) adopts actual use of real property as
NOTE: Ad valorem tax is a levy on real property
basis of assessment (Sec. 199(b), LGC), even if the
determined on the basis of a fixed proportion of
user is not the owner. (Province of Nueva Ecija v.
the value of money.
Imperial Mining Co., Inc. G.R. No. 59463, 19 Nov.
1982)
3. It is Proportionate because the tax is calculated
on the basis of a certain percentage of the value
assessed;
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
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4. It creates a single Indivisible obligation; and and may qualify as “machinery” subject to real
property tax under the LGC. Both electric lines and
5. It is Direct tax on the ownership of real communications cables, in the strictest sense, are
property. not directly adhered to the soil but pass-through
posts, relays or landing stations, but both may be
NOTE: The impact and incidence of taxation classified under the term “machinery” as real
devolves on the same person. (Aban, 2001) property under Art. 415(5) of the Civil Code because
such pieces of equipment serve the owner’s
Administration of Real Property Tax business or tend to meet the needs of his industry or
works that are on real estate.
The provinces and cities, including the
municipalities within the Metropolitan Manila Area, Moreover, a portion of the submarine cable falls
shall be primarily responsible for the proper, within what the UNCLOS would define as the
efficient, and effective administration of the real country’s territorial sea to the extent of 12 nautical
property tax. (Sec. 200, LGC) miles outward from the nearest baseline over which
the country has sovereignty. Further, under Art. 79
3. IMPOSITION of the UNCLOS, the Philippines clearly has
jurisdiction with respect to cables laid in its
territory that are utilized in support of other
a) POWER TO LEVY
installations and structures under its jurisdiction.
As far as LGUs are concerned, the areas described
Extent of the Local Taxing Power in Real above are to be considered subsumed under the
Property Taxation term “municipal waters” which, under the LGC,
includes “not only streams, lakes, and tidal waters
Provinces, cities, and municipalities do not only within the municipality, but also marine waters
have the power to levy real estate taxes, but they included between two lines drawn perpendicularly
may also fix real estate tax rates. Sec. 233 of the LGC to the general coastline from points where the
provides that they shall fix a uniform rate of basic boundary lines of the municipality or city touch the
real property tax applicable to their respective sea at low tide and a third line parallel with the
localities. general coastline and 15 kilometers from it.”
(Capitol Wireless, Inc. vs. Provincial Treasurer of
NOTE: Municipalities outside Metro Manila cannot Batangas, G.R. No. 180110, 30 May 2016)
levy real property taxes. They can, however, impose
special levies. NOTE: No public hearing shall be required before
the enactment of a local tax ordinance levying the
Q: Capitol Wireless is in the business of basic real property tax.
providing international telecommunications
services. Capwire has signed agreements with LGUs may refrain from imposing the real property
other local and foreign telecommunications tax. The use of the words “may levy and collect”
companies covering an international network of gives the impression that a province, city or
submarine cable systems. The local government municipality within Metropolitan Manila Area, may
of Batangas considered the submarine cable or may not, at its discretion impose real property
systems as real property subject to real tax. The word “may” in the law generally interpreted
property tax. Is the local government of as only permissive or discretionary and operates to
Batangas correct? confer discretion. This is also being consistent as
well with local autonomy which is the hallmark of
A: YES. Submarine or undersea communications the LGC itself.
cables are akin to electric transmission lines which
are “no longer exempted from real property tax”
Q: The City of Makati levied and auctioned off a 2. Trees, plants, and growing fruits, while they are
real property after the registered owners failed attached to the land or form an integral part of
to pay the corresponding taxes. Spouses Cruz, an immovable;
owners of the property, claimed that the sale
was null and void because the notice of billing 3. Everything attached to an immovable in a fixed
statements for real property were mistakenly manner, in such a way that it cannot be
sent to a different unit; no warrant of levy was separated therefrom without breaking the
ever received by them; the notice of delinquency material or deterioration of the object;
sale was not posted; the delinquency sale was
not published; the Makati Treasurer's Office did 4. Statues, reliefs, paintings or other objects for
not notify them of the warrant of levy; and the use or ornamentation, placed in buildings or on
City did not remit the excess of the proceeds of lands by the owner of the immovable in such a
the sale to them. Is the delinquency sale valid? manner that it reveals the intention to attach
them permanently to the tenements;
A: NO. The Local Government Code provides that
notice of delinquency and notice of delinquency sale 5. Machinery, receptacles, instruments or
must be posted at the main hall and in a publicly implements intended by the owner of the
accessible and conspicuous place in each barangay tenement for an industry or works which may
of the local government unit concerned. They shall be carried on in a building or on a piece of land,
also be published once a week for two (2) and which tend directly to meet the needs of the
consecutive weeks, in a newspaper of general said industry or works;
circulation in the province, city, or municipality.
Failure to strictly comply with the requisites of the 6. Animal houses, pigeon-houses, beehives, fish
LGC renders the delinquency sale null and void. As ponds or breeding places of similar nature, in
the tax sale was null and void, the title of the buyer case their owner has placed them or preserves
therein is also null and void. them with the intention to have them
permanently attached to the land, and forming
There can be no presumption of regularity in any a permanent part of it; the animals in these
administrative action which results in depriving a places are included;
taxpayer of his property; due process of law must be
followed in tax proceedings, because a sale of land 7. Fertilizer actually used on a piece of land;
for tax delinquency is in derogation of private
property and the registered owner's constitutional 8. Mines, quarries, and slag dumps, while the
rights. The principle of strict adherence to the matter thereof forms part of the bed, and waters
statutes governing tax sales is imperative, not only either running or stagnant;
for the protection of the taxpayers, but also to allay
any possible suspicion of collusion between the 9. Docks and structures which, though floating,
buyer and the public officials called upon to enforce are intended by their nature and object to
385
UNIVERSITY OF SANTO TOMAS
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remain at a fixed place on a river, lake, or coast; essential to the conduct of business. The property to
and be considered as immobilized for RPT must be
“essential and a principal element” of an industry
10. Contracts for public works, and servitudes and without which such industry would be unable to
other real rights over immovable property. carry on the principal industrial purpose for which
it was established.
NOTE: An object used indirectly for the general
purpose of the business shall not be treated as real Examples:
property.
1. Gasoline station equipment and machineries
The SC has generally held that Art. 415 of the Civil like above ground and underground tanks,
Code provides an exclusive enumeration of what elevated water tanks, water tanks, gasoline
constitutes real property, for tax purposes, pumps, computing pumps water pumps, car
however, it is common for otherwise personal washers, car lifts, air compressors, tire inflators
properties under the Civil Code to be classified as and the like attached to the pavement and to the
real property. (Mindanao Bus Co. v. City Assessor, G.R. shed. (Caltex Phils. v. CBAA, GR No. 50466, 31
No. L-17870, 29 Sept. 1962) May 1982)
1. It must Enhance the value of the property; Kinds of Real Property Tax and Special Levies:
2. It must be Separately assessable; and (S-I-R-E)
3. It can be treated Independently from the main
property. 1. Special levy by LGUs; (Sec. 240, LGC)
2. Additional ad valorem tax on Idle lands; (Sec.
NOTE: Whenever real property has been divided 236, LGC)
into condominium, each condominium owned shall 3. Basic Real property tax; and
be separately assessed, for purposes of real 4. Additional levy on real property for the Special
property taxation and other tax purposes to the Education Fund. (Sec. 235, LGC)
owner thereof and tax on each such condominium
shall constitute a lien solely thereof. (Sec. 25, R.A. No. Socialized Housing Tax
776 or “The Condominium Act”)
LGUs are authorized to impose an additional one-
Doctrine of Essentiality half percent (0.5%) on the assessed value of all
lands in urban areas in excess of P50,000, except
Properties considered as personal under the Civil those from lands which are exempted from the
Code may nonetheless be considered as real coverage of R.A. 7279. (R.A. No. 7279, 24 Mar. 1992)
property for tax purposes where said property is
1. For Basic Real Property Tax and Special Levy GR: A province, city or municipality may impose a
on Education Fund: special levy on the lands within its territorial
jurisdiction specially benefited by public works
a. Land
projects or improvements by the LGU concerned.
b. Building
c. Machinery
XPN: It shall not apply to lands exempt from basic
d. Other improvements (Sec. 232, LGC)
real property tax and the remainder of the land,
portions of which have been donated to the LGU
2. For Special Levy on Idle Lands and Special
concerned for the construction of such projects or
Levy on Public Works (Special Assessments):
improvements. (Sec. 240, LGC)
a. Land Only
NOTE: The special levy shall not exceed 60% of the
Ceiling on Real Property Tax Rates actual cost of such projects and improvements,
including the costs of acquiring land and such other
1. Province – can impose a real property tax rate real property in connection therewith.
not exceeding 1% of the assessed value of the
property. Additional Levy on Real Property for Special
Education Fund
2. City or municipality within the Metro Manila
area – can impose a real property tax rate not A province, city, or a municipality within the Metro
exceeding 2% of the assessed value of the Manila area may levy and collect an annual tax of 1%
property. (Sec. 233, LGC) on the assessed value of real property, which shall
be in addition to the basic real property tax. The
Ordinance on Special Levy for Public Works proceeds thereof shall exclusively accrue to the
Special Education Fund created under R.A. 5447.
1. The ordinance shall: (Sec. 235, LGC)
a. Describe the nature, extent, and location of
the project; Q: The Sangguniang Panlalawigan of Palawan
b. State estimated cost; and enacted Provincial Ordinance No. 332-A, Series
c. Specify metes and bounds by monuments of 1995, entitled “An Ordinance Approving and
and lines. Adopting the Code Governing the Revision of
Assessments, Classification and Valuation of
2. It must state the number of annual installments, Real Properties in the Province of Palawan”
not less than five (5) years nor more than ten (Ordinance) Chapter 5, Sec. 48 of the Ordinance
(10) years. provides for an additional levy on real property
tax for the special education fund at the rate of
NOTE: In the apportionment of special levy, the one-half percent or 0.5% as follows: Sec. 48-
Sanggunian may fix different rates depending Additional Levy on Real Property Tax for Special
on whether such land is more or less benefited Education Fund. There is hereby levied an
by the proposed work. annual tax at the rate of one-half percent (1/2%)
of the assessed value property tax. The proceeds
3. There must be notice to the owners and public thereof shall exclusively accrue to the Special
hearing. (Sec. 242, LGC) Education Fund (SEF).
4. The Owner can appeal to the Local Board of On post-audit, the auditor noticed supposed
Assessment Appeals (LBAA) and Central Board deficiencies in the special education fund
of Assessment Appeals (CBAA). collected by the Municipality of Narra. He
387
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
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questioned the levy of the special education or perennial crops with at least fifty (50) trees
fund at the rate of only 0.5% rather than at 1%, to a hectare shall not be considered idle lands.
the rate stated in Sec. 235. Does the local Lands actually used for grazing purposes shall
government unit have discretion on the rate at likewise not be considered idle lands.
which they are to collect the real property tax
for special education fund? 2. Lands other than agricultural:
a. Located in a city or municipality;
A: YES. The limits on the level of additional levy for b. More than one thousand square meters
the special education fund under Sec. 235 of the (1,000 sqm.) in area; and
Local Government Code should be read as granting c. One-half (1/2) of which remain unutilized
fiscal flexibility to local government units. Sec. 235’s or unimproved by the owner or person
permissive language is unqualified. Moreover, there having legal interest.
is no limiting qualifier to the articulated rate of 1%
which unequivocally indicates that any and all NOTE: Regardless of land area, this shall apply
special education fund collections must be at such to residential lots in subdivisions duly
rate. approved by proper authorities, the ownership
of which has been transferred to individual
At most, there is a seeming ambiguity in Sec. 235. owners, who shall be liable for the additional
Consistent with what has earlier been discussed tax: Provided, however, that individual lots of
however, any such ambiguity must be read in favor such subdivisions, ownership of which has not
of local fiscal autonomy. Fiscal autonomy entails been transferred to the buyer shall be
"the power to create own sources of revenue." In considered as part of the subdivision and shall
turn, this power necessarily entails enabling local be subject to the additional tax payable by
government units with the capacity to create subdivision owner or operator. (Sec. 237, LGC)
revenue sources in accordance with the realities
and contingencies present in their specific contexts. Grounds for Exemption from Idle Lands Tax
(Demaala v. Commission on Audit, G.R. No. 199752, 17
Feb. 2015) 1. Force majeure;
2. Civil disturbance;
Additional Ad Valorem Tax on Idle Lands 3. Natural calamity; or
4. Any cause or circumstance which physically or
A province or city or a municipality within the Metro legally prevents the owner or person having
Manila area may levy an annual tax on idle lands at legal interest from improving, utilizing or
the rate not exceeding 5% of the assessed value of cultivating the same. (Ibid.)
the property which shall be in addition to the basic
real property tax. (Sec. 236, LGC) Purpose of Ad Valorem Taxes on Idle Land
389
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
farms for a period of five (5) years from the time same is owned by City R? Explain. (2019 BAR)
of such conversion;
A: YES. Under Sec. 234 of the Local Government
3. Machinery of a pioneer and preferred industry Code, real property owned by the Republic of the
as certified by the Board of Investments used or Philippines or any of its political subdivision is
operated for industry, agriculture, exempt from payment of real property tax except
manufacturing, or mining purposes, during the when the beneficial use thereof has been granted,
first three (3) years of the operation of the for consideration or otherwise, to a taxable person
machinery; or entity.
4. Perennial trees and plants of economic value Q: Are the transformers, electric posts,
except where the land upon which they grow is transmission lines, insulators, and electric
planted principally to such growth; and meters of MERALCO exempt from real property
taxes?
5. Properties owned by non-stock or non-profit
educational institutions, the total assessed A: NO. The transformers, electric posts,
value of which does not exceed P3,000.00, transmission lines, insulators, and electric meters of
including those owned by Educational MERALCO are no longer exempted from real
Foundations organized under R.A. No. 6055. property tax based on its franchise and may qualify
as "machinery" subject to real property tax under
Withdrawal of Real Property Tax Exemption the LGC. MERALCO is a public utility engaged in
electric distribution, and its transformers, electric
Except as provided under Sec. 234 of the LGC, any posts, transmission lines, insulators, and electric
exemption from payment of real property tax meters constitute the physical facilities through
previously granted to, or presently enjoyed by all which MERALCO delivers electricity to its
persons, whether natural or juridical, including all consumers. Each may be considered as one or more
GOCCs, are hereby withdrawn upon the effectivity of of the following: a "machine," "equipment,"
the LGC. "contrivance," "instrument," "appliance,"
"apparatus," or "installation."
Claim of Real Property Tax Exemption
Under Sec. 199(o) of the LGC, machinery, to be
A taxpayer claiming exemption must submit deemed real property subject to real property tax,
sufficient documentary evidence to the local need no longer be annexed to the land or building as
assessor within thirty (30) days from the date of the these "may or may not be attached, permanently or
declaration of real property; otherwise, it shall be temporarily to the real property," and in fact, such
listed as taxable in the Assessment Roll. (Sec. 206, machinery may even be "mobile." The same
LGC) provision requires that for machinery subject to real
property tax, the physical facilities for production,
Q: City R owns a piece of land which it leased to installations, and appurtenant service facilities,
V Corp. In turn, V Corp. constructed a public those which are mobile, self-powered or self-
market thereon and leased the stalls to vendors propelled, or not permanently attached to the real
and small storeowners. The City Assessor then property (a) must be actually, directly, and
issued a Notice of Assessment against V Corp. for exclusively used to meet the needs of the particular
the payment of real property taxes (RPT) industry, business, or activity; and (2) by their very
accruing on the public market building, as well nature and purpose, are designed for, or necessary
as on the land where the said market stands. Is for manufacturing, mining, logging, commercial,
the City Assessor correct in including the land in industrial, or agricultural purposes.
its assessment of RPT against V Corp., even if the
391
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
instrumentality of the National Government, thus, Marcos, G.R. No. 120082,
exempt from local taxation. MIAA is a government 11 Sept. 1996)
instrumentality vested with corporate powers to
perform efficiently its governmental functions.
MIAA is like any other government instrumentality; Q: MWSS claims that it is an instrumentality of
the only difference is that MIAA is vested with the Republic; thus, its real properties should be
corporate powers. Second, the real properties of exempt from real property tax. Is the contention
MIAA are owned by the Republic of the Philippines, of MWSS correct?
thus, exempt from real estate tax. Airport lands and
buildings are outside the commerce of man. Since A: YES. After the promulgation of Manila
the airport lands and buildings of MIAA are devoted International Airport Authority, then President
to public use, they are properties of public Gloria Macapagal-Arroyo issued E.O. No. 596, which
dominion. (MIAA v. CA, City of Paranaque, et al., G.R. recognized the Court’s categorization of
No. 155650, 20 July 2006) “government instrumentalities vested with
corporate powers.” Under Sec. 2 of E.O. No. 596,
Tax Treatment of MCIAA and MIAA MWSS is categorized with other government
Distinguished agencies that were found to be exempt from the
payment of real property taxes. Also, in 2011,
MCIAA MIAA Congress passed R.A. No. 10149 or the GOCC
Mactan Cebu Manila International Governance Act of 2011, which adopted the same
International Airport Airport Authority categorization and explicitly lists petitioner
Authority (MCIAA) is a (MIAA) is NOT a GOCC together with the other government agencies that
GOCC since, upon the but an instrumentality were previously held by the Court to be exempt
effectivity of the LGC, of the National from the payment of real property taxes. (MWSS v.
the last paragraph of Government. The Local Government of Quezon City, G.R. No. 194388, 07
Sec. 234 withdrew exception to the Nov. 2018)
exemption from exemption in Sec.
payment of real 234(a) does not apply Q: The Quezon City Local Government assessed
property tax granted to to MIAA because it is real property taxes on MWSS’s properties
natural or juridical not a taxable entity located in Quezon City. MWSS received several
persons including under the LGC. The Final Notices of Real Property Tax Delinquency
GOCCs. Thus, the exception applies only from the Local Government of Quezon City,
exemption from tax if the beneficial use of covering various taxable years, in the total
granted to it in Sec. 14 of real property owned amount of P237,108,043.83 on MWSS’s real
R.A. No. 6958 has been by the Republic is properties. MWSS argues that it is exempt from
withdrawn. given to a taxable taxation as it is an instrumentality of the
entity. (Ibid.) government holding properties of the public
Further, the phrase dominion. The local government argues that
“and any GOCC so MWSS holds properties in the exercise of its
exempt by its charter” proprietary functions, thus, are susceptible to
was excluded in the real property tax and points out that tax
enumeration of exemption granted in Sec. 18 of R.A. No. 6234
exemption from real has been repealed by Sec. 234 of the LGC. May
property tax as the local government unit assess real property
provided by Sec. 40(a) taxes on MWSS, a government entity?
of P.D. 464, which was
reproduced in Sec. A: NO. The general rule is that any real property
234(a). (MCIAA v. owned by the Republic or its political subdivisions
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Q: Is the National Grid Corporation of the The roads that Filipinas Palm constructed within
Philippines (NGCP) exempt from real property the leased area should not be assessed with real
taxes? property taxes. The roads constructed became
permanent improvements on the land owned by the
A: YES. Sec. 9 of R.A. No. 9511 states that NGCP’s NGPI-NGEI by right of accession under Arts. 440 and
payment of franchise tax is in lieu of payment of 445 of the Civil Code. Hence, whatever is
“income tax and any and all taxes, duties, fees and incorporated in the land, either naturally or
charges of any kind, nature or description levied, artificially, belongs to the NGPI-NGEI as the
established or collected by any authority landowner. Although the roads were primarily built
whatsoever, local or national, on its franchise, for Filipinas Palm’s benefit, the roads were also
rights, privileges, receipts, revenues and profits, and being used by the members of NGPI and the public.
on properties used in connection with its franchise.”
Thus, in contrast to Smart’s franchise as quoted However, the assessment pertaining to the
above, Sec. 9 of R.A. No. 9511 clearly stated that the machinery is proper. The definition of “machinery”
NGCP’s “in lieu of all taxes” clause includes taxes under Sec. 199 of the LGC includes machines which
imposed by the local government on properties may or may not be attached, permanently or
used in connection with NGCP’s franchise. However, temporarily, to the real property. (Provincial
NGCP’s tax exempt status on real property due to Assessor of Agusan del Sur vs. Filipinas Palm Oil
the “in lieu of all taxes” clause is qualified: NGCP Plantation, Inc., G.R. No. 183416, 05 Oct. 2016)
shall be liable to pay the same tax as other
corporations on real estate, buildings and personal Q: Upon acquisition via execution sale in August
property exclusive of their franchise. (National Grid 2004, thirteen (13) parcels of land located in Sta.
Corporation of the Philippines vs. Oliva, G.R. No. Ana, Calatagan, Batangas are registered since
213157, 10 Aug. 2016) 2006 in the name of G Corporation under
Transfer Certificate of Title (TCT) Nos. T-105907
Q: Filipinas Palm Oil Plantation, Inc. is a private to T-105919. From 02 March 2006 up to 12
organization engaged in palm oil plantation. It August 2009, the Subject Property had been in
leases the land from NGPI-NGEI Cooperative. actual possession of Mr. C and D in their capacity
The LBAA assessed Filipinas of real property as assignees in an involuntary insolvency
taxes on the land it leases, on the road it built proceeding against the Spouses Santos pending
primarily for the benefit of the plantation, and before the Muntinlupa City RTC Br. 204. It was
on the machineries that are not attached to the only on 13 August 2009 that G Corporation was
land. Is the assessment of LBAA proper? able to take full possession and control of the
subject property by virtue of the 31 July 2009
A: NO. Under Sec. 133(n) of the LGC, the taxing Order of the Makati City RTC Br. 56 granting the
power of LGUs shall not extend to the levy of taxes, issuance of a writ of execution, which, in turn,
fees, or charges on duly registered cooperatives was based on the final and executory Decision of
under the Cooperative Code. NGPI-NGEI, as the the Court of Appeals in CA - G.R. SP Nos. 93818
owner of the land being leased by respondent, falls and 93823.
within the purview of the law. Sec. 234 of the LGC
exempts all real property owned by cooperatives In a letter dated 09 October 2012, Provincial
without distinction. Nothing in the law suggests that Treasurer of Batangas sent to G Corporation a
the real property tax exemption only applies when Statement of Real Property Tax Liabilities to
the property is used by the cooperative itself. collect the amount of P8,093,256.89, which
Similarly, the instance that the real property is included the unpaid RPT on the subject property
leased to either an individual or corporation is not a for 2007, 2008, and January to August 2009
ground for withdrawal of tax exemption. (covered period). The demand was reiterated in
letters dated 23 October 2012 and 21 November
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
assessment and a warrant of levy after having and Ultimate properties which are now owned
declared the properties as delinquent. It also set by ABC Corp. To do so would effectively make
the same for public auction on 10 December ABC Corp. liable for the payment of real
2014, in order to satisfy the unpaid real property taxes due on the Maxon property for
property taxes assessed against them. However, the years 2000-2013 and on the Ultimate
the scheduled auction did not push through as properties for the years 1997-2013 when it did
the RTC issued a timely preliminary writ of not yet own or had actual or beneficial use of
injunction enjoining the prospective sale. the properties. As the Court has discussed
above, such is not only contrary to law, but is
1. Is the RTC correct in issuing a preliminary also unjust. (Provincial Government of Cavite v.
writ of injunction enjoining the prospective CQM Management, Inc., G.R. No. 248033, 15 July
sale? 2020)
2. ABC Corp.‘s Registration and Lease 2. YES. ABC Corp. is exempt from paying real
Agreements with the PEZA indicate that property taxes over the Maxon and Ultimate
respondent was registered as an Ecozone properties from the time it had acquired
Facilities Enterprise. Is ABC Corp. exempt ownership and/or actual or beneficial use of
from payment of real property taxes? the properties pursuant to Sec. 24 of R.A. No.
7916, as amended by R.A. No. 8748. There is
A: nothing in Sec. 24 which requires prior
1. YES. In National Power Corp. v. Province of concurrence from the LGU before ABC Corp.
Quezon et al., the Court explained that the can avail itself of the exemption provided
unpaid tax attaches to the property and is under the law. In fact, under Sec. 35 of R.A. No.
chargeable against the taxable person who had 7916, the only requirement for business
actual or beneficial use and possession of it enterprises within a designated ECOZONE to
regardless of whether he is the owner. In this avail themselves of all incentives and benefits
case, ABC Corp. was not yet the owner or entity provided for under R.A. No. 7916 is to register
with the actual or beneficial use of the with the PEZA. This requirement was satisfied
properties during the years for which by ABC Corp. ABC Corp.’s Registration and
Provincial Government and Provincial Lease Agreements with the PEZA indicate that
Treasurer of Cavite (Provincial Government of respondent was registered as an Ecozone
Cavite) sought to collect real property taxes. Facilities Enterprise.
Specifically, Provincial Government of Cavite
sought to collect from ABC Corp. real property Significantly, in response to queries made by
taxes due on the Maxon property for the years registered economic zone enterprises as to
2000-2013 and on the Ultimate property for whether they are exempted from securing LGU
the years 1997-2013. Permits and from payment of local taxes, fees,
licenses, etc., the PEZA issued Memorandum
However, ABC Corp. became the owner of the Circular (M.C.) No. 2004-024 which provides in
Maxon property and the Ultimate property part that “PEZA-registered economic zone
only in March 2014, and August 2014, enterprises availing of the 5% [gross income
respectively. To impose the real property taxes tax] incentive are exempted from payment of
on ABC Corp., which was neither the owner nor all national and local taxes, except real
the beneficial user of the property during the property tax on land owned by developers.” In
designated periods would not only be contrary this case, there is nothing to indicate that
to law but is also unjust. Given the foregoing, respondent is a developer. Thus, considering
Provincial Government of Cavite cannot R.A. No. 7916, as amended, its IRR, and M.C. No.
conduct a tax delinquency sale of the Maxon 2004-024, it is evident that, save for the
All real property shall be appraised at the current It refers to the purpose for which the property is
and fair market value prevailing at the locality principally or predominantly utilized by the person
where the property is situated. (Sec. 201, LGC) This in possession thereof. (Sec. 199(b), LGC)
implies that an LGU may only collect real estate
taxes on properties falling within its territorial NOTE: The contractual assumption to pay real
jurisdiction. property tax, by itself, is not sufficient to make one
legally compellable by the government to pay the
NOTE: Fair market value (FMV) is the price at which taxes due; the person liable must also have use and
a property may be sold by a seller who is noy possession of the property. (Ingles, 2021)
compelled to sell and bought by a buyer who is not
compelled to buy. (Sec. 199(l), LGC) Unpaid real estate taxes attach to the property and
is generally chargeable against the owner of the
a) CLASSES OF REAL PROPERTY property at the time the tax accrues. (Herarc Realty
Corp. v. Provincial Treasurer of Batangas, G.R. No.
Real property shall be classified as: 210736, 05 Sept. 2018)
1. Residential;
2. Agricultural; Q: The real property of Mr. and Mrs. Angeles,
3. Commercial; situated in a commercial area in front of the
4. Industrial; public market, was declared in their Tax
5. Mineral; Declaration as residential because it had been
6. Timberland; or used by them as their family residence from the
7. Special: time of its construction in 1990. However, since
January 1997, when the spouses left for the
a. Lands, buildings, and other improvements United States to stay there permanently with
actually, directly, and exclusively used for their children, the property has been rented to a
hospitals, cultural, or scientific purposes, single proprietor engaged in the sale of
and appliances and agri-products. The Provincial
Assessor reclassified the property as
b. Those owned and used by local water commercial for tax purposes starting January
districts and GOCCs rendering essential 1998. Mr. and Mrs. Angeles appealed to the Local
public services in the supply and Board of Assessment Appeals, contending that
distribution of water and electricity. (Sec. the Tax Declaration previously classifying their
215 and 216, LGC) property as residential is binding. How should
the appeal be decided? (2002 BAR)
NOTE: A hospital which was previously classified as
“special” cannot be reclassified to “commercial” A: The appeal should be decided against Mr. and
simply because it charges rental for the use of its Mrs. Angeles. The law focuses on the actual use of
offices by its accredited physicians. (Ingles, 2021) the property for classification, valuation and
assessment purposes regardless of ownership. Real
property shall be classified, valued, and assessed on
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the basis of its actual use regardless of where including the discovery, listing, classification, and
located, whoever owns it, and whoever uses it". (Sec. appraisal of properties. (Sec. 199(f), LGC)
217, LGC)
Reassessment of Property
Q: The Philippine-British Association, Inc.
(Association) is a non-stock, non-profit It is the assigning of new assessed values to
organization which owns the St. Michael's property, particularly real estate, as the result of a
Hospital (Hospital) Sec. 216 in relation to Sec. general, partial, or individual reappraisal of the
215 of the LGC classifies all lands, buildings and property. (Sec. 199(q), LGC)
other improvements thereon actually, directly,
and exclusively used for hospitals as "special." A Effect of Assessment
special classification prescribes a lower
assessment than a commercial classification. An assessment fixes and determines the tax liability
of the taxpayer. It is a notice to the effect that the
Within the premises of the Hospital, the amount therein stated is due as tax and a demand
Association constructed the St. Michael's for payment thereof.
Medical Arts Center (Center) which will house
medical practitioners who will lease the spaces Classification, Appraisal, and Assessment of Real
therein for their clinics at prescribed rental Property by the Provincial, City, or Municipal
rates. The doctors who treat the patients Assessor or his Duly Authorized Deputy: (1st-G-
confined in the Hospital are accredited by the R)
Association.
Irrespective of any previous assessment or
The City Assessor classified the Center as taxpayers’ valuation thereon, a classification,
"commercial" instead of "special" on the ground appraisal, and assessment of real property shall be
that the Hospital owner gets income from the made when:
lease of its spaces to doctors who also entertain
out-patients. Is the City Assessor correct in 1. Real property is declared and listed for taxation
classifying the Center as "commercial?" Explain. purposes for the 1st time;
(2016 BAR)
2. There is an ongoing General revision of
A: NO. The City Assessor is not correct in classifying property classification and assessment; or
the Center as “commercial”. The fact alone that the
separate St. Michael’s Medical Arts Center will 3. A Request is made by the person in whose name
house medical practitioners who shall treat the the property is declared assessor shall make a
patients confined in the Hospital and are accredited classification, appraisal and assessment or
by the Association takes away the said Medical Arts taxpayer's valuation. (Sec. 220, LGC)
Center from being categorized as “commercial”
since a tertiary hospital is required by law to have a NOTE: Provided, however, that the assessment of
pool of physicians who comprise the required real property shall not be increased oftener than
medical departments in various medical fields. (City once every three (3) years except in case of new
Assessor of Cebu City v. Association of Benevola de improvements substantially increasing the value of
Cebu, Inc., G.R. No. 152904, 08 June 2007) said property or of any change in its actual use.
It is the act or process of determining the value of a It is the percentage applied to the fair market value
property, or proportion thereof subject to tax, to determine the taxable value of the property. (Sec.
NOTE: Provided, however, that the reassessment of Assessment of Real Property Subject to Back
real property due to its partial or total destruction, Taxes
or to a major change in its actual use, or to any great
and sudden inflation or deflation of real property Real property declared for the first time shall be
values, or to the gross illegality of the assessment assessed for taxes (back taxes) for the period during
when made or to any other abnormal cause, shall be which it would have been liable but in no case of
made within 90 days from the date of any such cause more than ten (10) years prior to the date of initial
or causes occurred, and shall take effect at the assessment: Provided, however, that such taxes
beginning of the quarter next following the shall be computed on the basis of the applicable
reassessment. (Sec. 221, LGC) schedule of values in force during the
corresponding period.
Q: St. Thomas Mall has requested that its real
property assessment be made effective on 2017, NOTE: If such taxes are paid on or before the end of
considering that the soft opening of the mall was the quarter following the date the notice of
on 12 September 2015 and the formal opening assessment was received by the owner, no interest
was in March 2016 only with a Certificate of for delinquency shall be imposed thereon;
Occupancy permit being issued by the Office of otherwise, taxes shall be subject to interest at the
the City Engineer. Is the RPT assessment rate of 2% per month or a fraction thereof from the
reckoned from the date the building was date of the receipt of the assessment until such taxes
completed or from the time it was issued a are fully paid. (Sec. 222, LGC)
certificate of occupancy?
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Notification of New or Revised Assessments year of use;
b. Remaining value shall be fixed at not less
Assessor shall give a written notice to the person than 20% of the cost; and
whose property is assessed in case of new or revised c. Machinery remains useful and in operation.
assessment.
5. COLLECTION
When real property is assessed for the first time or
when an existing assessment is increased or
a) DATE OF ACCRUAL
decreased, the provincial, city, or municipal
assessor shall within 30 days give written notice of
such new or revised assessment to the person in When Real Property Tax shall Acrue
whose name the property is declared. The notice For any year, the real property tax shall accrue on
may be delivered personally or by registered mail or the first day of January, and from that date, it shall
through the assistance of the Punong Barangay to constitute a lien on the property which shall be
the last known address of the person to be served. superior to any other lien, mortgage, or
(Sec. 223, LGC) encumbrance of any kind whatsoever, and shall be
extinguished only upon the payment of the
Classification of Machinery delinquent tax. (Sec. 246, LGC)
Appraisal and Assessment of Machinery Is XYZ Company subject to RPT for the fourth
quarter of 2018?
1. For brand new machinery – FMV is the A: YES. The RPT for any year shall accrue on the first
acquisition cost day of January from the start of the commercial
operation (e.g., January of every year) and not on the
2. In all other cases: date of the start of its commercial operation (e.g.,
October 2014) While it may be true that the 5% GIT
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙
𝐹𝐹𝐹𝐹𝐹𝐹 = × incentive shall be applied to XYZ Company at the
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑜𝑜𝑜𝑜 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 time of expiration of its ITH, it cannot, however,
apply to RPT since its accrual begins on the first day
3. Depreciation allowance: of January on the year following its operation. Hence
for RPT purposes, the GIT incentive claimed by XYZ
a. Rate not exceeding 5% of original cost OR Company. will be applied in January 2019 and not
replacement or reproduction cost for each on the fourth quarter of FY 2018. Thus, XYZ
Treasurer shall post the notice of the dates when the 2. The owner of the property or the person having
tax may be paid without interest in a publicly legal interest therein Requests for
accessible place at the city or municipal hall. Notice reinvestigation and executes a waiver in writing
shall likewise be published in a newspaper of before the expiration of the period within which
general circulation in the locality once a week for to collect; and
two consecutive weeks on or before the 31st day of
January each year in the case of the basic real 3. The owner of the property or the person having
property tax and the additional tax for the Special legal interest therein is Out of the country or
Education Fund or any other date to be prescribed otherwise cannot be located. (Ibid.)
by the Sanggunian concerned in the case of any
other tax levied under this title. (Sec. 249, LGC) Tax Discount on Advance or Prompt Payment
b) PERIODS TO COLLECT If the basic real property tax and the additional tax
accruing to the Special Education Fund (SEF) are
Prescription paid in advance the Sanggunian may grant a
discount not exceeding 20% of the annual tax due.
Both the Local Tax Code (LTC) and the Real Property
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(Sec. 251, LGC) b. Component barangays – 30% shall be
distributed among the component
NOTE: For prompt payment – discount not barangays of the cities where the property
exceeding 10% of annual tax due. (Art. 342, IRR of is located in the following manner:
the LGC)
i. 50% shall accrue to the barangay
Installment Payment of Real Property Taxes where the property is located; and
The owner or the person having legal interest may ii. 50% shall accrue equally to all
pay the basic real property tax and the additional component barangays of the city.
tax for Special Education Fund (SEF) due without
interest in four equal installments (on or before 3. In the case of a municipality within the
March 31, June 30, September 30, or December 31). Metropolitan Manila Area:
(Sec. 250, LGC)
a. Metropolitan Manila Authority – 35% shall
Interest on Unpaid Real Property Taxes accrue to the general fund of the authority;
The rate is (2%) per month on the unpaid amount b. Municipality – 35% shall accrue to the
until the delinquent tax shall have been fully paid. general fund of the municipality where the
Provided, in no case shall the total interest on the property is located; and
unpaid tax or portion thereof exceed 36 months.
(Sec. 255, LGC) c. Barangays – 30% shall be distributed
among the component barangays of the
Disposition of Proceeds of Real Property Tax municipality where the property is located
in the following manner:
Proceeds of real property tax, including interest
thereon plus proceeds from the use, lease or i. 50% shall accrue to the barangay
disposition, sale or redemption of property where the property is located; and
acquired at a public auction shall be distributed as
follows: ii.50% shall accrue equally to all
component barangays of the
1. In the case of provinces: municipality. (Sec. 271, LGC)
NOTE: The share of each barangay shall be released,
a. Province – 35% shall accrue to the general without need of any further action, directly to the
fund; barangay treasurer on a quarterly basis within five
(5) days after the end of each quarter and shall not
b. Municipality – 40% to the general fund of be subject to any lien or holdback for whatever
the municipality where the property is purpose.
located; and
Application of the Proceeds of Additional 1%
c. Barangay – 25% shall accrue to the SEF Tax
barangay where the property is located.
The proceeds from the additional 1% tax on real
2. In the case of cities: property accruing to the SEF shall be automatically
released to the local school boards, provided, in case
a. City – 70% shall accrue to the general fund of provinces, the proceeds shall be divided equally
of the city; and between the provincial and municipal school
boards.
Issuance of Delinquency Notice on Real Property b. Levy on the real property subject of the
Tax Payment tax; and
When real property tax or other tax imposed c. Distraint of personal property.
becomes delinquent, the local treasurer shall
immediately cause a notice of the delinquency to be 2. Judicial action
posted at the main hall and in a publicly accessible
and conspicuous place in each barangay of the LGU Right of Redemption of Delinquent Property
concerned. Notice of delinquency shall also be Owner
published once a week for two (2) consecutive
weeks, in a newspaper of general circulation in the Within one (1) year from the date of sale, the owner
province, city, or municipality. of the delinquent real property or person having
legal interest therein, or his representative, shall
Exercise of Local Government Lien have the right to redeem the property upon
payment to the local treasurer of the:
1. A legal claim on the property subject on the real
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1. Amount of the delinquent tax; Q: Quezon City published on 30 January 2006 a
list of delinquent real property taxpayers in 2
2. Interest due thereon; newspapers of general circulation and posted
this in the main lobby of the City Hall. The notice
3. Expenses of sale from the date of delinquency to requires all owners of real properties in the list
the date of sale; and to pay the real property tax due within 30 days
from the date of publication, otherwise the
4. Interest of not more than 2% per month on the properties listed shall be sold at public auction.
purchase price from the date of sale to the date
of redemption. (Sec. 261, LGC) Joachin is one of those named in the list. He
purchased a real property in 1996 but failed to
Effect of Redemption of the Delinquent Property register the document of sale with the register of
Deeds and secure a new real property tax
Such payment shall invalidate the certificate of sale declaration in his name. He alleged that the
issued to the purchaser and the owner of the auction sale of his property is void for lack of due
delinquent real property or person having legal process considering that the City Treasurer did
interest therein shall be entitled to a certificate of not send him personal notice. For his part, the
redemption which shall be issued by the local City Treasurer maintains that the publication
treasurer or his deputy. (Ibid.) and posting of notice are sufficient compliance
with the requirements of the law.
NOTE: From the date of sale until the expiration of
the period of redemption, the delinquent real a. If you were the judge, how will you resolve
property shall remain in possession of the owner or this issue?
person having legal interest therein who shall be b. Assuming Joachin is a registered owner, will
entitled to the income and other fruits thereof. your answer be the same? (2006 BAR)
1. There is no bidder; or
2. The highest bid is for an amount insufficient to
pay the real property tax, fees, charges,
surcharges, interests or penalties. (Sec. 263,
LGC)
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Procedure for Levy for Purposes of Satisfying Real Property Taxes
NOTE: Deposit of amount for which the real b. NO. The payment of the deficiency tax is a
property was sold together with interest of condition before she can protest the deficiency
2% per month from date of sale to the time assessment. It is the decision on the protest or
of institution of action. inaction thereon that gives her the right to
appeal. This means that she cannot refuse to
Q: Madam X owns real property in Caloocan City. pay the deficiency tax assessment during the
On 1 July 2014, she received a notice of pendency of the appeal because it is the
assessment from the City Assessor, informing payment itself which gives rise to the remedy.
her of a deficiency tax on her property. She The law provides that no protest (which is the
wants to contest the assessment. beginning of the disputation process) shall be
entertained unless the taxpayer first pays the
a. What are the administrative remedies tax. (Sec. 252, LGC)
available to Madam X in order to contest the
assessment and their respective
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
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a) CONTESTING AN ASSESSMENT claiming entitlement to the tax exemptions
provided under Sec. 234 of the Local
Any owner or person having legal interest in the Government Code (LGC) The real property taxes
property not satisfied with the action of the assessor assessed were not paid prior to the protest. The
in the assessment of his property may within 60 LBAA dismissed Napocor’s petition for
days from the date of receipt of the written notice of exemption for its failure to comply with Sec. 252
assessment appeal to the Board of Assessment of the LGC requiring payment of the assailed tax
Appeals of the provincial or city by filing a petition before any protest can be made. The Central
under oath in the form prescribed for the purpose, Board of Assessment Appeals (CBAA) ultimately
together with copies of the tax declarations and dismissed Napocor’s appeal for failure to meet
such affidavits or documents submitted in support the requirements for tax exemption; however,
of the appeal. (Sec. 226, LGC) the CBAA agreed with Napocor’s position that
the protest contemplated in Sec. 252(a) is
(1) PAYMENT UNDER PROTEST; EXCEPTIONS applicable only when the taxpayer is
questioning the reasonableness or
excessiveness of an assessment. The CBAA ruled
Necessity of Prior Payment before Protest
that the requirement of payment prior to
protest does not apply where the legality of the
The basis for requiring payment before protest can
assessment is put in issue on account of the
be entertained is that taxes are the lifeblood of the
taxpayer’s claim that it is exempt from tax. The
nation and as such collection cannot be restrained
CTA en banc agreed with the CBAA’s discussion.
by injunction or any like action. (Manila Electric
Company v. Barlis, G.R. No. 114231, 18 May 2001)
a. If the taxpayer claims that the property is
exempt from real property tax, is the
GR: The taxpayer must pay the real property tax
taxpayer required to pay the tax pursuant to
assessed prior to protesting a real property tax
Sec. 252?
assessment. (Sec. 252, LGC)
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Local Board of Assessment Appeals (LBAA). If Procedure for Tax Refund Based on
the local treasurer denies the protest or fails to Unreasonable Collection and Solutio Indebiti
act upon it within the 60-day period, the Distinguished
taxpayer/real property owner may then appeal
or directly file a verified petition with the LBAA UNREASONABLE SOLUTIO
within 60 days from denial of the protest or COLLECTION OF RPT INDEBITI
receipt of the notice of assessment. (Secs. 226 & Payment under protest
252, LGC) at the time of payment
or within 30 days Payment under protest
Remedy of Taxpayer in Case of Excessive thereafter is is not required.
Collections mandatory.
The taxpayer may file a written claim for refund or Treasurer has 60 days
Treasurer has 60 days
credit for taxes and interests with the local from claim for refund to
from receipt of the
treasurer, in case an assessment of RPT or any other decide on the claim.
protest to decide.
tax under Real Property Taxation (Title II, LGC) is
found to be illegal or erroneous (Sec. 253, LGC) Taxpayer may appeal
the decision or inaction
Period for Claim for Refund of the treasurer to the Treasurer’s denial
LBAA within 30 days would bring the case
The claim must be filed with the local treasurer from receipt of the within the original
within two (2) years from the date the taxpayer is decision or after the jurisdiction of the RTC.
entitled to such reduction or adjustment (Ibid.) expiration of 60 days.
Procedure for Claim for Refund or Credit The decision of the RTC
The LBAA has 120 days is appealable to the CTA
Taxpayer files a written claim for refund or from receipt of the Division by way of
credit with the treasurer within 2 years from the appeal to decide. Petition for Review.
date the taxpayer is entitled to such reduction or
Taxpayer may appeal
the decision of LBAA to The decision of CTA in
Provincial or City Treasurer should decide the CBAA within 30 days division may be the
claim within 60 days from receipt of the claim. from receipt of the subject of a review by
decision. CTA En banc.
When an assessment of basic real property tax, or The LBAA shall decide the appeal within 120 days
any other tax levied under this Title, is found to be from the date of receipt of such appeal. The Board,
illegal or erroneous and the tax is accordingly after hearing, shall render its decision based on
reduced or adjusted, the taxpayer may file a written substantial evidence or such relevant evidence on
claim for refund or credit for taxes and interests record as a reasonable mind might accept as
with the provincial or city treasurer within two (2) adequate to support the conclusion. (Sec 229(a),
years from the date the taxpayer is entitled to such LGC)
reduction or adjustment. (Sec. 253, LGC)
(2) APPEAL TO THE CENTRAL BOARD OF
b) CONTESTING A VALUATION OF PROPERTY ASSESSMENT APPEALS
1. The Registrar of Deeds, as chairman; NOTE: The composition of the LBAA shall be
2. The provincial or city prosecutor as member; appointed by the President. They will serve for a
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UNIVERSITY OF SANTO TOMAS
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term of seven (7) years, without reappointment. Q: A Co., a Philippine corporation, is the owner
(Ibid.) of machinery, equipment and fixtures located at
its plant in Muntinlupa City. The City Assessor
Jurisdiction of the CBAA characterized all these properties as real
properties subject to the real property tax. A Co.
The Board shall have appellate jurisdiction over all appealed the matter to the Muntinlupa Board of
assessment cases decided by the LBAA. (Sec. 230, Assessment Appeals. The Board ruled in favor of
LGC) the City. A Co. brought a petition for review
before the CTA to appeal the decision of the City
NOTE: The CBAA can be appointed by the SC to act Board of Assessment Appeals. Is the Petition for
as a court-appointed fact-finding commission to Review proper? Explain. (1999 BAR)
assist the Court in resolving the factual issues raised
in the cases before it. In that regard, the CBAA is not A: NO. The CTA’s devoid of jurisdiction to entertain
acting in its appellate jurisdiction. (Mathay v. appeals from the decision of the City Board of
Undersecretary of Finance, G.R. Nos. 97618, 97760 & Assessment Appeals. Said decision is instead
102319, 16 Dec. 1993) appealable to the Central Board of Assessment
Appeals, which under the LGC, has appellate
The owner of the property or the person having jurisdiction over decisions of LBAA. (Caltex Phils. v.
legal interest therein or the assessor who is not CBAA, G.R. No. L50466, 31 May 1982)
satisfied with the decision of the Board may, within
30 days after receipt of the decision of said Board, CTA En Banc Exclusive Appellate Jurisdiction
appeal to the Central Board of Assessment Appeals, over Cases Filed with CBAA
as herein provided. The decision of the Central
Board shall be final and executory. (Sec. 229(c), LGC) 1. In the exercise of its appellate jurisdiction;
2. Over cases involving the assessment and
CBAA Not Authorized to Hear Purely Legal taxation of real property; and
Issues 3. Originally decided by the provincial or CBAA.
Such authority is lodged with the regular courts. Period for CBAA to Decide a Case
Thus, the issue of whether R.A. 7160 repealed P.D.
921, is an issue which does not find referral to the The Central Board shall decide cases brought on
CBAA before resort is made to the courts. (Ty, v. appeal within twelve (12) months from the date of
Trampe, G.R. No. 117577, 01 Dec. 1995) receipt thereof, which decision shall become final
and executory after the lapse if fifteen (15) days
Appeal to LBAA or CBAA does Not Suspend from the date of receipt thereof by the appellant.
Collection of Tax
Prior Resort to Administrative Remedies
An appeal on assessments of real property shall in
no case, suspend the collection of the corresponding In disputes involving real property taxation, the
realty taxes the property involved as assessed. This general rule is to require the taxpayer to first avail
is without prejudice to subsequent adjustment of administrative remedies and pay the tax under
depending upon the final outcome of the appeal. protest before allowing any resort to a judicial
(Sec. 231, LGC) action, except when the assessment itself is alleged
to be illegal or is made without legal authority.
NOTE: “No Injunction Rule” provides that no court
shall have the authority to enjoin or restrain the NOTE: For example, prior resort to administrative
collection of any tax, fee, or charge collected by the action is required when among the issues raised is
provincial, city or municipal treasurer. an allegedly erroneous assessment, like when the
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Taxpayer’s Remedies Involving Collection of Real Property Tax
A. COURT OF TAX APPEALS (CTA) 5. To prescribe Rules and regulations for the
conduct of its business;
CTA is a highly specialized body specifically created 7. To punish for Contempt for the same causes
for the purpose of reviewing tax cases. The CTA is, under the same procedure and with the same
by the very nature of its function, dedicated penalties provided for in the rules of court;
exclusively to the study and consideration of tax
problems. (CIR v. CA, G.R. No. 115349, 18 Apr. 1997) 8. To receive Evidence;
3. It is a court of special or limited jurisdiction and The CTA may sit En banc or in three (3) Divisions,
as such, it can only take cognizance of such each Division consisting of three (3) Justices. The
matters as are clearly within its jurisdiction. presiding justice shall be the chairperson of the first
(Ker & Company, Ltd. vs. CTA, G.R. No. L-12396, division and the two (2) most senior associate
justices shall serve as chairpersons of the second
31 Jan. 1962)
and third divisions, respectively. (Sec. 2, RA. No.
1125, as amended)
Composition of the CTA
CTA Quorum
1. A Presiding Justice, and
2. Eight Associate Justices:
1. For Sessions En Banc – Five Justices shall
a. Each of whom shall be appointed by the constitute a quorum. The presence at the
President; and deliberation and the affirmative vote of 5
b. upon the nomination by the Judicial and members of the Court en banc shall be
Bar Council for each vacancy. (Sec. 2, RA. No. necessary to reverse the decision of a Division
1125, as amended) but only a simple majority of the justices
present shall be necessary to promulgate a
resolution or decision in all other cases.
Powers of the CTA: (A-D-D-P-R-O-C-E-S-S)
2. For Sessions of a Division – Two Justices shall
1. To Administer oath;
constitute a quorum and a concurrence of 2
members of Division shall be necessary for the
2. To assess Damages against the appellant if the rendition of decision or resolution in Division
appeal to CTA is found to be frivolous and level (Sec. 2, RA 1125, as amended)
dilatory;
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Q: What if the required quorum in a division jurisdiction to review by appeal the following: (A-R-
cannot be constituted? Mo-R)
A: When the required quorum cannot be constituted 1. Decisions or resolutions on motions for
due to any vacancy, disqualification, inhibition, reconsideration or new trial of the Court in
disability, or any other lawful cause, the presiding Divisions in the exercise of its exclusive
justice shall designate any justice of other divisions
Appellate jurisdiction over: (A-L-T)
of the CTA to sit temporarily therein. (Ibid.)
a. Cases arising from Administrative agencies
Jurisdiction of the CTA
– BIR, BOC, DoF, DTI, and DA;
The CTA has jurisdiction over both civil and criminal
b. Local tax cases decided by the RTC in the
aspects of a tax case. The concentration of tax cases
exercise of their original jurisdiction; and
in one court will enhance the disposition of these
cases since it will take them out of the jurisdiction of
c. Tax collection cases decided by the RTC in
regular courts which, admittedly, do not have
the exercise of their original jurisdiction
expertise in the field of taxation. (Dimaampao, 2015)
involving final and executory assessments
for taxes, fees, charges and penalties, where
Salient Features of R.A. No. 9282
the principal amount of taxes and penalties
claimed is less than P1 million pesos;
The decisions of the CTA are no longer appealable to
the CA. The decision of a division of the CTA may be
2. Decisions, resolutions or orders of the RTC in
appealed to the CTA En banc, which in turn may be
cases decided or resolved by them in the
appealed directly to the SC only on questions of law.
exercise of their appellate jurisdiction over:
Q: Does the CTA have jurisdiction over a special
a. Local tax cases, and
civil action for certiorari assailing an
b. Tax collection cases;
interlocutory order issued by the RTC in a local
tax case?
3. Decisions, resolutions or orders on Motions for
reconsideration or new trial of the Court in
A: YES. Although there is no categorical statement
Division in the exercise of its exclusive original
under R.A. No. 1125 as well as the amendatory R.A.
jurisdiction over tax collection cases; and
No. 9282, which provides that the CTA has
jurisdiction over petitions for certiorari assailing
4. Decisions of the Central Board of Assessment
interlocutory orders issued by the RTC in local tax
Appeals (CBAA) in the exercise of its appellate
cases filed before it, the prevailing doctrine is that a
jurisdiction over cases involving the
court may issue a writ of certiorari in aid of its
assessment and taxation of Real property
appellate jurisdiction if said court has jurisdiction to
originally decided by the provincial or city
review, by appeal or writ of error, the final orders or
board of assessment appeals. (Sec. 2, Rule 4,
decisions of the lower court. (The City of Manila v.
RRCTA)
Hon. Grecia-Cuerdo, G.R. No. 175723, 04 Feb. 2014)
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A: Being an action for the collection of sum taxes had already prescribed is a subject
of money, the CTA has exclusive original matter falling under the NIRC. In
jurisdiction over undisputed assessments connection therewith, the NIRC also states
when the amount involved is P1 million or that the collection of taxes is one of the
more; and appellate jurisdiction over duties of the BIR. Thus, from the foregoing,
appeals from the judgments, resolutions, or the issue of prescription of the BIR’s right
orders of the RTC in tax collection cases to collect taxes may be considered as
originally decided by them within their covered by the term “other matters” over
jurisdiction. (Sec. 3(c), Rule 4, RRCTA) which the CTA has appellate jurisdiction.
However, where the amount is less than P1 Q: BDO questions a BIR ruling subjecting
million, it is the RTC or the MTC that has interest income from zero-coupon
jurisdiction, as the case may be, depending bonds issued by the government to the
on the jurisdictional amount. 20% final withholding tax as they are
deemed to be deposit substitutes. BDO
NOTE: Undisputed assessments are filed it to the CTA, not with the Secretary
already final and collectible. The taxpayer of Finance. CIR contends that it violates
failed to seasonably protest the assessment the principle of exhaustion of
within a period of 30 days from receipt of administrative remedies. Is BDO
the notice of assessment. correct?
ii. Refunds of internal revenue taxes, fees A: YES. The jurisdiction to review the
or other charges and penalties rulings of the CIR pertains to the CTA. The
imposed thereto; questioned BIR Rulings were issued in
connection with the implementation of the
iii. Other matters arising under NIRC or NIRC. Under Sec. 7 of R.A. No. 1125 as
other laws administered by the BIR. amended by R.A. No. 9282, the CTA shall
exercise exclusive appellate jurisdiction to
Q: What does “Other Matters” under the review by appeal on the Decisions of the
NIRC or the TCCP mean? CIR in cases involving disputed
assessments, refunds of internal revenue
A: The term “other matters” includes cases taxes, fees or other charges, penalties in
which can be considered within the scope relation thereto or other matters arising
of the function of the BIR and BOC by under the NIRC or other laws administered
applying the Ejusdem generis rule (i.e., such by the BIR. Sec. 11 is likewise worded as
cases should be of the same nature as those follows: Any party adversely affected by a
that have preceded them). decision, ruling or inaction of the CIR, the
Commissioner of Customs, the Secretary of
In CIR v. Hambrecht & Quist Philippines, Inc., Finance, the Secretary of Trade and
the term “other matters” is limited only by Industry or the Secretary of Agriculture or
the qualifying phrase that follows it. The the Central Board of Assessment Appeals or
appellate jurisdiction of the CTA is not the Regional Trial Courts may file an appeal
limited to cases which involve the decisions with the CTA within 30 days after the
of the CIR on matters relating to receipt of such decision or ruling. (Banco de
assessments or refunds. It covers other Oro v. Republic, G.R. No. 198756, 13 Jan.
cases that arise out of the NIRC or related 2015)
laws administered by the BIR. The issue of
whether or not the BIR’s right to collect b. Inaction by the CIR in cases involving: (D-
ii. Refunds of internal revenue taxes, fees f. Decisions of the Secretary of Trade and
or other charges and penalties Industry, in the case of non-agricultural
imposed thereto; Product, commodity or article, and the
Secretary of Agriculture in the case of
iii. Other matters arising under NIRC or
agricultural product, commodity or article,
other laws administered by the BIR,
involving dumping and countervailing
Where the NIRC provides a specific
duties under Secs. 301 and 302,
period for action.
respectively of the TCCP, and safeguard
measures under R.A. No. 8800, where
NOTE: The inaction by the CIR within
the 180-day period under Sec. 228 of either party may appeal the decision to
the NIRC, and the 90-day period for impose or not to impose said duties.
VAT refund cases, under the TRAIN
Law, shall be deemed a denial, which NOTE: The SC held that the lower courts
shall be appealable to the CTA, within can acquire jurisdiction over a claim for
30 days from the expiration of the 180 collection of deficiency taxes only after the
or 90 days, as the case may be.
assessment made by the CIR has become
final and appealable, not where there is still
c. Decisions, Orders or Resolutions of the RTC
a pending CTA case. (Yabes v. Flojo, G.R. No.
in the exercise of their original jurisdiction
L-46954, 20 July 1982)
over local tax cases and tax collection cases.
d. Decisions of the Commissioner of Customs Q: Does the CTA have the power to review
(COC) in cases involving: (D-S-F-O) tax cases motu proprio? (1977 BAR)
i. Liability for customs Duties, fees or A: NO. The CTA has no power motu proprio to
other money charges; review tax cases. It can resolve cases only if a
ii. Seizure, detention or release of civil action for collection of sum of money is
property affected; filed before it in the exercise of its exclusive
iii. Fines, forfeitures or other penalties in original jurisdiction, or a petition for review is
relation thereto; or filed in the exercise of its exclusive appellate
iv. Other matters arising under Customs jurisdiction. An information may be filed with
Law or other laws administered by the the CTA directly where the principal amount of
BOC. taxes and fees, exclusive of charges and
penalties, is P1 million or more.
e. Decisions of the Secretary of Finance on
customs cases elevated for Automatic Q: Does the CTA have jurisdiction to rule on
review from decisions of the COC which are validity of a Rule or Regulation issued by an
adverse to the Government under Sec. 2315 administrative agency?
of the TCCP (now Sec. 1128 of the CMTA).
A: NO. While the law confers on the CTA
NOTE: The purpose and rationale of the jurisdiction to resolve tax disputes in general,
automatic review in customs cases – the this does not include cases where the
provision for automatic review by the COC constitutionality of a law or rule is challenged.
and the Secretary of Finance of unappealed Where what is assailed is the validity or
seizure and protest cases was conceived to constitutionality of a law, or a rule or regulation
protect the government against corrupt issued by the administrative agency in the
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UNIVERSITY OF SANTO TOMAS
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performance of its quasi-legislative function, revenue laws. Tax rulings, on the other hand,
the regular courts have jurisdiction to pass are official positions of the Bureau on inquiries
upon the same. (British American Tobacco v. of taxpayers who request clarification on
Camacho, G.R. No. 163583, 20 Aug. 2008) certain provisions of the National Internal
Revenue Code, other tax laws, or their
NOTE: However, in the case of Banco de Oro vs. implementing regulations. Hence, the
Republic of the Philippines, the Supreme Court determination of the validity of these issuances
ruled that the Court of Tax Appeals has clearly falls within the exclusive appellate
undoubted jurisdiction to pass upon the jurisdiction of the Court of Tax Appeals under
constitutionality or validity of a tax law or Sec. 7(1) of R.A. No. 1125, as amended, subject
regulation when raised by the taxpayer as a to prior review by the Secretary of Finance, as
defense in disputing or contesting an required under R.A. No. 8424. (Banco de Oro vs.
assessment or claiming a refund. It is only in the Republic of the Philippines, G.R. No. 198756, 16
lawful exercise of its power to pass upon all Aug. 2016)
maters brought before it, as sanctioned by Sec.
7 of R.A. No. 1125, as amended. Q: Disputing the assessment, PAGCOR
appealed to the Secretary of Justice, on the
This Court, however, declares that the Court of basis of Secs. 66 and 67 of the Revised
Tax Appeals may likewise take cognizance of Administrative Code, which provides that
cases directly challenging the constitutionality “all disputes/claims and controversies,
or validity of a tax law or regulation or solely between or among the departments,
administrative issuance (revenue orders, bureaus, offices, agencies and
revenue memorandum circulars, rulings). instrumentalities of the National
Government, including government-owned
In other words, within the judicial system, the and controlled corporations, such as those
law intends the Court of Tax Appeals to have arising from the interpretation and
exclusive jurisdiction to resolve all tax application of statues, contracts or
problems. Petitions for writs of certiorari agreements shall be administratively
against the acts and omissions of the said quasi- settled or adjudicated by the Secretary of
judicial agencies should, thus, be filed before Justice as Attorney-General of the National
the Court of Tax Appeals. Government and as ex officio legal adviser of
all government-owned or controlled
R.A. No. 9282, a special and later law than BP corporations if involving only questions of
Blg. 129 provides an exception to the original law.”
jurisdiction of the Regional Trial Courts over
actions questioning the constitutionality or The CIR contends that the CTA has
validity of tax laws or regulations. Except for jurisdiction pursuant to Sec. 7(1) of R.A. No.
local tax cases, actions directly challenging the 1125, which grants the CTA the exclusive
constitutionality or validity of a tax law or appellate jurisdiction to review, among
regulation, or administrative issuance may be others, the decisions of the Commissioner of
filed directly before the Court of Tax Appeals. Internal Revenue “in cases involving
disputed assessments, refunds of internal
Furthermore, with respect to administrative revenue taxes, fees or other charges,
issuances (revenue orders, revenue penalties imposed in relation thereto, or
memorandum circulars, or rulings), these are other matters arising under the NIRC or
issued by the Commissioner under its power to other law or part of law administered by the
make rulings or opinions in connection with the Bureau of Internal Revenue. Is PAGCOR
implementation of the provisions of internal correct?
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will be recognized. (Sec. 7, R.A. No. 1125, as iii. Decisions, Resolutions or Orders of the
amended) RTC decided or resolved by them in the
exercise of their appellate jurisdiction
2. Exclusive appellate jurisdiction over criminal offenses arising from
violations of the NIRC or TCCP and
a. CTA in Divisions: other laws administered by the BIR or
BOC where the principal amount of
i. Appeals from the Judgments, taxes and fees, exclusive of charges and
Resolutions or Orders of the RTC in penalties claimed is less than P1
their original jurisdiction in criminal million.
offenses arising from violations of the
NIRC or TCCP and other laws
administered by the BIR or BOC, where B. PROCEDURES
the principal amount of taxes and fees,
exclusive of charges and penalties,
claimed is less than P1 million or 1. FILING OF AN ACTION FOR COLLECTION OF
where there is no specified amount TAXES
claimed; and
ii. Decisions, Resolutions or Orders on Adverse decisions of the CTA En Banc shall be
Motions for Reconsideration or New appealed to the SC by means of petition for
Trial of the Court in division in the review.
exercise of its exclusive appellate
jurisdiction over criminal offenses
arising from violations of the NIRC or
TCCP and other laws administered by
the BIR or BOC; and
a. If denied – appeal by means of a petition for Prescriptive Period for Local Taxes
review before the CTA En Banc; and
1. Assessment
b. If denied by CTA En Banc – appeal to the SC
by means of a petition for review on GR: Prescriptive period is within five (5) years
certiorari. from the date they become due. Thus, no action
for collection of such taxes, fees, or charges,
b) LOCAL TAXES whether administrative or judicial, shall be
instituted after the expiration of such period.
The procedures for internal revenue taxes are the
same for local and real property taxes if the case is XPN: In case of fraud or intent to evade the
brought before the CTA in division in the exercise of payment of taxes, fees, or charges, the
its original jurisdiction. assessment may be made ten (10) years from
discovery of fraud or intent to evade payment.
Remedies Available to Taxpayer Prior
Assessment 2. Collection – within five (5) years from date of
assessment by administrative or judicial action.
1. To question the constitutionality or legality of
tax ordinances or revenue measures on appeal Grounds for Suspension of the Running of
(Sec. 187, LGC); or Prescriptive Period on Assessment and
Collection of Local Taxes: (P-R-O)
2. Petition for declaratory relief, when applicable.
1. The treasurer is legally Prevented from making
Q: How does the LGU concerned enforce the the assessment or collection;
judicial remedy in collection of taxes?
2. The taxpayer requests for a Reinvestigation and
A: The LGU may enforce collection of delinquent executes a waiver in writing before the
taxes, fees, charges and other revenues by civil expiration of the period within which to assess
action in any court of competent jurisdiction. The or collect; and
civil action shall be filed by the local treasurer
within five (5) years from the date of assessment. 3. The taxpayer is Out of the country or otherwise
(Sec. 194, LGC) cannot be located. (Sec. 194, LGC)
NOTE: The LGU files an ordinary suit for the Remedies Available to Taxpayer after
collection of sum of money before the MTC, RTC or Assessment
CTA depending upon the jurisdictional amount.
1. Protest of assessment (Sec. 195, LGC)
Q: May regular court issue injunction to restrain
LGUs from collecting taxes? Within 60 days from the receipt of the notice of
assessment, the taxpayer may file a written
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protest with the local treasurer; otherwise, the d. Secretary of Trade and Industry;
assessment shall become final and executory. e. Secretary of Agriculture; or
The local treasurer shall decide the protest f. RTC in the exercise of its original
within 60 days from the time of its filing. jurisdiction.
The taxpayer shall have 30 days from the 2. To the CTA En Banc – any party adversely
receipt of the denial of the protest or from the affected by a decision or ruling of:
lapse of the 60-day prescribed period within
which to appeal with the court of competent a. The CTA in Division on a MR or MNT;
jurisdiction. b. The CBAA, in the exercise of its appellate
jurisdiction; or
NOTE: In case of an illegal assessment where c. The RTC, in the exercise of its appellate
the assessment was issued without authority, jurisdiction. (Sec. 11, R.A. No. 1125, as
exhaustion of administrative remedies is not amended)
necessary and the taxpayer may directly resort
to judicial action. The taxpayer shall file a Q: Will the CTA acquire jurisdiction even in the
complaint for injunction before the RTC to absence of a decision of the CIR or COC?
enjoin the local government unit from
collecting real property taxes. (City of Lapu- A:
Lapu v. PEZA, G.R. No. 187853, 26 Nov. 2014) GR: CTA has jurisdiction only, if there is a decision
of the CIR or COC.
2. Claim for refund or tax credit (Sec. 196, LGC)
XPNs:
Prior to a judicial action for recovery of tax
1. If COC has not rendered a decision and the suit
erroneously or illegally collected, a written
is about to prescribe.
claim for refund or credit must first be filed with
the local treasurer.
Rationale: If the taxpayer waits, then his right
of action prescribes.
In any case, the judicial action for claim for
refund or credit must be made within two (2)
2. Deemed Denial / Inaction of the CIR in a refund
years from the date of the payment of such tax,
of illegally or erroneously collected tax and the
fee, or charge, or from the date the taxpayer is
2-year prescriptive period is about to expire or
entitled to a refund or credit.
after the lapse of 120-day period or 90-day
period (for claims for refund 2018 onwards
2. CIVIL CASES under TRAIN) to decide in case of refund of
unutilized input VAT; or
a) WHO MAY APPEAL, MODE OF APPEAL, AND
EFFECT OF APPEAL Rationale: The taxpayer would be left at the
mercy of the Commissioner, who by his delay
WHO MAY APPEAL leaves the taxpayer without any positive and
expedient relief from the courts.
1. To the CTA in Division – any party adversely
3. Deemed denial or inaction – where the CIR has
affected by a decision, ruling, or inaction of the:
not acted upon a protested assessment within
a. CIR on disputed assessments or claims for 180 days from submission of all relevant
refund of internal revenue taxes; documents supporting the protest, the taxpayer
b. COC; adversely affected by the inaction may appeal to
c. Secretary of Finance; the CTA within 30 days from the lapse of the
It is the Commissioner’s decision on the protest that Inaction of the CIR within the 180-day period
gives the Tax Court jurisdiction over the case shall be deemed a denial, thus, appealable via a
provided that the appeal is filed within 30 days from petition for review to the CTA within 30 days
receipt of the Commissioner’s decision. An from receipt of copy of decision. Should the
assessment by the BIR is not the Commissioner’s taxpayer opt to await the final decision of the
decision from which a petition for review may be CIR beyond the 180-day period, appeal to the
filed with the CTA. Rather, it is the action taken by CTA should be made within 30 days after
the Commissioner in response to the taxpayer’’ receipt of copy of such decision.
protest on the assessment that would constitute the
appealable decision. (Sec. 7, R.A. No. 1125, as Claims for Refund of Internal Revenue Taxes
amended) Erroneously or Illegally Collected
Q: Under the above factual setting, the taxpayer, In case of inaction of the CIR, the 30-day period
instead of questioning the assessment he to file the petition for review before the CTA
received on 15 January 1996 paid, on 1 March after the lapse of 180 days must be within the 2-
1996 the "deficiency tax" assessed, the taxpayer year period prescribed by law from payment of
requested a refund from the Commissioner by tax.
submitting a written claim on 1 March 1997. It
was denied. The taxpayer, on 15 March 1997, Claim for Refund of Unutilized Input VAT
filed a petition for review with the CA. Could the Payments
petition still be entertained? (1997 BAR)
The 2-year period does not refer the filing of
A: NO. The petition for review cannot be judicial claim with the CTA but to the filing of
entertained by the CA since decisions of the the administrative claim with the CIR. (CIR v.
Commissioner on cases involving claim for tax San Roque power Corporation, G.R. No. 187485,
refunds are within the exclusive and primary 12 Feb. 2013) The taxpayer will always have 30
jurisdiction of the CTA. (Ibid.) days to file the judicial claim regardless of his
action or inaction. (CIR v. Mindanao II
MODE OF APPEAL Geothermal Partnership, G.R. No. 191498, 15 Jan.
2014)
1. To the CTA in Division – by filing a Petition for
Review under a procedure analogous to that NOTE: 120 + 30 days is mandatory and
provided for under Rule 42 of the ROC, within jurisdictional. (now 90 days under TRAIN Law)
30 days from the receipt of the decision or
ruling or from the expiration of the period fixed Q: Energy Development Corporation (EDC)
by law or inaction of the CIR on disputed is a domestic corporation registered with
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UNIVERSITY OF SANTO TOMAS
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the Bureau of Internal Revenue (BIR) as a Is the Aichi case the controlling doctrine in
VAT taxpayer. On various dates, EDC filed its cases involving claims for refund of
quarterly VAT Returns and the unutilized input vat?
amendments. EDC filed with the BIR Large
Taxpayers District Office an administrative A: YES. In case of full or partial denial of the
claim for tax credit or refund of its claim for tax refund or tax credit, or the failure
unutilized input VAT for its zero-rated. on the part of the Commissioner to act on the
application within the period prescribed above,
On 18 June 2009, respondent Commissioner the taxpayer affected may, within thirty (30)
of Internal Revenue (CIR) opposed the claim days from the receipt of the decision denying
of EDC, arguing that EDC failed to the claim or after the expiration of the one
substantiate its claim for input VAT tax hundred twenty day-period, appeal the
credit or refund by the submission of proper decision or the unacted claim with the Court of
documents. Tax Appeals.
On 6 October 2010, the Supreme Court Notably, the recent amendment to Sec. 112(C)
promulgated its Decision in Aichi which finally removed the confusion on the reckoning
delineated the prescriptive periods for filing period for judicial claims by legislating a
separate administrative and judicial claims singular action for the CIR to decide on the
for input VAT refund or tax credit of the then administrative claim for input VAT tax credit or
Sec. 112(A) and (C), of the National Internal refund within a period of ninety (90) days.
Revenue Code of 1997 (NIRC).
As held in Aichi, there is nothing in Sec. 112 of
On 25 March 2011, the CIR filed a Motion to the NIRC which sanctions the simultaneous
Dismiss EDC's Petition for Review citing filing of administrative and judicial claims, and
EDC's failure to comply with the prescriptive the filing of the judicial claim prior to the action
periods under Sec. 112(C) of the NIRC. The of the CIR or the lapse of the 120-day period
CIR alleged that EDC did not wait for: (a) the (now 90-day period under TRAIN Law) within
CIR's action on its administrative claim for which the CIR is required to act on the
input VAT tax credit or refund before administrative claim.
appealing to the CTA within 30 days, and (b)
in the alternative of the CIR's inaction, Therefore, Sec. 112(A) simply cannot be
reckon the 30-day period to appeal from the invoked as the prescriptive period for both
expiration of 120 days from the date of the administrative and judicial claims of input VAT
submission of complete documents to tax refund or credit with the CIR. The taxpayer
support the administrative claim under Sec. claiming input VAT tax credit or refund should
112(A). not ignore subsection (C) on judicial claims, and
persist in the notion that the correct
EDC opposed the CIR's motion to dismiss prescriptive period to file any of the claims can
arguing that Aichi cannot be applied be found in an entirely separate provision and
retroactively to cases where the claim for Chapter III on "Protesting, Assessment, Refund,
input VAT tax credit or refund arose Etc." (Energy Development v. CIR, G.R. No.
before Aichi's promulgation and especially 203367, 17 Mar. 2021, J. Hernando)
since the period relied upon for availment of
remedies was based on prevailing
jurisprudence.
Inaction within the 2-year prescriptive Appealable 30 days to CTA from receipt
Claims for refund of
period (from date of payment). of denial, provided it is within two (2)
internal revenue taxes
years from date of payment.
erroneously paid
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UNIVERSITY OF SANTO TOMAS
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Remedy of Party Affected by the Ruling or pendency, the movant shall appeal to the SC.
Decision of the CTA Division (Sec. 1, Rule 16, R.A. No. 9282)
The adverse party may file a MR or MNT before 30-day Prescriptive Period of Appeal with the
the same Division of the CTA within 15 days CTA
from notice thereof.
1. It runs from the date the taxpayer receives the
However, in criminal cases, the general rule appealable decision or 30 days after the lapse of
applicable in regular courts on matters of 180 days within which the BIR should act.
prosecution and appeal shall apply.
NOTE: The two periods are mutually exclusive.
2. In appeals to the CTA En Banc: (RCBC v. CIR, G.R. No. 168498, 16 June 2006)
a. By filing a Petition for Review under a 2. It is jurisdictional and mandatory. (CIR v. First
procedure analogous to that provided for Express Pawnshop Company, Inc., G.R. No.
under Rule 43 of the ROC, within 15 days 172045-46, 16 June 2009)
from receipt of decision or resolution of the
Court in Division on a MR or MNT. Upon 3. It is non-extendible. (Filipinas Investment and
proper motion and the payment of the full Finance Corporation v. CIR, G.R. No. L-23501, 16
amount of the docket and other lawful fees May 1967)
and deposit for costs before the expiration
of the reglementary period herein fixed, the NOTE: After the 30-day period, an assessment
Court may grant an additional period not may no longer be disputed through the simple
exceeding 15 days from the expiration of expedient of paying the protested tax and by
the original period within which to file the subsequently claiming it as a refund within the
petition for review. period of two (2) years from date of payment.
(Sec. 3, Rule 8, RRCTA)
NOTE: An MR/MNT filed before the Court
in Division is required before filing a Q: Does the motion for reconsideration toll the
Petition for Review to the Court En Banc. 30-day period to appeal to the CTA?
b. By filing a Petition for Review under a A: NO. A motion for reconsideration of the denial of
procedure analogous to that provided for the administrative protest does not toll the 30-day
under Rule 43 of the ROC, within 30 days period to appeal to the CTA. (Fishwealth Canning
from a decision or ruling of the CBAA or the Corporation v. CIR, G.R. No. 179343, 21 Jan. 2010)
RTC in the exercise of their appellate
jurisdiction. (Sec. 4, Rule 8, RRCTA) Q: A Co., a Philippine corporation, received an
income tax deficiency assessment from the BIR
Remedy of Party Affected by the Decision or on 5 May 1995. On 31 May 1995, A Co. filed its
Ruling of the CTA En Banc protest with the BIR. On 30 July 1995, A Co.
submitted to the BIR all relevant supporting
The adverse party may file a Petition for Review documents. The CIR did not formally rule on the
on Certiorari under Rule 45 of the ROC, through protest but on 25 January 1996, A Co. was served
a verified petition before the Supreme Court, a summons and a copy of the complaint for
within 15 days from receipt thereof. (Sec. 1, Rule collection of the tax deficiency filed by the BIR
16, R.A. No. 9282) with the RTC. On 20 February 1996, A Co.
brought a Petition for Review before the CTA.
NOTE: The MR or MNT filed before the Court The BIR contended that the Petition is
shall be deemed abandoned if, during its
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CTA is authorized to give injunctive relief if the statements.
enforcement would jeopardize the interest of the
taxpayer, as in this case, where the assessment has a. May the collection of taxes be suspended?
not become final (Lascona Land Co. v. CIR, CTA Case
No. 5777, 04 Jan. 2000) b. Is the CTA Division justified in requiring
Globesmart to post a surety bond as a
Q: RR disputed a deficiency tax assessment and condition for the suspension of the
upon receipt of an adverse decision by the CIR, deficiency tax collection? (2017 BAR)
filed an appeal with the CTA. While the appeal is
pending, the BIR served a warrant of levy on the A:
real properties of RR to enforce the collection of a. YES. As provided by R.A. No. 1125, as amended
the disputed tax. Granting arguendo that the BIR by R.A. No. 9282, that when in the opinion of the
can legally levy on the properties, what could RR Court the collection by the aforementioned
do to stop the process? Explain briefly. (2004 government agencies may jeopardize the
BAR) interest of the Government and/ or the
taxpayer, the Court any stage of the proceeding
A: RR should file a motion for injunction with the may suspend the said collection and require the
CTA to stop the administrative collection process. taxpayer either to deposit the amount claimed
An appeal to the CTA shall not suspend the or to file a surety bond for not more than double
enforcement of the tax liability, unless a motion to the amount with the Court.
that effect shall have been presented in court and
granted by it on the basis that such collection will b. NO. The Supreme Court, in the case of
jeopardize the interest of the taxpayer or the Tridharma Marketing Corporation v. CTA, cited
Government (Pirovano v. CIR, 14 G.R. No. L-19865, 31 the case of Pacquiao v. CTA, where it ruled that
July 1965) the CTA should first conduct a preliminary
hearing for the proper determination of the
Q: Globesmart Services, Inc. received a FAN with necessity of a surety bond or the reduction
FLD from the BIR for deficiency income tax, VAT, thereof. In the conduct of its preliminary
and withholding tax for the taxable year 2016 hearing, the CTA must balance the scale
amounting to P48 million. Globesmart filed a between the inherent power of the State to tax
protest against the assessment, but the CIR and its right to prosecute perceived
denied the protest. Hence, Globesmart filed a transgressors of the law, on one side; and the
petition for review in the CTA with an urgent constitutional rights of petitioners to due
motion to suspend the collection of tax. process of law and the equal protection of the
laws, on the other. In this case, the CTA failed to
After hearing, the CTA Division issued a consider that the amount of the surety bond
resolution granting the motion to suspend but that it is asking Globesmart to pay is more than
required Globesmart to post a surety bond its net worth. Thus, it is necessary for the CTA
equivalent to the deficiency assessment within to first conduct a preliminary hearing to give
15 days from notice of the resolution. taxpayer an opportunity to prove its inability to
Globesmart moved for the partial come up with such amount.
reconsideration of the resolution and for the
reduction of the bond to an amount it could b) SUSPENSION OF COLLECTION OF TAXES
obtain. The CTA Division issued another
resolution reducing the amount of the surety Requisites for Suspension of Tax Collection
bond to P24 million. The latter amount was still
more than the net worth of Globesmart Services, 1. There is an appeal to the CTA from a decision of
Inc. as reported in its audited financial the CIR;
4. That the appeal is not frivolous or dilatory. Q: In the investigation of the withholding tax
returns of AZ Medina Security Agency (AZ
NOTE: The motion for the suspension of the Medina) for the taxable years 1997 and 1998, a
collection of tax shall be verified and shall state discrepancy between the taxes withheld from its
clearly and distinctly the facts and the grounds employees and the amounts actually remitted to
relied upon in support of the motion. (Sec. 4, Rule 10, the government was found. Accordingly, before
RRCTA) the period of prescription commenced to run,
the BIR issued an assessment and a demand
Exceptions to Posting of Bond Requirement letter calling for the immediate payment of the
deficiency withholding taxes in the total amount
1. Allegations of prescription of administrative of P250,000.00. Counsel for AZ Medina
action for collection – Collector of Internal protested the assessment for being null and void
Revenue cannot, after three (3) years from the on the ground that no pre-assessment notice
time the taxpayer has filed his income tax had been issued. However, the protest was
returns or from the time when he should have denied. Counsel then filed a petition for
filed the same, make any summary collection of prohibition with the CTA to restrain the
the deficiency income taxes demanded thru collection of the tax.
administrative methods and that the warrant of
distraint and levy as well as the contemplated Will the special civil action for prohibition
sale at public auction of the properties of the brought before the CTA under Sec. 11 of R.A. No.
taxpayer are null and void being as they are in 1125 prosper? Discuss your answer. (2002 BAR)
violation of Sec. 51(d) of the NIRC. (Collector v.
Avelino, G.R. No. L-9202, 19 Nov. 1956) A: NO. The special civil action for prohibition will
not prosper because the CTA has no jurisdiction to
2. Method of collection contrary to law – CTA has entertain the same. The power to issue writ of
ample authority to issue injunctive writs to injunction provided for under Sec. 11 of R.A. No.
restrain the collection of tax and to even 1125 is only ancillary to its appellate jurisdiction.
dispense with the deposit of the amount The CTA is not vested with original jurisdiction to
claimed or the filing of the required bond, issue writs of prohibition or injunction
whenever the method employed by the CIR in independently of and apart from an appealed case.
the collection of tax allegedly jeopardizes the The remedy is to appeal the decision of the BIR.
interests of a taxpayer for being patently in (Collector v. Yuseco, L-12518, 28 Oct. 1961)
violation of the law. (Sps. Pacquiao v. CTA, G.R. Receipt of Evidence
No. 213394, 06 Apr. 2016)
CTA may receive evidence in the following cases:
It would certainly be an absurdity on the part of
the CTA to declare that the collection by the 1. In all cases falling within the original
summary methods of distraint and levy was jurisdiction of the CTA in division pursuant to
violative of the law, and then, on the same Sec. 3, Rule 4 of RRCTA.
breath, require the petitioner to deposit or file
a bond as a pre-requisite of the issuance of a
431
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
2. In appeals in both civil and criminal cases 1. A summary of the invoices or receipts and the
where the court grants new trial pursuant to amount of taxes paid; and
Sec. 2, Rule 53 and Sec. 12, Rule 124 of the ROC.
2. A certification of the independent CPA attesting
Persons Authorized to Receive Evidence to the correctness of the contents of the
summary after making an examination,
1. Justice of the CTA –It may be made motu evaluation and audit of voluminous receipts,
proprio or upon proper motion, when: invoices or long accounts. (Sec. 5, Rule 12,
RRCTA)
a. The determination of a question of fact
arises at any stage of the proceedings; Motion for Reconsideration or New Trial
b. The taking of an account is necessary; or
c. The determination of an issue of fact Any aggrieved party may seek a reconsideration or
requires the examination of a long account. new trial of any decision, resolution or order of the
(Sec. 3, Rule 12, RRCTA) Court within fifteen (15) days from the date he
received notice of the decision, resolution or order
2. Court official of the Court in question. The adverse party may file
an opposition to the MR or MNT within ten (10)
a. Clerk of court; days after receipt of a copy of such MR or MNT.
b. Division clerk of court; (Secs. 1 and 2, Rule 15, RRCTA)
c. their assistants who are members of the
Philippine Bar; and Grounds for Filing Motion for New Trial (F-A-M-
d. Court attorney. (Sec. 4, Rule 12, RRCTA) E-N)
NOTE: The taking of evidence by Court official 1. Fraud, Accident, Mistake or Excusable
applies only in default or ex parte hearings, or negligence which ordinary prudence could not
where the parties agree in writing. have guarded against and by reason of which
such aggrieved party has probably been
It shall be for the sole purpose of marking, impaired in his rights; or
comparison with the original, and identification
by witnesses of such documentary evidence. 2. Newly discovered evidence, which he could not,
with reasonable diligence, have discovered and
The court official has no power to rule on produced at the trial and, which, if presented,
objections to any question or to the admission would probably alter the result.
of exhibits, which objections shall be resolved
by the Court upon submission of his report and NOTE: A motion for new trial shall include all
the transcripts within 10 days from termination grounds then available and those not included shall
of the hearing. (Sec. 4, Rule 12, RRCTA) be deemed waived. (Sec. 5, Rule 15, RRCTA)
Q: How are evidence taken in the proceedings Effect of Filing Motion for Reconsideration or
before the CTA? New Trial
A: In case of voluminous documents or long The filing of MR or MNT shall suspend the running
accounts, the party who desires to introduce in such of the period within which an appeal may be
evidence must, upon motion and approval by the perfected. (Sec. 4, Rule 15, RRCTA)
Court, refer the voluminous documents to an
independent CPA for the purpose of presenting: NOTE: No second MR or MNT shall be allowed. (Sec.
7, Rule 15, RRCTA)
433
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Q: After filing an Information for violation of Sec. of the Philippines and government officials sued in
254 of the NIRC (Attempt to Evade or Defeat Tax) their official capacity in all cases brought to the CTA
with the CTA, the Public Prosecutor manifested in the exercise of its appellate jurisdiction. He may
that the People is reserving the right to file the deputize the legal officers of the BIR in cases
corresponding civil action for the recovery of brought under the NIRC or other laws enforced by
the civil liability for taxes. As counsel for the the BIR, or the legal officers of the BOC in cases
accused, comment on the People's brought under the TCCP or other laws enforced by
manifestation. (2015 BAR) the BOC, to appear on behalf of the officials of said
agencies sued in their official capacity: Provided,
A: I will move for the denial of the manifestation. however, such duly deputized legal officers shall
Any provision of law or the ROC to the contrary remain at all times under the direct control and
notwithstanding, the criminal action and the supervision of the Solicitor General. (Sec. 10, Rule 9,
corresponding civil action for the recovery of civil RRCTA)
liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly 4. APPEAL TO THE CTA EN BANC
determined in the same proceeding by the CTA, the
filing of the criminal action being deemed to
Q: May a decision or resolution of the CTA in
necessarily carry with it the filing of the civil action,
Division be appealable directly to the CTA En
and no right to reserve the filing of such civil action
Banc in its exercise of its exclusive appellate
separately from the criminal action shall be
jurisdiction?
recognized.
435
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Q: The City of Liwliwa assessed local business of procedure (RRCTA) do not sanction such a
taxes against Talin Company. Claiming that procedure.
there is double taxation, Talin Company filed a
Complaint for Refund or Recovery of Illegally The CTA sitting En Banc cannot annul a decision of
and/or Erroneously collected Local Business one of its divisions. The divisions are not considered
Tax; Prohibition with Prayer to Issue separate and distinct courts but are divisions of one
Temporary Restraining Order and Writ of and the same court; there is no hierarchy of courts
Preliminary Injunction with the RTC. The RTC within the Court of Tax Appeals, for they each
denied the application for a Writ of Preliminary remain as one court notwithstanding that they also
Injunction. Since its motion for reconsideration work in divisions. By analogy, the Supreme Court
was denied, Talin Company filed a special civil sitting En Banc is not an appellate court vis-à-vis its
action for certiorari with the CA. The divisions, and it exercises no appellate jurisdiction
government lawyer representing the City of over the latter. Thus, it appears contrary to these
Liwliwa prayed for the dismissal of the petition features that a collegial court, sitting En Banc, may
on the ground that the same should have been be called upon to annul a decision of one of its
filed with the CTA. Talin Company, through its divisions which had become final and executory, for
lawyer, Atty. Frank, countered that the CTA it is tantamount to allowing a court to annul its own
cannot entertain a petition for certiorari since it judgment and acknowledging that a hierarchy exists
is not one of its powers and authorities under within such court. (CIR v. Kepco Ilijan Corporation,
existing laws and rules. Decide. (2014 BAR) G.R. No. 199422, 21 June 2016)
A: The petition for certiorari before the CA must be Q: For the first quarter of 2007, the City of
dismissed, since such petition should have been Manila assessed Cosmos local business taxes
filed with the CTA. As stated in City of Manila v. and regulatory fees in the total amount of
Grecia-Cuerdo, the CTA has the power to determine P1,226,781.05, as contained in the Statement of
whether or not there has been grave abuse of Account dated 15 January 2007. Cosmos
discretion amounting to lack or excess of protested the assessment through a letter dated
jurisdiction on the part of the RTC in issuing 18 January 2007, arguing that Tax Ordinance
interlocutory orders in cases falling within the Nos. 7988 and 801, amending the Revenue Code
CTA’s exclusive appellate jurisdiction. The CTA of Manila (RCM), have been declared null and
therefore has jurisdiction to issue writs of certiorari void. Cosmos received a letter from the City
in such cases. Furthermore, its authority to Treasurer denying their protest. On 8 March
entertain petitions for certiorari questioning 2007, Cosmos filed its complaint with the RTC of
interlocutory orders issued by the RTC is included Manila praying for the refund or issuance of a
in the powers granted by the Constitution and tax credit certificate in the amount of
inherent in the exercise of its appellate jurisdiction. P1,094,786.82. The RTC in its decision ruled in
favor of Cosmos but denied the claim for refund.
Q: Can the CTA En Banc entertain a petition for The petition for review was raffled to the CTA
annulment of a decision of the CTA Division? Division.
A: NO. Annulment of judgment implies power by a The CTA Division essentially ruled that Cosmos
superior court over a subordinate one, as provided Bottling Corporation's (Cosmos) local business
for in Rule 47 of the Rules of Court, wherein the tax liability for the calendar year 2007 shall be
appellate court may annul a decision of the regional computed based on the gross sales or receipts
trial court, or the latter court may annul a decision for the year 2006.
of the municipal or metropolitan trial court. The
laws creating the CTA and expanding its jurisdiction Instead of filing a motion for reconsideration or
(R.A. Nos. 1125 and 9282) and the court’s own rules new trial, the petitioners directly filed with the
437
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Q: Who may file an appeal to the Supreme Court
by petition for review on certiorari? Procedures on Appeal of Decision to the CTA and
Beyond
A: A party adversely affected by a decision or ruling
of the Court En Banc may appeal therefrom by filing
1. Appeal within thirty (30) days from receipt of
with the Supreme Court a verified petition for
decision or period of inaction of the CIR, COC,
review on certiorari within fifteen (15) days from
Secretary of Finance, or the CBAA or the RTC
receipt of a copy of the decision or resolution, as
provided in Rule 45 of the ROC. GR: Appeal to the CTA Division by a petition for
review under Rule 42 within thirty (30) days.
If such party has filed a MR or MNT, the period
herein fixed shall run from the party’s receipt of a XPNs: In case of decisions of the CBAA or RTC
copy of the resolution denying the MR or MNT. (Sec. in the exercise of its appellate jurisdiction,
1, Rule 16, RRCTA) appeal to En Banc by a petition for review under
Rule 43.
Q: Does the CTA have jurisdiction over an action
to collect on a bond used to secure payment of In criminal cases, appeal from the decision of
taxes? the RTC decided in the exercise of its original
jurisdiction is via a notice of appeal filed within
A: NO. An action filed by the BOC against a bonding
fifteen (15) days from the receipt of decision.
company to collect on a bond used to secure
payment of taxes is not a tax collection case but
If the RTC acted in the exercise of its appellate
rather a simple case for enforcement of a
jurisdiction, appeal to the En Banc by a petition
contractual liability. Hence, appellate jurisdiction
for review under Rule 43 within fifteen (15)
over the case properly lies with the CA rather than
days from the receipt of decision.
the CTA. (Phil. British Assurance Co., Inc. v. Republic
of the Phil., G.R. No. 185588, 02 Feb. 2010)
2. In case the decision of the Division was
adverse – file an MR or MNT with the same
Q: Can the SC take cognizance of a petition for
division within fifteen (15) days from the
annulment of a decision of the CTA Division or of
receipt of the decision.
the CTA En Banc?
A: NO. A direct petition for annulment of a judgment NOTE: The MR or the MNT is a condition
of the CTA to the Supreme Court, meanwhile, is precedent before bringing the case to the CTA
unavailing, for the same reason that there is no En Banc. (COC vs. Marina Sales, G.R. No. 183868,
identical remedy with the High Court to annul a final 22 Nov. 2010)
and executory judgment of the Court of Appeals. R.A.
No. 9282, Sec. 1 puts the CTA on the same level as 3. In case the resolution of the Division on the
the Court of Appeals, so that if the latter’s final MR is still adverse – file a petition for review
judgments may not be annulled before the SC, then with the CTA En Banc under Rule 43 within
the CTA’s own decisions similarly may not be so fifteen (15) days from the receipt of the
annulled. And more importantly, annulment of decision. The same rule applies for criminal
judgment is an original action, yet, it is not among cases.
the cases enumerated in the Constitution’s Sec. 5,
Art. VIII over which the SC exercises original 4. In case the decision of the CTA En Banc is still
jurisdiction. Annulment of judgment also often adverse – file an MR before CTA EB or a review
requires an adjudication of facts, a task that the on certiorari with the SC under Rule 45 within
Court loathes to perform, as it is not a trier of facts. fifteen (15) days from receipt of the decision.
(CIR v. Kepco Ilijan Corporation, G.R. No. 199422, 21 (Ingles, 2015)
June 2016)
SCOPE
1. Decisions of the CIR in cases involving:
a. Disputed assessments
b. Refunds of internal revenue taxes, fees or other charges and
penalties imposed thereto
c. Other matters arising under NIRC or other laws (under BIR)
439
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
TCCP, and safeguard measures under R.A. No. 8800, where either
party may appeal the decision to impose or not to impose said
duties.
Criminal Cases Civil Cases
Violations of:
1. NIRC,
2. TCCP, Tax collection cases involving final
3. Other laws administered by and executory assessments for
BIR and BOC taxes, fees, charges, and penalties
Exclusive Original Jurisdiction
where the principal amount of
NOTE: Where the principal taxes and fees, exclusive of charges
amount of taxes and fees, exclusive and penalties claimed is P1M and
of charges and penalties claimed is above.
P1M and above.
Legend:
*Note: The prescriptive period for “assessment” shall be 10 years from the discovery of non-filing or false or
fraudulent return.